UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20182019
☐ | 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.) | |
2200 Rand Building, Buffalo, NY | 14203 | |
(Address of Principal executive offices) | (Zip Code) |
(716)853-0802
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-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, anon-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” inRule 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 inRule 12b-2 of the Act). Yes ☐ No ☑☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
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 |
As of November 5, 2018,August 6, 2019, there were 6,321,988 shares of the registrant’s common stock outstanding.
RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM10-Q
PART I. – FINANCIAL INFORMATION
| ||||||
Item 1. | 1 | |||||
1 | ||||||
2 | ||||||
3 | ||||||
4 | ||||||
Consolidated Schedule of Portfolio Investments as of | 5 | |||||
Consolidated Schedule of Portfolio Investments as of December 31, | 13 | |||||
21 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4. | ||||||
PART II. – OTHER INFORMATION | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
Item 5. | ||||||
Item 6. |
RAND CAPITAL CORPORATION AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 2018 (Unaudited) | December 31, 2017 | |||||||
ASSETS | ||||||||
Investments at fair value: | ||||||||
Control investments (cost of $99,500) | $ | 99,500 | $ | 99,500 | ||||
Affiliate investments (cost of $20,413,709 and $20,871,129, respectively) | 16,728,607 | 17,016,795 | ||||||
NonControl/Non-Affiliate investments (cost of $16,796,433 and $15,718,690, respectively) | 15,344,150 | 15,167,767 | ||||||
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| |||||
Total investments, at fair value (cost of $37,309,642 and $36,689,319, respectively) | 32,172,257 | 32,284,062 | ||||||
Cash and cash equivalents | 4,404,574 | 6,262,039 | ||||||
Interest receivable (net of allowance: $211,342 at 9/30/18; $161,000 at 12/31/17) | 147,934 | 231,048 | ||||||
Deferred tax asset | 772,275 | 551,863 | ||||||
Prepaid income taxes | 1,122,826 | 762,047 | ||||||
Other assets | 38,360 | 42,854 | ||||||
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Total assets | $ | 38,658,226 | $ | 40,133,913 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS) |
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Liabilities: | ||||||||
Debentures guaranteed by the SBA (net of debt issuance costs) | $ | 7,875,723 | $ | 7,855,173 | ||||
Profit sharing and bonus payable | — | 144,000 | ||||||
Accounts payable and accrued expenses | 120,886 | 178,348 | ||||||
Deferred revenue | 73,941 | 37,707 | ||||||
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Total liabilities | 8,070,550 | 8,215,228 | ||||||
Commitments and contingencies (See Note 5) | ||||||||
Stockholders’ equity (net assets): | ||||||||
Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,321,988 | 686,304 | 686,304 | ||||||
Capital in excess of par value | 10,581,789 | 10,581,789 | ||||||
Accumulated net investment loss | (1,643,744 | ) | (1,597,146 | ) | ||||
Undistributed net realized gain on investments | 26,496,804 | 27,215,738 | ||||||
Net unrealized depreciation on investments | (4,064,372 | ) | (3,498,895 | ) | ||||
Treasury stock, at cost: 541,046 shares | (1,469,105 | ) | (1,469,105 | ) | ||||
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| �� |
| |||||
Total stockholders’ equity (net assets) (per share $4.84 at 9/30/18; $5.05 at 12/31/17) | 30,587,676 | 31,918,685 | ||||||
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| |||||
Total liabilities and stockholders’ equity (net assets) | $ | 38,658,226 | $ | 40,133,913 | ||||
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|
|
See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | |||||||||||||
Investment income: | ||||||||||||||||
Interest from portfolio companies: | ||||||||||||||||
Affiliate investments | $ | 192,758 | $ | 142,247 | $ | 515,784 | $ | 416,247 | ||||||||
Non-Control/Non-Affiliate investments | 257,531 | 167,675 | 547,553 | 417,406 | ||||||||||||
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Total interest from portfolio companies | 450,289 | 309,922 | 1,063,337 | 833,653 | ||||||||||||
Interest from other investments: | ||||||||||||||||
Non-Control/Non-Affiliate investments | 7,872 | 6,348 | 20,717 | 24,182 | ||||||||||||
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| |||||||||
Total interest from other investments | 7,872 | 6,348 | 20,717 | 24,182 | ||||||||||||
Dividend and other investment income: | ||||||||||||||||
Affiliate investments | 48,856 | 74,408 | 175,905 | 189,805 | ||||||||||||
Non-Control/Non-Affiliate investments | — | 2,405 | 6,058 | 7,598 | ||||||||||||
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| |||||||||
Total dividend and other investment income | 48,856 | 76,813 | 181,963 | 197,403 | ||||||||||||
Fee income: | ||||||||||||||||
Affiliate investments | 4,042 | 2,166 | 11,625 | 6,250 | ||||||||||||
Non-Control/Non-Affiliate investments | 151,243 | 1,770 | 160,987 | 13,307 | ||||||||||||
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| |||||||||
Total fee income | 155,285 | 3,936 | 172,612 | 19,557 | ||||||||||||
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| |||||||||
Total investment income | 662,302 | 397,019 | 1,438,629 | 1,074,795 | ||||||||||||
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Expenses: | ||||||||||||||||
Salaries | 169,875 | 165,413 | 509,624 | 496,239 | ||||||||||||
Employee benefits | 39,845 | 38,454 | 148,841 | 138,523 | ||||||||||||
Directors’ fees | 28,624 | 36,374 | 92,123 | 107,623 | ||||||||||||
Professional fees | 81,745 | 48,433 | 220,773 | 310,628 | ||||||||||||
Stockholders and office operating | 47,839 | 45,355 | 176,877 | 193,290 | ||||||||||||
Insurance | 8,700 | 8,058 | 27,588 | 25,618 | ||||||||||||
Corporate development | 15,028 | 16,621 | 41,470 | 49,938 | ||||||||||||
Other operating | 4,875 | 2,772 | 9,990 | 8,055 | ||||||||||||
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396,531 | 361,480 | 1,227,286 | 1,329,914 | |||||||||||||
Interest on SBA obligations | 77,568 | 77,568 | 232,406 | 232,706 | ||||||||||||
Bad debt (recovery) expense | (26,299 | ) | — | 50,342 | — | |||||||||||
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| |||||||||
Total expenses | 447,800 | 439,048 | 1,510,034 | 1,562,620 | ||||||||||||
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Net investment gain (loss) before income taxes | 214,502 | (42,029 | ) | (71,405 | ) | (487,825 | ) | |||||||||
Income tax expense (benefit) | 50,003 | (17,050 | ) | (24,807 | ) | (188,961 | ) | |||||||||
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Net investment gain (loss) | 164,499 | (24,979 | ) | (46,598 | ) | (298,864 | ) | |||||||||
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Net realized loss on sales and dispositions of investments: | ||||||||||||||||
Affiliate investments | (1,125,673 | ) | — | (1,125,673 | ) | — | ||||||||||
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Net realized loss before income tax benefit | (1,125,673 | ) | — | (1,125,673 | ) | — | ||||||||||
Income tax benefit | 406,739 | — | 406,739 | — | ||||||||||||
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Net realized loss on investments | (718,934 | ) | — | (718,934 | ) | — | ||||||||||
Change in unrealized depreciation on investments: | ||||||||||||||||
Affiliate investments | 725,673 | — | 169,232 | (665,675 | ) | |||||||||||
Non-Control/Non-Affiliate investments | (249,871 | ) | 111,000 | (901,360 | ) | (322,308 | ) | |||||||||
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Change in unrealized depreciation before income tax expense (benefit) | 475,802 | 111,000 | (732,128 | ) | (987,983 | ) | ||||||||||
Deferred income tax expense (benefit) | 100,669 | 28,090 | (166,651 | ) | (349,960 | ) | ||||||||||
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Net change in unrealized depreciation on investments | 375,133 | 82,910 | (565,477 | ) | (638,023 | ) | ||||||||||
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Net realized and unrealized (loss) gain on investments | (343,801 | ) | 82,910 | (1,284,411 | ) | (638,023 | ) | |||||||||
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Net (decrease) increase in net assets from operations | ($ | 179,302 | ) | $ | 57,931 | ($ | 1,331,009 | ) | ($ | 936,887 | ) | |||||
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Weighted average shares outstanding | 6,321,988 | 6,321,988 | 6,321,988 | 6,321,988 | ||||||||||||
Basic and diluted net (decrease) increase in net assets from operations per share | ($ | 0.03 | ) | $ | 0.01 | ($ | 0.21 | ) | ($ | 0.15 | ) |
See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | |||||||||||||
Net assets at beginning of period | $ | 30,766,978 | $ | 31,634,545 | $ | 31,918,685 | $ | 32,629,363 | ||||||||
Net investment gain (loss) | 164,499 | (24,979 | ) | (46,598 | ) | (298,864 | ) | |||||||||
Net realized loss on investment | (718,934 | ) | — | (718,934 | ) | — | ||||||||||
Net change in unrealized depreciation on investments | 375,133 | 82,910 | (565,477 | ) | (638,023 | ) | ||||||||||
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Net (decrease) increase in net assets from operations | (179,302 | ) | 57,931 | (1,331,009 | ) | (936,887 | ) | |||||||||
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Total (decrease) increase in net assets | (179,302 | ) | 57,931 | (1,331,009 | ) | (936,887 | ) | |||||||||
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Net assets at end of period | $ | 30,587,676 | $ | 31,692,476 | $ | 30,587,676 | $ | 31,692,476 | ||||||||
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Accumulated net investment loss | ($ | 1,643,744 | ) | ($ | 1,876,712 | ) | ($ | 1,643,744 | ) | ($ | 1,876,712 | ) | ||||
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See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net decrease in net assets from operations | ($ | 1,331,009 | ) | ($ | 936,887 | ) | ||
Adjustments to reconcile net decrease in net assets to net cash and cash equivalents used in operating activities: | ||||||||
Investments in portfolio companies | (1,365,000 | ) | (3,900,000 | ) | ||||
Proceeds from loan repayments | 70,131 | — | ||||||
Change in unrealized depreciation on investments | 732,128 | 987,983 | ||||||
Deferred tax benefit | (220,412 | ) | (542,917 | ) | ||||
Realized loss on portfolio investments | 1,125,673 | — | ||||||
Depreciation and amortization | 22,200 | 23,550 | ||||||
Original issue discount amortization | (29,462 | ) | (21,085 | ) | ||||
Non-cash conversion of debenture interest | (421,665 | ) | (262,105 | ) | ||||
Change in interest receivable allowance | 50,342 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease in interest receivable | 32,772 | 121,675 | ||||||
Decrease in other assets | 2,844 | 561,499 | ||||||
Increase in prepaid income taxes | (360,779 | ) | (266,935 | ) | ||||
Decrease in income tax payable | — | (320,008 | ) | |||||
Decrease in accounts payable and accrued expenses | (69,462 | ) | (210,173 | ) | ||||
Decrease in profit sharing and bonus payable | (132,000 | ) | (1,138,052 | ) | ||||
Increase (decrease) in deferred revenue | 36,234 | (3,557 | ) | |||||
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Total adjustments | (526,456 | ) | (4,970,125 | ) | ||||
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Net cash and cash equivalents used in operating activities | (1,857,465 | ) | (5,907,012 | ) | ||||
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Net decrease in cash and cash and cash equivalents | (1,857,465 | ) | (5,907,012 | ) | ||||
Cash and cash equivalents: | ||||||||
Beginning of period | 6,262,039 | 12,280,140 | ||||||
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End of period | $ | 4,404,574 | $ | 6,373,128 | ||||
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June 30, 2019 (Unaudited) | December 31, 2018 | |||||||
ASSETS | ||||||||
Investments at fair value: | ||||||||
Control investments (cost of $0 and $99,500, respectively) | $ | — | $ | 99,500 | ||||
Affiliate investments (cost of $21,313,526 and $20,708,659, respectively) | 18,302,106 | 17,026,091 | ||||||
Non-Control/Non-Affiliate investments (cost of $14,154,010 and $17,483,984, respectively) | 12,939,939 | 17,541,213 | ||||||
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Total investments, at fair value (cost of $35,467,536 and $38,292,143, respectively) | 31,242,045 | 34,666,804 | ||||||
Cash and cash equivalents | 8,646,007 | 4,033,792 | ||||||
Interest receivable (net of allowance of $166,413 and $161,000, respectively) | 119,717 | 145,532 | ||||||
Deferred tax asset | 842,218 | 525,198 | ||||||
Prepaid income taxes | 503,067 | 1,138,708 | ||||||
Other assets | 346,010 | 11,690 | ||||||
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Total assets | $ | 41,699,064 | $ | 40,521,724 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS) |
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Liabilities: | ||||||||
Debentures guaranteed by the SBA (net of debt issuance costs) | $ | 10,768,075 | $ | 8,554,443 | ||||
Profit sharing and bonus payable | — | 125,000 | ||||||
Accounts payable and accrued expenses | 264,529 | 245,758 | ||||||
Deferred revenue | 34,407 | 72,336 | ||||||
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Total liabilities | 11,067,011 | 8,997,537 | ||||||
Commitments and contingencies (See Note 5) | ||||||||
Stockholders’ equity (net assets): | ||||||||
Common stock, $0.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,321,988 as of 6/30/19 and 12/31/18 | 686,304 | 686,304 | ||||||
Capital in excess of par value | 10,581,789 | 10,581,789 | ||||||
Accumulated net investment loss | (1,786,085 | ) | (1,665,552 | ) | ||||
Undistributed net realized gain on investments | 25,920,065 | 26,221,443 | ||||||
Net unrealized depreciation on investments | (3,300,915 | ) | (2,830,692 | ) | ||||
Treasury stock, at cost: 541,046 shares | (1,469,105 | ) | (1,469,105 | ) | ||||
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Total stockholders’ equity (net assets) (per share- 6/30/19: $4.85,12/31/18: $4.99) | 30,632,053 | 31,524,187 | ||||||
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Total liabilities and stockholders’ equity (net assets) | $ | 41,699,064 | $ | 40,521,724 | ||||
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See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||
Investment income: | ||||||||||||||||
Interest from portfolio companies: | ||||||||||||||||
Affiliate investments | $ | 206,036 | $ | 175,990 | $ | 414,751 | $ | 323,026 | ||||||||
Non-Control/Non-Affiliate investments | 109,453 | 139,710 | 306,703 | 290,022 | ||||||||||||
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Total interest from portfolio companies | 315,489 | 315,700 | 721,454 | 613,048 | ||||||||||||
Interest from other investments: | ||||||||||||||||
Non-Control/Non-Affiliate investments | 53,538 | 7,735 | 71,349 | 12,845 | ||||||||||||
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Total interest from other investments | 53,538 | 7,735 | 71,349 | 12,845 | ||||||||||||
Dividend and other investment income: | ||||||||||||||||
Affiliate investments | 207,060 | 76,266 | 241,685 | 127,049 | ||||||||||||
Non-Control/Non-Affiliate investments | — | 2,676 | — | 6,058 | ||||||||||||
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Total dividend and other investment income | 207,060 | 78,942 | 241,685 | 133,107 | ||||||||||||
Fee income: | ||||||||||||||||
Affiliate investments | 3,606 | 4,416 | 7,853 | 7,583 | ||||||||||||
Non-Control/Non-Affiliate investments | 3,353 | 6,725 | 260,075 | 9,744 | ||||||||||||
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Total fee income | 6,959 | 11,141 | 267,928 | 17,327 | ||||||||||||
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Total investment income | 583,046 | 413,518 | 1,302,416 | 776,327 | ||||||||||||
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Expenses: | ||||||||||||||||
Salaries | 181,500 | 169,875 | 363,000 | 339,749 | ||||||||||||
Employee benefits | 40,167 | 45,251 | 103,099 | 108,996 | ||||||||||||
Directors’ fees | 28,624 | 28,624 | 57,248 | 63,499 | ||||||||||||
Professional fees | 111,273 | 37,341 | 337,928 | 139,028 | ||||||||||||
Stockholders and office operating | 319,506 | 64,599 | 380,761 | 129,038 | ||||||||||||
Insurance | 10,969 | 6,900 | 20,570 | 18,888 | ||||||||||||
Corporate development | 14,866 | 10,646 | 33,326 | 26,442 | ||||||||||||
Other operating | 1,225 | 2,424 | 2,809 | 5,115 | ||||||||||||
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708,130 | 365,660 | 1,298,741 | 830,755 | |||||||||||||
Interest on SBA obligations | 110,534 | 77,269 | 209,658 | 154,838 | ||||||||||||
Bad debt expense | 5,413 | 30,741 | 5,413 | 76,641 | ||||||||||||
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Total expenses | 824,077 | 473,670 | 1,513,812 | 1,062,234 | ||||||||||||
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Net investment loss before income taxes | (241,031 | ) | (60,152 | ) | (211,396 | ) | (285,907 | ) | ||||||||
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Income tax benefit | (97,731 | ) | (22,384 | ) | (90,863 | ) | (74,810 | ) | ||||||||
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Net investment loss | (143,300 | ) | (37,768 | ) | (120,533 | ) | (211,097 | ) | ||||||||
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Net realized gain (loss) on sales and dispositions of investments: | ||||||||||||||||
Control investments | 39,893 | — | 80,393 | — | ||||||||||||
Affiliate investments | (472,632 | ) | — | (472,632 | ) | — | ||||||||||
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Net realized gain (loss) on sales and dispositions, before income taxes | (432,739 | ) | — | (392,239 | ) | — | ||||||||||
Income tax benefit | (100,230 | ) | — | (90,861 | ) | — | ||||||||||
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| |||||||||
Net realized loss on sales and dispositions of investments | (332,509 | ) | — | (301,378 | ) | — | ||||||||||
Net change in unrealized depreciation on investments: | ||||||||||||||||
Affiliate investments | (372,448 | ) | (306,441 | ) | 671,148 | (556,441 | ) | |||||||||
Non-Control/Non-Affiliate investments | (750,000 | ) | (450,000 | ) | (1,271,300 | ) | (651,489 | ) | ||||||||
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| |||||||||
Change in unrealized depreciation before income tax benefit | (1,122,448 | ) | (756,441 | ) | (600,152 | ) | (1,207,930 | ) | ||||||||
Deferred income tax benefit | (250,708 | ) | (162,915 | ) | (129,929 | ) | (267,320 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized depreciation on investments | (871,740 | ) | (593,526 | ) | (470,223 | ) | (940,610 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized loss on investments | (1,204,249 | ) | (593,526 | ) | (771,601 | ) | (940,610 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets from operations | ($ | 1,347,549 | ) | ($ | 631,294 | ) | ($ | 892,134 | ) | ($ | 1,151,707 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares outstanding | 6,321,988 | 6,321,988 | 6,321,988 | 6,321,988 | ||||||||||||
Basic and diluted net decrease in net assets from operations per share | ($ | 0.21 | ) | ($ | 0.10 | ) | ($ | 0.14 | ) | ($ | 0.18 | ) |
See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||
Net assets at beginning of period | $ | 31,979,602 | $ | 31,398,272 | $ | 31,524,187 | $ | 31,918,685 | ||||||||
Net investment loss | (143,300 | ) | (37,768 | ) | (120,533 | ) | (211,097 | ) | ||||||||
Net realized loss on sales and dispositions of investments | (332,509 | ) | — | (301,378 | ) | — | ||||||||||
Net change in unrealized depreciation on investments | (871,740 | ) | (593,526 | ) | (470,223 | ) | (940,610 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets from operations | (1,347,549 | ) | (631,294 | ) | (892,134 | ) | (1,151,707 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets at end of period | $ | 30,632,053 | $ | 30,766,978 | $ | 30,632,053 | $ | 30,766,978 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated net investment loss | ($ | 1,786,085 | ) | ($ | 1,808,243 | ) | ($ | 1,786,085 | ) | ($ | 1,808,243 | ) | ||||
|
|
|
|
|
|
|
|
See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net decrease in net assets from operations | ($ | 892,134 | ) | ($ | 1,151,707 | ) | ||
Adjustments to reconcile net decrease in net assets to net cash provided by (used in) operating activities: | ||||||||
Investments in portfolio companies | (900,012 | ) | (1,225,000 | ) | ||||
Proceeds from sale of portfolio investments | 39,893 | — | ||||||
Proceeds from loan repayments | 3,525,000 | 70,131 | ||||||
Net realized loss on portfolio investments | 392,239 | — | ||||||
Change in unrealized depreciation on investments before income taxes | 600,152 | 1,207,930 | ||||||
Deferred tax benefit | (317,020 | ) | (347,040 | ) | ||||
Depreciation and amortization | 18,325 | 14,800 | ||||||
Original issue discount amortization | (20,382 | ) | (19,271 | ) | ||||
Non-cash conversion of debenture interest | (212,131 | ) | (77,154 | ) | ||||
Change in interest receivable allowance | 5,413 | 76,641 | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease in interest receivable | 20,402 | 26,510 | ||||||
Increase in other assets | (334,451 | ) | (14,202 | ) | ||||
Decrease in prepaid income taxes | 635,641 | 21,961 | ||||||
Increase (decrease) in accounts payable and accrued expenses | 18,771 | (21,430 | ) | |||||
Decrease in profit sharing and bonus payable | (125,000 | ) | (132,000 | ) | ||||
(Decrease) increase in deferred revenue | (37,928 | ) | 28,173 | |||||
|
|
|
| |||||
Total adjustments | 3,308,912 | (389,951 | ) | |||||
|
|
|
| |||||
Net cash provided by (used in) operating activities | 2,416,778 | (1,541,658 | ) | |||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Proceeds from SBA debentures | 2,250,000 | — | ||||||
Origination costs to SBA | (54,563 | ) | — | |||||
|
|
|
| |||||
Net cash provided by financing activities | 2,195,437 | — | ||||||
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents | 4,612,215 | (1,541,658 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of period | 4,033,792 | 6,262,039 | ||||||
|
|
|
| |||||
End of period | $ | 8,646,007 | $ | 4,720,381 | ||||
|
|
|
|
See accompanying notes
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
SeptemberJune 30, 20182019
(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 – 50.2% of net assets: (j) | ||||||||||||||||
ACV Auctions, Inc. (e)(g) | 1,181,160 Series A Preferred | 8/12/16 | <1% | 0.9% | ||||||||||||
Buffalo, NY. Live mobile wholesale auctions for new | shares. | $163,000 | $282,356 | |||||||||||||
and used car dealers. (Software) www.acvauctions.com | ||||||||||||||||
Centivo Corporation (e)(g) | 190,967 SeriesA-1 Preferred | 7/5/17 | <1% | 1.0% | ||||||||||||
New York, NY. Tech-enabled health solutions | shares. | 200,000 | 200,000 | |||||||||||||
company that helps self-insured employers and their | 337,808 SeriesA-2 Preferred | |||||||||||||||
employees save money and have a better experience. | shares. | 101,342 | 101,342 | |||||||||||||
(Health Care) | Total Centivo | 301,342 | 301,342 | |||||||||||||
www.centivo.com | ||||||||||||||||
eHealth Global Technologies, Inc. (g) | $3,500,000 Replacement Term | 6/28/16 | 0% | 11.5% | ||||||||||||
Henrietta, NY. eHealth Connect® improves health | Note at 13% due December 31, 2020. | 3,500,000 | 3,500,000 | |||||||||||||
care delivery through intelligently aggregated clinical record and images for patient referrals. | ||||||||||||||||
(Health Care) www.ehealthtechnologies.com | ||||||||||||||||
Empire Genomics, LLC (g)(m) | $1,209,014 Senior Secured | 6/13/14 | 0% | 2.3% | ||||||||||||
Buffalo, NY. Molecular diagnostics company that | Convertible Term Notes at 10% | |||||||||||||||
offers a comprehensive menu of assay services for | (8% Payment in Kind (PIK)) due | |||||||||||||||
diagnosing and guiding patient therapeutic treatments. | December 31, 2020. | 1,209,014 | 450,000 | |||||||||||||
(Health Care) | $444,916 Promissory Note at 9% | |||||||||||||||
www.empiregenomics.com | due December 31, 2020. | 394,915 | 252,569 | |||||||||||||
Total Empire | 1,603,929 | 702,569 | ||||||||||||||
GiveGab, Inc. (e)(g) | 5,084,329 Series Seed Preferred | 3/13/13 | 4% | 2.0% | ||||||||||||
Ithaca, NY. Online fundraising, day of giving | shares. | 616,221 | 616,221 | |||||||||||||
supporter engagement software for non-profit | ||||||||||||||||
organizations. (Software) | ||||||||||||||||
www.givegab.com | ||||||||||||||||
GoNoodle, Inc. (g)(m) | $1,000,000 Secured Note at 12% | 2/6/15 | <1% | 3.4% | ||||||||||||
Nashville, TN. Student engagement education | due January 31, 2020, (1% | |||||||||||||||
software providing core aligned physical activity | Payment in Kind (PIK)). | 1,037,070 | 1,037,070 | |||||||||||||
breaks. (Software) | Warrant for 47,324 Series C | |||||||||||||||
www.gonoodle.com | Preferred shares. | 25 | 25 | |||||||||||||
Total GoNoodle | 1,037,095 | 1,037,095 | ||||||||||||||
Mercantile Adjustment Bureau, LLC (g) | $1,199,039 Subordinated Secured | 10/22/12 | 4% | 3.1% | ||||||||||||
Williamsville, NY. Full service accounts receivable | Note at 13% (3% for the calendar | |||||||||||||||
management and collections company. (Contact | year 2018) due January 31, 2019. | 1,199,040 | 949,040 | |||||||||||||
Center) www.mercantilesolutions.com | (e)$150,000 Subordinated | |||||||||||||||
Debenture at 8% due June 30, | ||||||||||||||||
2018. | 150,000 | - | ||||||||||||||
Warrant for 3.29% Membership | ||||||||||||||||
Interests. Option for 1.5% | ||||||||||||||||
Membership Interests. | 97,625 | - | ||||||||||||||
(i)Interest receivable $51,761. | ||||||||||||||||
Total Mercantile | 1,446,665 | 949,040 | ||||||||||||||
Outmatch Holdings, LLC (e)(g) | 2,745,545 Class P1 Units. | 11/18/10 | 4% | 2,140,007 | 2,140,007 | 7.0% | ||||||||||
(Chequed Holdings, LLC) | 109,788 Class C1 Units. | 5,489 | 5,489 | |||||||||||||
Dallas, TX. Web based predictive employee selection | Total Outmatch | 2,145,496 | 2,145,496 | |||||||||||||
and reference checking. (Software) | ||||||||||||||||
www.outmatch.com | ||||||||||||||||
PostProcess Technologies LLC (e)(g) | $300,000 Convertible Promissory | 7/25/16 | 0% | 1.0% | ||||||||||||
Buffalo, NY. Provides innovative solutions for the | Note at 5% due July 28, 2020. | 300,000 | 300,000 | |||||||||||||
post-processing of additive manufactured 3D parts. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.postprocess.com |
Company, Geographic Location, Business Description, (Industry) and Website | (a) Type of Investment | (b) Date Acquired | (c)
Equity | Cost | (d)(f) Fair Value | Percent | ||||||||||||
Non-Control/Non-Affiliate Investments – 42.3% of net assets: (j) | ||||||||||||||||||
ACV Auctions, Inc. (e)(g) Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) www.acvauctions.com | 1,181,160 Series A Preferred. | 8/12/16 | <1% | $ | 163,000 | $ | 2,776,907 | 9.1% | ||||||||||
Advantage 24/7 LLC (g)(h) Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com | $140,000 Term Note at 7% due January 1, 2022. | 12/30/10 | 0% | | 115,000 |
| | 115,000 |
| 0.4% | ||||||||
Centivo Corporation (e)(g) New York, NY. Tech-enabled health solutions company that helps self-insured employers and their employees save money and have a better experience. (Health Care) www.centivo.com | 190,967 SeriesA-1 Preferred. 337,808 SeriesA-2 Preferred. Total Centivo | 7/5/17 | <1% | | 200,000 101,342 301,342 |
| | 200,000 101,342 301,342 |
| 1.0% | ||||||||
Empire Genomics, LLC (g)(l) 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 | $1,209,014 Senior Secured Convertible Term Notes at 10% (8% PIK through September 30, 2019) due December 31, 2020. $444,915 Promissory Note at 9% (4% PIK) due December 31, 2020. Total Empire | 6/13/14 | 0% |
|
1,283,016
444,915 1,727,931 |
|
|
524,002
302,569 826,571 |
| 2.7% | ||||||||
GiveGab, Inc. (e)(g) Ithaca, NY. Online fundraising, day of giving supporter engagement software fornon-profit organizations. (Software) www.givegab.com | 5,084,329 Series Seed Preferred. | 3/13/13 | 4% | 616,221 | 616,221 | 2.0% | ||||||||||||
GoNoodle, Inc. (g)(l) Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software) www.gonoodle.com | $1,000,000 Secured Note at 12% due January 31, 2020, (1% PIK). Warrant for 47,324 Series C Preferred. Total GoNoodle | 2/6/15 | <1% | | 1,044,868
25 1,044,893 |
| | 1,044,868
25 1,044,893 |
| 3.4% | ||||||||
Mercantile Adjustment Bureau, LLC (g) Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center) www.mercantilesolutions.com | $1,199,039 Subordinated Secured Note at 13% (3% for the calendar year 2019) due January 31, 2020. (e)$150,000 Subordinated Debenture at 8% due June 30, 2018. Warrant for 3.29% Membership Interests. Option for 1.5% Membership Interests. Total Mercantile | 10/22/12 | 4% |
|
1,199,040
150,000
97,625 1,446,665 |
|
|
500,000
-
- 500,000 |
| 1.7% | ||||||||
Outmatch Holdings, LLC (e)(g) (Chequed Holdings, LLC) Dallas, TX. Web based predictive employee selection and reference checking. (Software) www.outmatch.com | 2,908,686.55 Class P1 Units. 109,788 Class C1 Units. Total Outmatch | 11/18/10 | 4% | | 2,140,007 5,489 2,145,496 |
| | 2,140,007 5,489 2,145,496 |
| 7.0% | ||||||||
PostProcess Technologies LLC (e)(g) Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com | $300,000 Convertible Promissory Note at 5% due July 28, 2020. | 7/25/16 | 0% | | 300,000 |
| | 300,000 |
| 1.0% |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (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 | ||||||||||||
Rheonix, Inc. (e) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com | 9,676 Common. (g)1,839,422 Series A Preferred. (g) 50,593 Common. (g) 589,420 Series B Preferred. Total Rheonix | 10/29/09 | 4% | | - 2,099,999 - 702,732 2,802,731 |
| | - 1,500,000 - 702,732 2,202,732 |
| 7.1% | ||||||||
SocialFlow, Inc. (e)(g) New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software) www.socialflow.com | 1,049,538 Series B Preferred. 1,204,819 SeriesB-1 Preferred. 717,772 Series C Preferred. Total Social Flow | 4/5/13 | 4% | | 500,000 750,000 500,000 1,750,000 |
| | 279,156 433,735 287,109 1,000,000 |
| 3.3% | ||||||||
Somerset Gas Transmission Company, LLC (e) Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com | 26.5337 Units. | 7/10/02 | 3% | 719,097 | 500,000 | 1.6% | ||||||||||||
Tech 2000, Inc. (g) Herndon, VA. Develops and delivers IT training. (Software) www.t2000inc.com | $600,000 Term Note at 14% due November 15, 2021. | 11/16/18 | 0% | | 610,777 |
| | 610,777 |
| 2.0% | ||||||||
OtherNon-Control/Non-Affiliate Investments: | ||||||||||||||||||
DataView, LLC (e) (Software) | Membership Interest. | 10/1/98 | 5% | 310,357 | - | 0.0% | ||||||||||||
UStec/Wi3 (e) (Manufacturing) | Common stock. | 12/17/98 | <1% | 100,500 | - | 0.0% | ||||||||||||
|
|
| ||||||||||||||||
SubtotalNon-Control/Non-Affiliate Investments | $14,154,010 | $12,939,939 | ||||||||||||||||
|
|
| ||||||||||||||||
Affiliate Investments – 59.7% of net assets (k) | ||||||||||||||||||
BeetNPath, LLC (Grainful) (e)(g) Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product) www.grainful.com | 1,119,024 SeriesA-2 Preferred Membership Units. 1,032,918 Series B Preferred Membership Units. $262,626.64 Convertible Secured Notes at 8% due December 21, 2019. Total BeetNPath | 10/20/14 | 9% | | $359,000
261,277
262,627 882,904 |
| | $-
-
- - |
| 0.0% | ||||||||
Carolina Skiff LLC (g) Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com | 6.0825% Class A Common Membership Interest. | 1/30/04 | 7% | | 15,000 |
| | 1,750,000 |
| 5.7% | ||||||||
ClearView Social, Inc. (e)(g) Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software) www.clearviewsocial.com | 312,500 Series Seed Plus Preferred. | 1/4/16 | 6% | 200,000 | 200,000 | 0.7% | ||||||||||||
First Wave Technologies, Inc. (e)(g) Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds pills for nursing homes and medical institutions. (Health Care) www.firstwavetechnologies.com | 670,443.2 Class A Common. | 4/19/12 | 5% | 661,563 | 33,000 | 0.1% | ||||||||||||
Genicon, Inc. (e)(g)(l) Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care) www.geniconendo.com | 1,586,902 Series B Preferred. $3,250,000 Promissory Notes at 10% due June 12, 2022, (10% PIK). $250,000 Promissory Note at 10% due June 12, 2021 (10% PIK). Warrants for Common. Total Genicon | 4/10/15 | 6% | | 1,000,000
3,552,076
251,319 120,000 4,923,395 |
| | 500,000
3,336,996
251,319 - 4,088,315 |
| 13.4% |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (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 | |||||||||||
Knoa Software, Inc. (e)(g) New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software) www.knoa.com | 973,533 SeriesA-1 Convertible Preferred. 1,876,922 Series B Preferred. Total Knoa | 11/20/12 | 7% | | 750,000 479,155 1,229,155 |
| | 750,000 479,155 1,229,155 |
| 4.0% | ||||||||
KnowledgeVision Systems, Inc. (g) Lincoln, MA. Online presentation and training software. (Software) www.knowledgevision.com | 200,000 SeriesA-1 Preferred. 214,285 SeriesA-2 Preferred. 129,033 SeriesA-3 Preferred. Warrant for 46,743 SeriesA-3. (e) $75,000 Subordinated Promissory Notes at 8% payable on demand of majority of holders after August 31, 2019. $900,000 Term Note at 13% due April 30, 2021. Total KnowledgeVision | 11/13/13 | 7% | | 250,000 300,000 165,001 35,000
75,000
900,000 1,725,001 |
| | - - 165,001 35,000
75,000
900,000 1,175,001 |
| 3.8% | ||||||||
Mezmeriz, Inc. (e)(g) Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer) www.mezmeriz.com | 1,554,565 Series Seed Preferred. | 1/9/08 | 12% | 742,850 | 351,477 | 1.1% | ||||||||||||
Microcision LLC (g)(l) Pennsauken Township, NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing) www.microcision.com | $1,500,000 Subordinated Promissory Note at 12% (1% PIK) due December 31, 2024. 15% Class A Common Membership Interest. Total Microcision | 9/24/09 | 15% | |
1,943,031
- 1,943,031 |
| |
1,943,031
610,000 2,553,031 |
| 8.3% | ||||||||
New Monarch Machine Tool, Inc. (g) Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing) www.monarchmt.com | 22.84 Common. | 9/24/03 | 15% | 22,841 | 22,841 | 0.1% | ||||||||||||
OnCore Golf Technology, Inc. (e)(g) Buffalo, NY. Patented and Proprietary Golf Balls utilizing breakthrough technology and innovation, inspiring golfers at all skill levels and abilities. (Consumer Product) www.oncoregolf.com | 300,483 Preferred AA. | 12/31/14 | 8% | 752,712 | 300,000 | 1.0% | ||||||||||||
SciAps, Inc. (e)(g) Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing) www.sciaps.com | 187,500 Series A Preferred. 274,299 SeriesA-1 Convertible Preferred. 117,371 Series B Convertible Preferred. 113,636 Series C Convertible Preferred. 369,698 SeriesC-1 Convertible Preferred. 147,059 Series D Convertible Preferred. Total SciAps | 7/12/13 | 6% | | 1,500,000 504,710 250,000 175,000 399,274 250,000 3,078,984 |
| | 423,000 142,000 250,000 175,000 399,274 250,000 1,639,274 |
| 5.4% | ||||||||
Teleservices Solutions Holdings, LLC (e) (g)(l) Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center) www.ipacesetters.com | 250,000 Class B Preferred Units. 1,000,000 Class C Preferred Units. 80,000 Class D Preferred Units. 104,198 Class E Preferred Units. PIK dividend for Series C and D at 12% and 14%, respectively. Total Teleservices | 5/30/14 | 6% | | 250,000 1,190,680 91,200 104,198
1,636,078 |
|
| - - - -
- |
| 0.0% |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (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 | ||||||||||||||||
Tilson Technology Management, Inc. (g) | 120,000 Series B Preferred. | 1/20/15 | 9% | 600,000 | 1,950,000 | 16.1% | ||||||||||||||||
Portland, ME. Provides network deployment | 21,391 Series C Preferred. | 200,000 | 347,604 | |||||||||||||||||||
construction and information system services | 70,176 Series D Preferred. | 800,000 | 1,140,360 | |||||||||||||||||||
management for Cellular, fiber optic and wireless | 15,385 Series E Preferred. | 500,012 | 500,012 | |||||||||||||||||||
systems providers. Its affiliated entity, SQF, LLC | 211,567 SQF Hold Co. Common. | - | 22,036 | |||||||||||||||||||
is a CLEC supporting small cell 5G deployment. (Professional Services) | $800,000 Subordinated Promissory Notes at 8% due December 1, 2022. | 800,000 | 800,000 | |||||||||||||||||||
www.tilsontech.com | $200,000 Subordinated Promissory Note at 8% due September 28, 2021. | 200,000 | 200,000 | |||||||||||||||||||
Total Tilson | 3,100,012 | 4,960,012 | ||||||||||||||||||||
Other Affiliate Investments: | ||||||||||||||||||||||
G-TEC Natural Gas Systems(e) (Manufacturing) | Membership Interest | 8/31/99 | 17% | 400,000 | - | 0.0% | ||||||||||||||||
Subtotal Affiliate Investments |
$
|
21,313,526
|
|
| $18,302,106
|
| ||||||||||||||||
TOTAL INVESTMENTS – 102% | $ | 35,467,536 | $31,242,045 | |||||||||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS – (2%) | (609,992) | |||||||||||||||||||||
|
|
| ||||||||||||||||||||
NET ASSETS – 100% | $30,632,053 | |||||||||||||||||||||
|
|
|
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
SeptemberJune 30, 2018 (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 | ||||||||||
Rheonix, Inc. (e) | 9,676 Common shares. | 10/29/09 | 4% | - | 11,000 | 9.6% | ||||||||||
Ithaca, NY. Developer of fully automated | (g)1,839,422 Series A preferred | |||||||||||||||
microfluidic based molecular assay and diagnostic | shares. | 2,099,999 | 2,165,999 | |||||||||||||
testing devices. (Health Care) | (g)50,593 Common shares. | - | 59,000 | |||||||||||||
www.rheonix.com | (g)589,420 Series B Preferred shares. | 702,732 | 702,732 | |||||||||||||
Total Rheonix | 2,802,731 | 2,938,731 | ||||||||||||||
SocialFlow, Inc. (e)(g) | 1,049,538 Series B Preferred shares. | 4/5/13 | 4% | 500,000 | 731,431 | 6.8% | ||||||||||
New York, NY. Provides instant analysis of social | 1,204,819 Series B-1 Preferred shares. | 750,000 | 839,648 | |||||||||||||
networks using a proprietary, predictive analytic | 717,772 Series C Preferred shares. | 500,000 | 500,221 | |||||||||||||
algorithm to optimize advertising and publishing. | Total Social Flow | 1,750,000 | 2,071,300 | |||||||||||||
(Software) | ||||||||||||||||
www.socialflow.com | ||||||||||||||||
Somerset Gas Transmission Company, LLC (e) | 26.5337 Units. | 7/10/02 | 3% | 719,097 | 500,000 | 1.6% | ||||||||||
Columbus, OH. Natural gas transportation. | ||||||||||||||||
(Oil and Gas) | ||||||||||||||||
www.somersetgas.com | ||||||||||||||||
Other Non-Control/Non-Affiliate Investments: | ||||||||||||||||
DataView, LLC(Software) (e) | Membership Interest. | - | - | 310,357 | - | 0.0% | ||||||||||
UStec/Wi3(Manufacturing) (e) | Common stock. | - | - | 100,500 | - | 0.0% | ||||||||||
Subtotal Non-Control/Non-Affiliate Investments | ||||||||||||||||
$16,796,433 | $15,344,150 | |||||||||||||||
Affiliate Investments – 54.7% of net assets (k) | ||||||||||||||||
BeetNPath, LLC (Grainful) (e)(g) | 1,119,024 Series A-2 Preferred | 10/20/14 | 9% | 2.6% | ||||||||||||
Ithaca, NY. Frozen entrées made from 100% | Membership Units. | $359,000 | $359,000 | |||||||||||||
whole grain steel cut oats under Grainful brand | 1,032,918 Series B Preferred | |||||||||||||||
name. (Consumer Product) | Membership Units. | 261,277 | 291,000 | |||||||||||||
www.grainful.com | $140,000 Convertible Secured Note at | |||||||||||||||
8% due December 21, 2019 | 140,000 | 140,000 | ||||||||||||||
Total BeetNPath | 760,277 | 790,000 | ||||||||||||||
Carolina Skiff LLC (g) | 6.0825% Class A Common | 1/30/04 | 7% | 5.8% | ||||||||||||
Waycross, GA. Manufacturer of ocean fishing and | Membership Interest. | 15,000 | 1,750,000 | |||||||||||||
pleasure boats. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.carolinaskiff.com | ||||||||||||||||
ClearView Social, Inc. (e)(g) | 312,500 Series Seed Plus Preferred | 1/4/16 | 6% | 0.6% | ||||||||||||
Buffalo, NY. Social media publishing tool for law, | shares. | 200,000 | 200,000 | |||||||||||||
CPA and professional firms. (Software) | ||||||||||||||||
www.clearviewsocial.com | ||||||||||||||||
First Wave Products Group, LLC (e)(g) | $500,000 Senior Term Notes at 10% | 4/19/12 | 7% | 0.0% | ||||||||||||
Batavia, NY. Sells First Crush automated pill | due July 31, 2017. | 661,563 | - | |||||||||||||
crusher that crushes and grinds pills for nursing | $280,000 Junior Term Notes at 10% | |||||||||||||||
homes and medical institutions. (Health Care) | due July 31, 2017. | 316,469 | - | |||||||||||||
www.firstwaveproducts.com | Warrant for 41,619 Capital Securities. | 22,000 | - | |||||||||||||
Total First Wave | 1,000,032 | - |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2018 (Continued)
(Unaudited)
(b) | (c) | (d)(f) | Percent | |||||||||||||
Company, Geographic Location, Business | (a) | Date | Fair | of Net | ||||||||||||
Description, (Industry) and Website | Type of Investment | Acquired | Equity | Cost | Value | Assets | ||||||||||
Genicon, Inc. (g) (m) | 1,586,902 Series B Preferred shares. | 4/10/15 | 6% | 1,000,000 | 1,000,000 | 13.7% | ||||||||||
Winter Park, FL. Designs, produces and | $3,000,000 Promissory Notes at 10% | |||||||||||||||
distributes patented surgical instrumentation. | due May 1, 2020, (8% Payment in Kind | |||||||||||||||
(Health Care) | (PIK)). | 3,057,327 | 3,057,327 | |||||||||||||
www.geniconendo.com | Warrant for 250,000 Common shares. | 80,000 | 80,000 | |||||||||||||
Warrant for 125,000 Common shares. | 40,000 | 40,000 | ||||||||||||||
Total Genicon | 4,177,327 | 4,177,327 | ||||||||||||||
G-TEC Natural Gas Systems (e) | 16.639% Class A Membership Interest. | 8/31/99 | 17% | 0.3% | ||||||||||||
Buffalo, NY. Manufactures and distributes | 8% cumulative dividend. | 400,000 | 100,000 | |||||||||||||
systems that allow natural gas to be used as an | ||||||||||||||||
alternative fuel to gases. (Manufacturing) | ||||||||||||||||
www.gas-tec.com | ||||||||||||||||
Knoa Software, Inc. (e)(g)(h) | 973,533 Series A-1 Convertible | 11/20/12 | 7% | 4.0% | ||||||||||||
New York, NY. End user experience | Preferred shares. | 750,000 | 750,000 | |||||||||||||
management and performance (EMP) solutions | 1,876,922 Series B Preferred shares. | 479,155 | 479,155 | |||||||||||||
utilizing enterprise applications. (Software) | Total Knoa | 1,229,155 | 1,229,155 | |||||||||||||
www.knoa.com | ||||||||||||||||
KnowledgeVision Systems, Inc. (g) | 200,000 Series A-1 Preferred shares. | 11/13/13 | 7% | 250,000 | - | 4.3% | ||||||||||
Lincoln, MA. Online presentation and training | 214,285 Series A-2 Preferred shares. | 300,000 | 300,000 | |||||||||||||
software. (Software) | 129,033 Series A-3 Preferred shares. | 165,001 | 165,001 | |||||||||||||
www.knowledgevision.com | Warrant for 46,743 Series A-3 shares. | 35,000 | 35,000 | |||||||||||||
$75,000 Subordinated Promissory Notes | ||||||||||||||||
at 8% payable on demand of majority of | ||||||||||||||||
holders after August 31, 2019.(e) | 75,000 | 75,000 | ||||||||||||||
$750,000 Replacement Term Note at | ||||||||||||||||
11% due April 30, 2021. | 750,000 | 750,000 | ||||||||||||||
Total KnowledgeVision | 1,575,001 | 1,325,001 | ||||||||||||||
Mezmeriz, Inc. (e)(g) | 1,554,565 Series Seed Preferred shares. | 1/9/08 | 14% | 742,850 | 351,477 | 1.1% | ||||||||||
Ithaca, NY. Micro-electronic mechanical systems | ||||||||||||||||
(MEMS) developer of carbon fiber MEMS mirror | ||||||||||||||||
modules for gesture recognition and 3D scanning. | ||||||||||||||||
(Electronics Developer) | ||||||||||||||||
www.mezmeriz.com | ||||||||||||||||
Microcision LLC (g)(m) | $1,500,000 Subordinated Promissory | 9/24/09 | 15% | 6.3% | ||||||||||||
Pennsauken Township, NJ. Manufacturer of | Note at 12% (1% Payment in Kind | |||||||||||||||
precision machined medical implants, | (PIK)) due December 31, 2024. | 1,928,532 | 1,928,532 | |||||||||||||
components and assemblies. (Manufacturing) | 15% Class A Common Membership | |||||||||||||||
www.microcision.com | Interest. | - | - | |||||||||||||
Total Microcision | 1,928,532 | 1,928,532 | ||||||||||||||
New Monarch Machine Tool, Inc. (g) | 22.84 Common shares. | 9/24/03 | 15% | 22,841 | 22,841 | 0.1% | ||||||||||
Cortland, NY. Manufactures and services | ||||||||||||||||
vertical/horizontal machining centers. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.monarchmt.com | ||||||||||||||||
OnCore Golf Technology, Inc. (e)(g) | 150,000 Series AA Preferred shares. | 12/31/14 | 9% | 375,000 | - | 1.0% | ||||||||||
Buffalo, NY. Maker of patented golf balls. | $300,000 Subordinated Convertible | |||||||||||||||
(Consumer Product) | Promissory Notes at 10% due January | |||||||||||||||
www.oncoregolf.com | 24, 2018. | 300,000 | 300,000 | |||||||||||||
(i)Interest receivable $50,342. | ||||||||||||||||
Total OnCore | 675,000 | 300,000 |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2018 (Continued)
(Unaudited)
(a) | (b) | (c) | (d)(f) | Percent | ||||||||||
Company, Geographic Location, Business | Date | Fair | of Net | |||||||||||
Description, (Industry) and Website | Type of Investment | Acquired | Equity | Cost | Value | Assets | ||||||||
SciAps, Inc. (e)(g) | 187,500 Series A Preferred shares. | 7/12/13 | 6% | 1,500,000 | 700,000 | 6.6% | ||||||||
Woburn, MA. Instrumentation company producing | 274,299 Series A-1 Convertible | |||||||||||||
portable analytical devices using XRF, LIBS and | Preferred shares. | 504,710 | 250,000 | |||||||||||
RAMAN spectroscopy to identify compounds, | 117,371 Series B Convertible | |||||||||||||
minerals, and elements. (Manufacturing) | Preferred shares. | 250,000 | 250,000 | |||||||||||
www.sciaps.com | 113,636 Series C Convertible | |||||||||||||
Preferred shares. | 175,000 | 175,000 | ||||||||||||
369,698 Series C-1 Convertible | ||||||||||||||
Preferred shares. | 399,274 | 399,274 | ||||||||||||
147,059 Series D Convertible | ||||||||||||||
Preferred shares. | 250,000 | 250,000 | ||||||||||||
Total SciAps | 3,078,984 | 2,024,274 | ||||||||||||
SOMS Technologies, LLC (e)(g) | 5,959,490 Series B Membership | 12/2/08 | 9% | 0.1% | ||||||||||
Valhalla, NY. Produces and markets the | Interests. | 472,632 | 30,000 | |||||||||||
microGreen Extended Performance Oil Filter. | ||||||||||||||
(Consumer Products) | ||||||||||||||
www.microgreenfilter.com | ||||||||||||||
Teleservices Solutions Holdings, LLC (e) (g)(m) | 250,000 Class B Preferred Units. | 5/30/14 | 6% | 250,000 | - | 0.0% | ||||||||
Montvale, NJ. Customer contact center | 1,000,000 Class C Preferred Units. | 1,190,680 | - | |||||||||||
specializing in customer acquisition and retention | 80,000 Class D Preferred Units. | 91,200 | - | |||||||||||
for selected industries. (Contact Center) | 104,198 Class E Preferred Units. | 104,198 | - | |||||||||||
www.ipacesetters.com | PIK dividend for Series C and D at | |||||||||||||
12% and 14%, respectively. | ||||||||||||||
Total Teleservices | 1,636,078 | - | ||||||||||||
Tilson Technology Management, Inc. (g) | 120,000 Series B Preferred shares. | 1/20/15 | 11% | 600,000 | 600,000 | 8.2% | ||||||||
Portland, ME. Cellular, fiber optic and wireless | 21,391 Series C Convertible Preferred | |||||||||||||
information systems, construction, and | shares. | 200,000 | 200,000 | |||||||||||
management. (Professional Services) | 65,790 Series D Preferred shares. | 750,000 | 750,000 | |||||||||||
www.tilsontech.com | $750,000 Subordinated Promissory | |||||||||||||
Note at 8% due December 1, 2022. | 750,000 | 750,000 | ||||||||||||
$200,000 Subordinated Promissory | ||||||||||||||
Note at 8% due September 28, 2021. | 200,000 | 200,000 | ||||||||||||
Total Tilson | 2,500,000 | 2,500,000 | ||||||||||||
Subtotal Affiliate Investments | $20,413,709 | $16,728,607 | ||||||||||||
Control Investments – 0.3% of net assets (l) | ||||||||||||||
Advantage 24/7 LLC (e)(g) | 45% Membership Interest. | 12/30/10 | 45% | $99,500 | $99,500 | 0.3% | ||||||||
Williamsville, NY. Marketing program for wine | ||||||||||||||
and spirits dealers. (Marketing Company) | ||||||||||||||
www.advantage24-7.com | ||||||||||||||
Subtotal Control Investments |
$99,500 | $99,500 | ||||||||||||
TOTAL INVESTMENTS –105.2% | $37,309,642 | $32,172,257 | ||||||||||||
OTHER ASSETS IN EXCESS OF LIABILITIES – (5.2%) | (1,584,581) | |||||||||||||
NET ASSETS – 100% | $30,587,676 | |||||||||||||
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 20182019 (Continued)
(Unaudited)
Notes to the Consolidated Schedule of Portfolio Investments
(a) At SeptemberJune 30, 2018,2019, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in form of shares unless otherwise noted as units or interests, i.e., preferred shares, common shares.
(b) The Date Acquired column indicates the date in which the Corporation first acquired an investment in the company or a predecessor company.
(c) Each equity percentage estimates the Corporation’s ownership interest in the applicable portfolio investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion of debentures, or other available data. If applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.
(d) The Corporation’s investments are carried at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures,” which defines fair value and establishes guidelines for measuring fair value. At SeptemberJune 30, 2019, ASC 820 designates 100% of the Corporation’s investments as “Level 3” assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 3. “Investments” to the Consolidated Financial Statements).
(e) These investments arenon-income producing. All other investments are income producing.Non-income producing investments have not generated cash payments of interest or dividends including LLCtax-related distributions within the last twelve months, or are not expected to do so going forward. However, if a debt or a preferred equity fails to make its most recent payment, then the investment will also be classified asnon-income producing.
(f) As of June 30, 2019, the total cost of investment securities was approximately $35.5 million. Net unrealized depreciation was approximately ($4.2) million, which was comprised of $6.8 million of unrealized appreciation of investment securities and ($11.0) million of unrealized depreciation of investment securities. At June 30, 2019, the aggregate gross unrealized gain for federal income tax purposes was $6.4 million and the aggregate gross unrealized loss for federal income tax purposes was ($7.6) million. The net unrealized loss for federal income tax purposes was ($1.2) million based on a tax cost of $32.9 million.
(g) Rand Capital SBIC, Inc. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal repayment.
(i) Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporation’s Consolidated Statements of Financial Position. (None at June 30, 2019)
(j)Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
(k) Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as thoseNon-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.
(l) Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (Continued)
(Unaudited)
Investments in and Advances to Affiliates
Company
| Type of Investment
| December 31, 2018
| Gross
| Gross
| June 30,
| Net
| Amount Dividend/ Fee | |||||||||||||||||||
Control Investments: | ||||||||||||||||||||||||||
Advantage 24/7 LLC | $140,000 Term Note at 7%. | $99,500 | $- | ($99,500) | $- | $40,500 | $- | |||||||||||||||||||
Gemcor II, LLC | - | - | - | - | 39,893 | - | ||||||||||||||||||||
Total Control Investments | $99,500 | $- | ($99,500) | $- | $80,393 | $- | ||||||||||||||||||||
Affiliate Investments: BeetNPath, LLC | 1,119,024 SeriesA-2 Preferred Membership Units. | $ - | $ - | $ - | $ - | $ - | $- | |||||||||||||||||||
1,032,918 Series B Preferred Membership Units. | 261,277 | - | (261,277 | ) | - | - | - | |||||||||||||||||||
$262,626.64 Convertible Secured Notes at 8%. | 262,627 | - | (262,627 | ) | - | - | - | |||||||||||||||||||
Total BeetNPath | 523,904 | - | (523,904 | ) | - | - | - | |||||||||||||||||||
Carolina Skiff LLC | 6.0825% Class A Common Membership interest. | 1,750,000 | - | - | 1,750,000 | - | 24,043 | |||||||||||||||||||
ClearView Social, Inc. | 312,500 Series Seed Plus Preferred. | 200,000 | - | - | 200,000 | - | - | |||||||||||||||||||
First Wave Technologies, Inc. | 670,443.2 Class A Common. | 33,000 | - | - | 33,000 | - | - | |||||||||||||||||||
Genicon, Inc. | 1,586,902 Series B Preferred. | 1,000,000 | - | (500,000 | ) | 500,000 | - | - | ||||||||||||||||||
$3,250,000 Promissory Notes at 10%. | 3,385,586 | 166,490 | (215,080 | ) | 3,336,996 | - | 201,472 | |||||||||||||||||||
$250,000 Promissory Note at 10%. | - | 251,319 | - | 251,319 | - | 1,319 | ||||||||||||||||||||
Warrant for Common. | 37,500 | - | (37,500 | ) | - | - | - | |||||||||||||||||||
Total Genicon | 4,423,086 | 417,809 | (752,580 | ) | 4,088,315 | - | 202,791 | |||||||||||||||||||
G-TEC Natural Gas Systems | 16.639% Class A Membership Interest. 8% cumulative dividend. | - | - | - | - | - | - | |||||||||||||||||||
Knoa Software, Inc. | 973,533 SeriesA-1 Convertible Preferred. | 750,000 | - | - | 750,000 | - | 193,934 | |||||||||||||||||||
1,876,922 Series B Preferred. | 479,155 | - | - | 479,155 | - | - | ||||||||||||||||||||
Total Knoa | 1,229,155 | - | - | 1,229,155 | - | 193,934 | ||||||||||||||||||||
KnowledgeVision Systems, Inc. | 200,000 SeriesA-1 Preferred. | - | - | - | - | - | - | |||||||||||||||||||
214,285 SeriesA-2 Preferred. | - | - | - | - | - | - | ||||||||||||||||||||
129,033 SeriesA-3 Preferred. | 165,001 | - | - | 165,001 | - | - | ||||||||||||||||||||
$75,000 Subordinated Promissory Notes at 8%. | 75,000 | - | - | 75,000 | - | 2,975 | ||||||||||||||||||||
$900,000 Term Note at 13%. | 750,000 | 150,000 | - | 900,000 | - | 61,032 | ||||||||||||||||||||
Warrant for 46,743 SeriesA-3. | 35,000 | - | - | 35,000 | - | - | ||||||||||||||||||||
Total KnowledgeVision | 1,025,001 | 150,000 | - | 1,175,001 | - | 64,007 | ||||||||||||||||||||
Mezmeriz, Inc. | 1,554,565 Series Seed Preferred. | 351,477 | - | - | 351,477 | - | - | |||||||||||||||||||
Microcision LLC | $1,500,000 Subordinated Promissory Note at 12% (1% PIK). | 1,933,353 | 9,678 | - | 1,943,031 | - | 116,146 | |||||||||||||||||||
15% Class A Common Membership Interest. | 610,000 | - | - | 610,000 | - | - | ||||||||||||||||||||
Total Microcision | 2,543,353 | 9,678 | - | 2,553,031 | - | 116,146 | ||||||||||||||||||||
New Monarch Machine Tool, Inc. | 22.84 Common. | 22,841 | - | - | 22,841 | - | ||||||||||||||||||||
OnCore Golf Technology, Inc. | 300,483 Series AA Preferred. | 300,000 | - | - | 300,000 | - | - |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (Continued)
(Unaudited)
Investments in and Advances to Affiliates | ||||||||||||||||||||||||||
Company
| Type of Investment | December 31, Value | Gross Additions (1) | Gross Reductions (2) | June 30, 2019 Fair Value | Net Realized Gains (Losses) | Amount of Dividend/ Fee Income (3) | |||||||||||||||||||
SciAps, Inc. | 187,500 Series A Preferred. 274,299 SeriesA-1 Convertible Preferred. 117,371 Series B Convertible Preferred. 113,636 Series C Convertible Preferred. 369,698 SeriesC-1 Convertible Preferred. 147,059 Series D Convertible Preferred. Total SciAps | | 700,000 250,000 250,000 175,000 399,274 250,000 2,024,274 |
| | - - - - - - - |
| | (277,000) (108,000) - - - - (385,000) |
| | 423,000 142,000 250,000 175,000 399,274 250,000 1,639,274 |
| | - - - - - - - |
| | - - - - - - - |
| |||||||
SOMS Technologies, LLC | 5,959,490 Series B membership Interests. | - | - | - | - | (472,632) | - | |||||||||||||||||||
Teleservices Solutions Holdings, LLC | 250,000 Class B Preferred Units. 1,000,000 Class C Preferred Units. 80,000 Class D Preferred Units. 104,198 Class E Preferred Units. Total Teleservices | | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| |||||||
Tilson Technology Management, Inc. | 120,000 Series B Preferred. 21,391 Series C Preferred. 70,176 Series D Preferred. 15,385 Series E Preferred. 211,567 SQF Hold Co. Common. $200,000 Subordinated Promissory Note at 8%. $800,000 Subordinated Promissory Note at 8%. Total Tilson |
| 600,000 200,000 800,000 - -
200,000
800,000 2,600,000 |
|
| 1,350,000 147,604 340,360 500,012 22,036
-
- 2,360,012 |
| | - - - - - - - |
|
| 1,950,000 347,604 1,140,360 500,012 22,036
200,000
800,000 4,960,012 |
|
| - - - - -
-
- - |
|
| 23,708 - - -
7,934
31,726 63,368 |
| |||||||
|
| |||||||||||||||||||||||||
Total Affiliate Investments | $17,026,091 | $2,937,499 | ($1,661,484) | $18,302,106 | ($472,632) | $664,289 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||
Total Control and Affiliate Investments | $17,125,591 | $2,937,499 | ($1,760,984) | $18,302,106 | ($392,239) | $664,289 | ||||||||||||||||||||
|
|
This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.
(1) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.
(2) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.
(3) Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate categories, respectively.
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2019 (Continued)
(Unaudited)
Industry Classification | Percentage of Total Investments (at fair value) as of June 30, 2019 | |
Software | 34.6% | |
Healthcare | 23.8 | |
Manufacturing | 20.0 | |
Professional Services | 15.9 | |
Contact Center | 1.6 | |
Oil and Gas | 1.6 | |
Electronics | 1.1 | |
Consumer Product Electronics | 1.0 | |
Marketing | 0.4 | |
Total Investments | 100% | |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018
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 – 55.7% of net assets: (j) | ||||||||||||||||||
ACV Auctions, Inc. (e)(g) Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) www.acvauctions.com | 1,181,160 Series A Preferred. | 8/12/16 | <1% | $163,000 | $2,776,907 | 8.8% | ||||||||||||
Centivo Corporation (e)(g) New York, NY. Tech-enabled health solutions company that helps self-insured employers and their employees save money and have a better experience. (Health Care) www.centivo.com | 190,967 SeriesA-1 Preferred. 337,808 SeriesA-2 Preferred. Total Centivo | 7/5/17 | <1% | | 200,000 101,342 301,342 |
| | 200,000 101,342 301,342 |
| 1.0% | ||||||||
eHealth Global Technologies, Inc. (g) Henrietta, NY. eHealth Connect® improves health care delivery through intelligently aggregated clinical record and images for patient referrals. (Health Care) www.ehealthtechnologies.com | $3,500,000 Term Note at 13% due December 31, 2020. | 6/28/16 | 0% | | 3,500,000 |
| | 3,500,000 |
| 11.1% | ||||||||
Empire Genomics, LLC (g)(m) 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 | $1,209,014 Senior Secured Convertible Term Notes at 10% (8% PIK through September 30, 2019) due December 31, 2020. $444,915 Promissory Note at 9% (4% PIK) due December 31, 2020. Total Empire | 6/13/14 | 0% | |
1,233,195
444,915 1,678,110 |
| |
474,181
302,569 776,750 |
| 2.4% | ||||||||
GiveGab, Inc. (e)(g) Ithaca, NY. Online fundraising, day of giving supporter engagement software fornon-profit organizations. (Software) www.givegab.com | 5,084,329 Series Seed Preferred. | 3/13/13 | 4% | 616,221 | 616,221 | 2.0% | ||||||||||||
GoNoodle, Inc. (g)(m) Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software) www.gonoodle.com | $1,000,000 Secured Note at 12% due January 31, 2020, (1% PIK). Warrant for 47,324 Series C Preferred. Total GoNoodle | 2/6/15 | <1% | | 1,039,663
25 1,039,688 |
| | 1,039,663
25 1,039,688 |
| 3.3% | ||||||||
Mercantile Adjustment Bureau, LLC (g) Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center) www.mercantilesolutions.com | $1,199,039 Subordinated Secured Note at 13% (3% for the calendar year 2018) due January 31, 2019. (e)$150,000 Subordinated Debenture at 8% due June 30, 2018. Warrant for 3.29% Membership Interests. Option for 1.5% Membership Interests. (i) Interest receivable $50,254. Total Mercantile | 10/22/12 | 4% |
|
1,199,040
150,000
97,625
1,446,665 |
|
|
700,000
-
-
700,000 |
| 2.2% | ||||||||
Outmatch Holdings, LLC (e)(g) (Chequed Holdings, LLC) Dallas, TX. Web based predictive employee selection and reference checking. (Software) www.outmatch.com | 2,798,883 Class P1 Units. 109,788 Class C1 Units. Total Outmatch | 11/18/10 | 4% | | 2,140,007 5,489 2,145,496 |
| | 2,140,007 5,489 2,145,496 |
| 6.8% | ||||||||
PostProcess Technologies LLC (e)(g) Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com | $300,000 Convertible Promissory Note at 5% due July 28, 2020. | 7/25/16 | 0% | | 300,000 |
| | 300,000 |
| 1.0% |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018 (Continued)
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 | ||||||||||||
Rheonix, Inc. (e) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com | 9,676 Common. (g)1,839,422 Series A Preferred. (g) 50,593 Common. (g) 589,420 Series B Preferred. Total Rheonix | 10/29/09 | 4% | | - 2,099,999 - 702,732 2,802,731 |
| | - 1,500,000 - 702,732 2,202,732 |
| 7.0% | ||||||||
SocialFlow, Inc. (e)(g) New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software) www.socialflow.com | 1,049,538 Series B Preferred. 1,204,819 SeriesB-1 Preferred. 717,772 Series C Preferred. Total Social Flow | 4/5/13 | 4% | | 500,000 750,000 500,000 1,750,000 |
| | 731,431 839,648 500,221 2,071,300 |
| 6.6% | ||||||||
Somerset Gas Transmission Company, LLC (e) Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com | 26.5337 Units. | 7/10/02 | 3% | 719,097 | 500,000 | 1.6% | ||||||||||||
Tech 2000, Inc. (g)(m) Herndon, VA. Develops and delivers IT training. (Software) www.t2000inc.com | $600,000 Term Note at 14% (PIK through December 31, 2018) due November 15, 2021. | 11/16/18 | 0% |
|
610,777 |
|
|
610,777 |
| 1.9% | ||||||||
OtherNon-Control/Non-Affiliate Investments: | ||||||||||||||||||
DataView, LLC (e)(Software) | Membership Interest. | 10/1/98 | 5% | 310,357 | - | 0.0% | ||||||||||||
UStec/Wi3(e) (Manufacturing) | Common stock. | 12/17/98 | <1% | 100,500 | - | 0.0% | ||||||||||||
|
|
| ||||||||||||||||
SubtotalNon-Control/Non-Affiliate Investments |
|
$17,483,984 |
|
|
$17,541,213 |
| ||||||||||||
|
|
| ||||||||||||||||
Affiliate Investments – 54.0% of net assets (k) | ||||||||||||||||||
BeetNPath, LLC (Grainful) (e)(g) Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product) www.grainful.com | 1,119,024 SeriesA-2 Preferred Membership Units. 1,032,918 Series B Preferred Membership Units. $262,626.64 Convertible Secured Notes at 8% due December 21, 2019. Total BeetNPath | 10/20/14 | 9% | | $359,000
261,277
262,627 882,904 |
| | $-
261,277
262,627 523,904 |
| 1.7% | ||||||||
Carolina Skiff LLC (g) Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com | 6.0825% Class A Common Membership Interest. | 1/30/04 | 7% | | 15,000 |
| | 1,750,000 |
| 5.6% | ||||||||
ClearView Social, Inc. (e)(g) Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software) www.clearviewsocial.com | 312,500 Series Seed Plus Preferred. | 1/4/16 | 6% | 200,000 | 200,000 | 0.6 | % | |||||||||||
First Wave Technologies, Inc. (e)(g) Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds pills for nursing homes and medical institutions. (Health Care) www.firstwaveproducts.com | 670,443.2 Class A Common. | 4/19/12 | 5% | 661,563 | 33,000 | 0.1 | % |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018 (Continued)
Company, Geographic Location, Business Description, (Industry) and Website | (a)
Type of Investment | (b) Date Acquired | (c)
Equity | Cost | (d)(f) Fair Value | Percent | ||||||||||||
Genicon, Inc. (g) (m) Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care) www.geniconendo.com | 1,586,902 Series B Preferred. $3,250,000 Promissory Notes at 10% due May 1, 2020, (8% PIK). Warrants for 500,000 Common. Total Genicon | 4/10/15 | 6% |
| 1,000,000
3,385,586 120,000 4,505,586 |
|
| 1,000,000
3,385,586 37,500 4,423,086 |
| 14.0 | % | |||||||
Knoa Software, Inc. (e)(g) New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software) www.knoa.com | 973,533 SeriesA-1 Convertible Preferred. 1,876,922 Series B Preferred. Total Knoa | 11/20/12 | 7% | | 750,000 479,155 1,229,155 |
| | 750,000 479,155 1,229,155 |
| 3.9 | % | |||||||
KnowledgeVision Systems, Inc. (g) Lincoln, MA. Online presentation and training software. (Software) www.knowledgevision.com | 200,000 SeriesA-1 Preferred. 214,285 SeriesA-2 Preferred. 129,033 SeriesA-3 Preferred. Warrant for 46,743 SeriesA-3. $75,000 Subordinated Promissory Notes at 8% payable on demand of majority of holders after August 31, 2019.(e) $750,000 Term Note at 11% due April 30, 2021. Total KnowledgeVision | 11/13/13 | 7% | | 250,000 300,000 165,001 35,000 75,000
750,000 1,575,001 |
| | - - 165,001 35,000 75,000
750,000 1,025,001 |
| 3.2 | % | |||||||
Mezmeriz, Inc. (e)(g) Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer) www.mezmeriz.com | 1,554,565 Series Seed Preferred. | 1/9/08 | 12% | 742,850 | 351,477 | 1.1 | % | |||||||||||
Microcision LLC (g)(m) Pennsauken Township, NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing) www.microcision.com | $1,500,000 Subordinated Promissory Note at 12% (1% PIK) due December 31, 2024. 15% Class A Common Membership Interest. Total Microcision | 9/24/09 | 15% |
|
1,933,353
- 1,933,353 |
|
|
1,933,353
610,000 2,543,353 |
| 8.1 | % | |||||||
New Monarch Machine Tool, Inc. (g) Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing) www.monarchmt.com | 22.84 Common. | 9/24/03 | 15% | 22,841 | 22,841 | 0.1 | % | |||||||||||
OnCore Golf Technology, Inc. (e)(g) Buffalo, NY. Patented and Proprietary Golf Balls utilizing breakthrough technology and innovation, inspiring golfers at all skill levels and abilities. (Consumer Product) www.oncoregolf.com | 300,483 Preferred AA. | 12/31/14 | 8% | 752,712 | 300,000 | 1.0 | % | |||||||||||
SciAps, Inc. (e)(g) Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing) www.sciaps.com | 187,500 Series A Preferred. 274,299 SeriesA-1 Convertible Preferred. 117,371 Series B Convertible Preferred. 113,636 Series C Convertible Preferred. 369,698 SeriesC-1 Convertible Preferred. 147,059 Series D Convertible Preferred. Total SciAps | 7/12/13 | 6% | | 1,500,000 504,710 250,000 175,000 399,274 250,000 3,078,984 |
| | 700,000 250,000 250,000 175,000 399,274 250,000 2,024,274 |
| 6.4 | % |
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018 (Continued)
Company, Geographic Location, Business Description, (Industry) and Website | (a)
Type of Investment | (b) Date Acquired | (c) Equity | Cost | (d)(f) Fair Value | Percent | ||||||||||||||
Teleservices Solutions Holdings, LLC (e) (g)(m) Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center) www.ipacesetters.com | 250,000 Class B Preferred Units. 1,000,000 Class C Preferred Units. 80,000 Class D Preferred Units. 104,198 Class E Preferred Units. PIK dividend for Series C and D at 12% and 14%, respectively. Total Teleservices | 5/30/14 | 6% |
| 250,000 1,190,680 91,200 104,198
1,636,078 |
|
| - - - -
- |
| 0.0% | ||||||||||
Tilson Technology Management, Inc. (g) Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services) www.tilsontech.com | 120,000 Series B Preferred. 21,391 Series C Preferred. 70,176 Series D Preferred. $800,000 Subordinated Promissory Notes at 8% due December 1, 2022. $200,000 Subordinated Promissory Note at 8% due September 28, 2021. Total Tilson | 1/20/15 | 11% | | 600,000 200,000 800,000
800,000
200,000 2,600,000 |
| | 600,000 200,000 800,000
800,000
200,000 2,600,000 |
| 8.2% | ||||||||||
Other Affiliate Investments: | ||||||||||||||||||||
G-TEC Natural Gas Systems(e) (Manufacturing) | Membership Interest | 8/31/99 | 17% | 400,000 | - | 0.0% | ||||||||||||||
SOMS Technologies, LLC (e)(g) (Consumer Products) | Membership Interest | 12/2/08 | 9% | 472,632 | - | 0.0% | ||||||||||||||
Subtotal Affiliate Investments |
|
$20,708,659
|
|
|
$17,026,091
|
| ||||||||||||||
Control Investments – 0.3% of net assets (l) | ||||||||||||||||||||
Advantage 24/7 LLC (g) Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com
| 45% Membership Interest. | 12/30/10 | 45% | $99,500 | $99,500 | 0.3% | ||||||||||||||
Subtotal Control Investments |
|
$99,500 |
|
|
$99,500 |
| ||||||||||||||
TOTAL INVESTMENTS – 110% | $38,292,143 | $34,666,804 | ||||||||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS – (10%) |
|
(3,142,617 |
) | |||||||||||||||||
NET ASSETS – 100% | $31,524,187 | |||||||||||||||||||
RAND CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018 (Continued)
Notes to the Consolidated Schedule of Portfolio Investments
(a) At December 31, 2018, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in form of shares unless otherwise noted as units or interests, i.e., preferred shares, common shares.
(b) The Date Acquired column indicates the date in which the Corporation first acquired an investment in the company or a predecessor company.
(c) Each equity percentage estimates the Corporation’s ownership interest in the applicable portfolio investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion of debentures, or other available data. If applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.
(d) The Corporation’s investments are carried at fair value in accordance with FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures,” which defines fair value and establishes guidelines for measuring fair value. At December 31, 2018, ASC 820 designates 100% of the Corporation’s investments as “Level 3” assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 3 “Investments” to the Consolidated Financial Statements).
(e) These investments arenon-income producing. All other investments are income producing.Non-income producing investments have not generated cash payments of interest or dividends including LLCtax-related distributions within the last twelve months, or are not expected to do so going forward. However, if a debt or a preferred equity fails to make its most recent payment, then the investment will also be classified asnon-income producing.
(f) As of September 30,December 31, 2018, the total cost of investment securities was approximately $37.3$38.3 million. Net unrealized depreciation was approximately ($5.1)3.6) million, which was comprised of $2.3$5.3 million of unrealized appreciation of investment securities and ($7.4)8.9) million of unrealized depreciation of investment securities. At September 30,December 31, 2018, the aggregate gross unrealized gain for federal income tax purposes was $2.6$5.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($6.5)5.9) million. The net unrealized loss for federal income tax purposes was ($3.9)0.7) million based on a tax cost of $36.1$35.4 million.
(g) Rand Capital SBIC, Inc. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal repayment.
(i) Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporation’s StatementConsolidated Statements of Financial Position.
(j)(j) Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
(k) Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as thoseNon-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.
(l) Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where greater than 50% of the board representation is maintained.
(m) Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.
RAND CAPITAL CORPORATION AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30,December 31, 2018 (Continued)
(Unaudited)
Investments in and Advances to Affiliates
Amount of | ||||||||||||||||||||||||||
Net | Interest/ | |||||||||||||||||||||||||
December | Gross | September | Realized | Dividend/ | ||||||||||||||||||||||
Company | Type of Investment | 31, 2017 Fair Value | Gross Additions (1) | Reductions (2) | 30, 2018 Fair Value | Gains (Losses) | Fee Income (3) | |||||||||||||||||||
Control Investments: | ||||||||||||||||||||||||||
Advantage 24/7 LLC | 45% Membership interest. | $99,500 | $- | $- | $99,500 | $- | $- | |||||||||||||||||||
Total Control Investments | $99,500 | $- | $- | $99,500 | $- | $- | ||||||||||||||||||||
Affiliate Investments: | ||||||||||||||||||||||||||
BeetNPath, LLC | 1,119,024 Series A-2 Preferred Membership | |||||||||||||||||||||||||
Units. | $359,000 | $- | $- | $359,000 | $- | $- | ||||||||||||||||||||
1,032,918 Series B Preferred Membership | - | |||||||||||||||||||||||||
Units. | 291,000 | - | - | 291,000 | - | - | ||||||||||||||||||||
$140,000 convertible secured note at 8% | - | 140,000 | - | 140,000 | - | 2,551 | ||||||||||||||||||||
Total BeetNPath | 650,000 | 140,000 | - | 790,000 | 2,551 | |||||||||||||||||||||
Carolina Skiff LLC | 6.0825% Class A common membership | |||||||||||||||||||||||||
interest. | 1,750,000 | - | - | 1,750,000 | - | 119,433 | ||||||||||||||||||||
ClearView Social, Inc. | 312,500 Series seed plus preferred shares. | 200,000 | - | - | 200,000 | - | - | |||||||||||||||||||
First Wave Products | $500,000 senior term notes at 10%. | 250,000 | - | (250,000) | - | - | - | |||||||||||||||||||
Group, LLC | $280,000 junior term notes at 10%. | - | - | - | - | - | - | |||||||||||||||||||
Warrant for 41,619 capital securities. | - | - | - | - | - | - | ||||||||||||||||||||
Total First Wave | 250,000 | - | (250,000) | - | - | - | ||||||||||||||||||||
Genicon, Inc. | 1,586,902 Series B preferred shares. | 1,000,000 | - | - | 1,000,000 | - | - | |||||||||||||||||||
$3,000,000 promissory notes at 8%. | 2,903,779 | 153,548 | - | 3,057,327 | - | 251,069 | ||||||||||||||||||||
Warrant for 250,000 common shares | 80,000 | - | - | 80,000 | - | - | ||||||||||||||||||||
Warrant for 125,000 common shares | 40,000 | - | - | 40,000 | - | - | ||||||||||||||||||||
Total Genicon | 4,023,779 | 153,548 | - | 4,177,327 | - | 251,069 | ||||||||||||||||||||
GiveGab, Inc. | 5,084,329 Series Seed preferred shares. | 424,314 | 191,907 | (616,221) | - | - | - | |||||||||||||||||||
G-TEC Natural Gas | 16.639% Class A membership interest. 8% | |||||||||||||||||||||||||
Systems | cumulative dividend. | 100,000 | - | - | 100,000 | - | - | |||||||||||||||||||
Intrinsiq Materials, | 4,161,747 Series A preferred shares. | 400,000 | - | (400,000) | - | (1,125,673) | - | |||||||||||||||||||
Inc. | ||||||||||||||||||||||||||
Knoa Software, Inc. | 973,533 Series A-1 convertible preferred | |||||||||||||||||||||||||
shares. | 750,000 | - | - | 750,000 | - | - | ||||||||||||||||||||
1,876,922 Series B preferred shares. | 479,155 | - | - | 479,155 | - | - | ||||||||||||||||||||
$48,466 convertible promissory note at 8%. | 48,466 | - | (48,466) | - | - | 773 | ||||||||||||||||||||
Total Knoa | 1,277,621 | - | (48,466) | 1,229,155 | - | 773 | ||||||||||||||||||||
KnowledgeVision | 200,000 Series A-1 preferred shares. | - | - | - | - | - | - | |||||||||||||||||||
Systems, Inc. | 214,285 Series A-2 preferred shares. | 300,000 | - | - | 300,000 | - | - | |||||||||||||||||||
129,033 Series A-3 preferred shares. | 165,001 | - | - | 165,001 | - | - | ||||||||||||||||||||
$75,000 subordinated promissory notes at 8% | 50,000 | 25,000 | - | 75,000 | - | 3,896 | ||||||||||||||||||||
$750,000 replacement term note at 11% | - | 750,000 | - | 750,000 | - | 37,571 | ||||||||||||||||||||
Warrant for 46,743 Series A-3 shares. | 35,000 | - | - | 35,000 | - | - | ||||||||||||||||||||
Total Knowledge | 550,001 | 775,000 | - | 1,325,001 | - | 41,467 | ||||||||||||||||||||
Vision | ||||||||||||||||||||||||||
Mezmeriz, Inc. | 1,554,565 Series seed preferred shares. | 351,477 | - | - | 351,477 | - | - | |||||||||||||||||||
Microcision LLC | $1,500,000 subordinated promissory note at | |||||||||||||||||||||||||
12% (1% PIK). | 1,914,140 | 14,392 | - | 1,928,532 | - | 172,704 | ||||||||||||||||||||
New Monarch | 22.84 common shares. | 22,841 | - | - | 22,841 | - | 29,409 | |||||||||||||||||||
Machine Tool, Inc. |
Investments in and Advances to Affiliates | ||||||||||||||||||||||||||
Company | Type of Investment | December 31, 2017 Fair Value | Gross Additions (1) | Gross Reductions (2) | December 31, 2018 Fair Value | Net Realized (Losses) | Amount of Interest/ Dividend/ Fee | |||||||||||||||||||
Control Investments: | ||||||||||||||||||||||||||
Advantage 24/7 LLC | 45% Membership Interest. | $99,500 | $ - | $ - | $99,500 | $ - | $60,000 | |||||||||||||||||||
Total Control Investments | $99,500 | $ - | $ - | $99,500 | $ - | $60,000 | ||||||||||||||||||||
Affiliate Investments: BeetNPath, LLC | 1,119,024 SeriesA-2 Preferred Membership Units. 1,032,918 Series B Preferred Membership Units. $262,626.64 Convertible Secured Note at 8% Total BeetNPath |
| $359,000
291,000 - 650,000 |
|
| $ -
- 262,627 262,627 |
|
| ($359,000
(29,723 - (388,723 | )
)
) |
| $ -
261,277 262,627 523,904 |
|
| $ -
- - - |
|
| $ -
- 5,413 5,413 |
| |||||||
Carolina Skiff LLC | 6.0825% Class A Common Membership interest. | 1,750,000 | - | - | 1,750,000 | - | 251,913 | |||||||||||||||||||
ClearView Social, Inc. | 312,500 Series Seed Plus Preferred. | 200,000 | - | - | 200,000 | - | - | |||||||||||||||||||
First Wave Technologies, Inc. | $500,000 senior term notes at 10%. $280,000 junior term notes at 10%. Warrant for 41,619 capital securities. 670,443.2 Class A Common. Total First Wave | | 250,000 - - - 250,000 |
| | - - - 33,000 33,000 |
| | (250,000 - - - (250,000 | )
) | | - - - 33,000 33,000 |
| | (316,469 - (22,000 - (338,469 | )
)
) | | - - - - - |
| |||||||
Genicon, Inc. | 1,586,902 Series B Preferred. $3,250,000 Promissory Notes at 8%. Warrant for 250,000 Common. Total Genicon | | 1,000,000 2,903,779 120,000 4,023,779 |
| | - 481,807 - 481,807 |
| | - - (82,500 (82,500 |
) ) | | 1,000,000 3,385,586 37,500 4,423,086 |
| | - - - - |
| | - 348,512 - 348,512 |
| |||||||
GiveGab, Inc. | 5,084,329 Series Seed Preferred. | 424,314 | 191,907 | (616,221 | ) | - | - | - | ||||||||||||||||||
G-TEC Natural Gas Systems | 16.639% Class A Membership Interest. 8% cumulative dividend. | 100,000 | - | (100,000 | ) | - | (1,125,673 | ) | - | |||||||||||||||||
Intrinsiq Materials, Inc. | 4,161,747 Series A Preferred. | 400,000 | - | (400,000 | ) | - | - | - | ||||||||||||||||||
Knoa Software, Inc. | 973,533 SeriesA-1 Convertible Preferred. 1,876,922 Series B Preferred. $48,466 Convertible Promissory Note at 8%. Total Knoa | | 750,000 479,155 48,466 1,277,621 |
| | - - - - |
| | - - (48,466 (48,466 |
) ) | | 750,000 479,155 - 1,229,155 |
| | - - - - |
| | - - 773 773 |
| |||||||
KnowledgeVision Systems, Inc. | 200,000 SeriesA-1 Preferred. 214,285 SeriesA-2 Preferred. 129,033 SeriesA-3 Preferred. $75,000 Subordinated Promissory Notes at 8%. $750,000 term note at 11% Warrant for 46,743 SeriesA-3. Total KnowledgeVision |
| - 300,000 165,001
50,000 - 35,000 550,001 |
|
| - - -
25,000 750,000 - 775,000 |
|
| - (300,000 -
- - - (300,000 | )
) |
| - - 165,001
75,000 750,000 35,000 1,025,001 |
|
| - - -
- - - - |
|
| - - -
5,408 60,241 - 65,649 |
| |||||||
Mezmeriz, Inc. | 1,554,565 Series Seed Preferred. | 351,477 | - | - | 351,477 | - | - | |||||||||||||||||||
Microcision LLC | $1,500,000 Subordinated Promissory Note at 12% (1% PIK) due December 31, 2024. 15% Class A Common Membership Interest. Total Microcision | | 1,914,140 - 1,914,140 |
| | 19,213 610,000 629,213 |
| | - - - |
| | 1,933,353 610,000 2,543,353 |
| | - - - |
| | 230,559 - 230,559 |
| |||||||
New Monarch Machine Tool, Inc. | 22.84 Common. | 22,841 | - | - | 22,841 | - | 29,409 |
RAND CAPITAL CORPORATION AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30,December 31, 2018 (Continued)
(Unaudited)
Investments in and Advances to Affiliates
Company | Type of Investment | December 31, | Gross | Gross | September | Net | Amount of Interest/ Dividend/ Fee Income (3) | |||||||||||||||||||
OnCore Golf | 150,000 Series AA preferred shares. | - | - | - | - | - | - | |||||||||||||||||||
Technology, Inc. | $300,000 subordinated convertible | |||||||||||||||||||||||||
promissory notes at 6%. | 300,000 | - | - | 300,000 | - | - | ||||||||||||||||||||
Total OnCore | 300,000 | - | - | 300,000 | - | - | ||||||||||||||||||||
SciAps, Inc. | 187,500 Series A convertible preferred | |||||||||||||||||||||||||
shares. | 700,000 | - | - | 700,000 | - | - | ||||||||||||||||||||
274,299 Series A-1 convertible preferred | ||||||||||||||||||||||||||
shares. | 250,000 | - | - | 250,000 | - | - | ||||||||||||||||||||
117,371 Series B convertible preferred | ||||||||||||||||||||||||||
shares. | 250,000 | - | - | 250,000 | - | - | ||||||||||||||||||||
113,636 Series C preferred shares. | 175,000 | - | - | 175,000 | - | - | ||||||||||||||||||||
369,698 Series C-1 preferred shares. | 399,274 | - | - | 399,274 | - | - | ||||||||||||||||||||
147,059 Series D shares | - | 250,000 | - | 250,000 | - | - | ||||||||||||||||||||
Total SciAps | 1,774,274 | 250,000 | - | 2,024,274 | - | - | ||||||||||||||||||||
SOMS | 5,959,490 Series B membership interests. | 528,348 | - | (498,348 | ) | 30,000 | - | - | ||||||||||||||||||
Technologies, LLC | ||||||||||||||||||||||||||
Teleservices | 250,000 Class B preferred units. | - | - | - | - | - | - | |||||||||||||||||||
Solutions | 1,000,000 Class C preferred units. | - | - | - | - | - | - | |||||||||||||||||||
Holdings, LLC | 80,000 Class D preferred units. | - | - | - | - | - | - | |||||||||||||||||||
104,198 Class E preferred units. | - | - | - | - | - | - | ||||||||||||||||||||
Total Teleservices | - | - | - | - | - | - | ||||||||||||||||||||
Tilson Technology | 120,000 Series B preferred shares. | 600,000 | - | - | 600,000 | - | 15,000 | |||||||||||||||||||
Management, Inc. | 21,391 Series C convertible preferred | |||||||||||||||||||||||||
shares. | 200,000 | - | - | 200,000 | - | - | ||||||||||||||||||||
$200,000 subordinated promissory note at | ||||||||||||||||||||||||||
8%. | 200,000 | - | - | 200,000 | - | 11,967 | ||||||||||||||||||||
65,790 Series D preferred shares. | 750,000 | - | - | 750,000 | - | 14,064 | ||||||||||||||||||||
$750,000 subordinated promissory note at | ||||||||||||||||||||||||||
8%. | 750,000 | - | - | 750,000 | - | 44,877 | ||||||||||||||||||||
Total Tilson | 2,500,000 | - | - | 2,500,000 | - | 85,908 | ||||||||||||||||||||
Total Affiliate Investments | $17,016,795 | $1,524,847 | ($1,813,035) | $16,728,607 | ($1,125,673) | $703,314 | ||||||||||||||||||||
Total Control and Affiliate Investments | $17,116,295 | $1,524,847 | ($1,813,035) | $16,828,107 | ($1,125,673) | $703,314 | ||||||||||||||||||||
Investments in and Advances to Affiliates | ||||||||||||||||||||||||||
Company | Type of Investment | December 31, 2017 Fair Value | Gross (1) | Gross (2) | December 31, 2018 Fair Value | Net Realized (Losses) | Amount of Dividend/ Fee Income | |||||||||||||||||||
OnCore Golf Technology, Inc. | 150,000 Series AA Preferred. $300,000 Subordinated Convertible Promissory notes at 6%. Total OnCore | | -
300,000 300,000 |
| | 300,000
- 300,000 |
| | -
(300,000) (300,000) |
| | 300,000
- 300,000 |
| | -
- - |
| | -
27,370 27,370 |
| |||||||
SciAps, Inc. | 187,500 Series A Convertible Preferred. 274,299 SeriesA-1 Convertible Preferred. 117,371 Series B Convertible Preferred. 113,636 Series C Preferred. 369,698 SeriesC-1 Preferred. 147,059 Series D Convertible Preferred Total SciAps | | 700,000 250,000 250,000 175,000 399,274 - 1,774,274 |
| | - - - - - 250,000 250,000 |
| | - - - - - - - |
| | 700,000 250,000 250,000 175,000 399,274 250,000 2,024,274 |
| | - - - - - - - |
| | - - - - - - - |
| |||||||
SOMS Technologies, LLC | 5,959,490 Series B membership Interests. | 528,348 | - | (528,348) | - | - | - | |||||||||||||||||||
Teleservices Solutions Holdings, LLC | 250,000 Class B Preferred Units. 1,000,000 Class C Preferred Units. 80,000 Class D Preferred Units. 104,198 Class E Preferred Units. Total Teleservices | | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| | - - - - - |
| |||||||
Tilson Technology Management, Inc. | 120,000 Series B Preferred. 21,391 Series C Convertible Preferred. 70,176 Series D Preferred. $200,000 Subordinated Promissory Note at 8%. $800,000 Subordinated Promissory Note at 8%. Total Tilson | | 600,000 200,000 750,000 200,000 750,000 2,500,000 |
| | - - 50,000 - 50,000 100,000 |
| | - - - - - - |
| | 600,000 200,000 800,000 200,000 800,000 2,600,000 |
| | - - - - - - |
| | 20,000 - 19,003 16,000 60,822 115,825 |
| |||||||
|
|
| ||||||||||||||||||||||||
Total Affiliate Investments | $17,016,795 | $3,023,554 | ($3,014,258) | $17,026,091 | ($1,464,142) | $1,075,423 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||||
Total Control and Affiliate Investments | $17,116,295 | $3,023,554 | ($3,014,258) | $17,125,591 | ($1,464,142) | $1,135,423 | ||||||||||||||||||||
|
|
|
This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.
(1) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.
(2) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.
(3) Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate categories, respectively.
RAND CAPITAL CORPORATION AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30,December 31, 2018 (Continued)
(Unaudited)
Industry Classification | Percentage of Total Investments (at fair value) as of | |
Software | 33.8% | |
Healthcare | ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| 0.3 | |
| ||
Total Investments | 100% | |
|
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017
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 – 47.5% ofnet assets: (j) | ||||||||||||||||
ACV Auctions, Inc. (e)(g) | 1,181,160 Series A preferred | 8/12/16 | <1% | 0.9% | ||||||||||||
Buffalo, NY. Live mobile wholesale auctions for new | shares. | $163,000 | $282,356 | |||||||||||||
and used car dealers. (Software) | ||||||||||||||||
www.acvauctions.com | ||||||||||||||||
Centivo Corporation (e)(n) | $100,000 convertible unsecured | 7/5/17 | 0% | 0.3% | ||||||||||||
New York, NY. Tech-enabled health solutions | note at 2% due February 1, 2019. | 100,000 | 100,000 | |||||||||||||
company that helps self-insured employers and their | ||||||||||||||||
employees save money and have a better experience. | ||||||||||||||||
(Health Care) | ||||||||||||||||
eHealth Global Technologies, Inc. | (g)$1,500,000 term note at 10% | 6/28/16 | 0% | 11.0% | ||||||||||||
Henrietta, NY. eHealth Connect® improves health | due September 2, 2019. | 1,500,000 | 1,500,000 | |||||||||||||
care delivery through intelligently aggregated clinical | (n)$2,000,000 term note at 10% | |||||||||||||||
record and images for patient referrals. | due September 2, 2019. | 2,000,000 | 2,000,000 | |||||||||||||
(Health Care) | Total eHealth | 3,500,000 | 3,500,000 | |||||||||||||
www.ehealthtechnologies.com | ||||||||||||||||
Empire Genomics, LLC (g) | $1,101,489 senior secured | 6/13/14 | 0% | 4.2% | ||||||||||||
Buffalo, NY. Molecular diagnostics company that | convertible term notes at 10% due | |||||||||||||||
offers a comprehensive menu of assay services for | April 30, 2018. | 1,101,489 | 1,101,489 | |||||||||||||
diagnosing and guiding patient therapeutic treatments. | $250,000 promissory note at 12% | |||||||||||||||
(Health Care) | due December 31, 2019. | 250,000 | 250,000 | |||||||||||||
www.empiregenomics.com | (i)Interest receivable $65,906. | |||||||||||||||
Total Empire | 1,351,489 | 1,351,489 | ||||||||||||||
GoNoodle, Inc. (g)(m) | $1,000,000 secured note at 12% | 2/6/15 | <1% | 3.2% | ||||||||||||
(Formerly HealthTeacher, Inc.) | due January 31, 2020, (1% | |||||||||||||||
Nashville, TN. Student engagement education | Payment in Kind (PIK)). | 1,029,330 | 1,029,330 | |||||||||||||
software providing core aligned physical activity | Warrant for 47,324 Series C | |||||||||||||||
breaks. (Software) | Preferred shares. | 25 | 25 | |||||||||||||
www.gonoodle.com | Total GoNoodle | 1,029,355 | 1,029,355 | |||||||||||||
Mercantile Adjustment Bureau, LLC (g) | $1,199,039 subordinated secured | 10/22/12 | 4% | 3.0% | ||||||||||||
Williamsville, NY. Full service accounts receivable | note at 13% (3% for the calendar | |||||||||||||||
management and collections company. | year 2017) due January 31, 2018. | 1,199,040 | 949,040 | |||||||||||||
(Contact Center) | (e)$150,000 subordinated | |||||||||||||||
www.mercantilesolutions.com | debenture at 8% due June 30, | |||||||||||||||
2018. | 150,000 | - | ||||||||||||||
Warrant for 3.29% membership | ||||||||||||||||
interests. Option for 1.5% | ||||||||||||||||
membership interests. | 97,625 | - | ||||||||||||||
(i)Interest receivable $55,983. | ||||||||||||||||
Total Mercantile | 1,446,665 | 949,040 | ||||||||||||||
Outmatch Holdings, LLC (e)(g) | 2,641,899 Class P1 Units. | 11/18/10 | 4% | 2,140,007 | 2,140,007 | 6.7% | ||||||||||
(Chequed Holdings, LLC) | 109,788 Class C1 Units. | 5,489 | 5,489 | |||||||||||||
Dallas, TX. Web based predictive employee selection | Total Outmatch | 2,145,496 | 2,145,496 | |||||||||||||
and reference checking. (Software) | ||||||||||||||||
www.outmatch.com | ||||||||||||||||
PostProcess Technologies LLC (e)(g) | $300,000 convertible promissory | 7/25/16 | 0% | 0.9% | ||||||||||||
Buffalo, NY. Provides innovative solutions for the | note at 5% due July 28, 2018. | 300,000 | 300,000 | |||||||||||||
post-processing of additive manufactured 3D parts. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.postprocess.com |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
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 | ||||||||||
Rheonix, Inc. (e) | 9,676 common shares. | 10/29/09 | 4% | - | 11,000 | 9.2% | ||||||||||
Ithaca, NY. Developer of fully automated | (g)1,839,422 Series A preferred | |||||||||||||||
microfluidic based molecular assay and diagnostic | shares. | 2,099,999 | 2,165,999 | |||||||||||||
testing devices. (Health Care) | (g)50,593 common shares. | - | 59,000 | |||||||||||||
www.rheonix.com | (g)589,420 Series B preferred shares. | 702,732 | 702,732 | |||||||||||||
Total Rheonix | 2,802,731 | 2,938,731 | ||||||||||||||
SocialFlow, Inc. (e)(g) | 1,049,538 Series B preferred shares. | 4/5/13 | 4% | 500,000 | 731,431 | 6.5% | ||||||||||
New York, NY. Provides instant analysis of social | 1,204,819 Series B-1 preferred shares. | 750,000 | 839,648 | |||||||||||||
networks using a proprietary, predictive analytic | 717,772 Series C preferred shares. | 500,000 | 500,221 | |||||||||||||
algorithm to optimize advertising and publishing. | Total Social Flow | 1,750,000 | 2,071,300 | |||||||||||||
(Software) | ||||||||||||||||
www.socialflow.com | ||||||||||||||||
Somerset Gas Transmission Company, LLC (e) | 26.5337 units. | 7/10/02 | 3% | 719,097 | 500,000 | 1.6% | ||||||||||
Columbus, OH. Natural gas transportation. | ||||||||||||||||
(Oil and Gas) | ||||||||||||||||
www.somersetgas.com | ||||||||||||||||
Other Non-Control/Non-Affiliate Investments: | ||||||||||||||||
DataView, LLC(Software)(e) | Membership Interest. | - | - | 310,357 | - | 0.0% | ||||||||||
UStec/Wi3(Manufacturing)(e) | Common Stock. | - | - | 100,500 | - | 0.0% | ||||||||||
Subtotal Non-Control/Non-Affiliate Investments | ||||||||||||||||
$15,718,690 | $15,167,767 | |||||||||||||||
Affiliate Investments – 53.3% of net assets (k) | ||||||||||||||||
BeetNPath, LLC (Grainful) (e)(g) | 1,119,024 Series A-2 Preferred | 10/20/14 | 9% | 2.0% | ||||||||||||
Ithaca, NY. Frozen entrées and packaged dry side | Membership Units. | $359,000 | $359,000 | |||||||||||||
dishes made from 100% whole grain steel cut oats | 1,032,918 Series B Preferred | |||||||||||||||
under Grainful brand name. (Consumer Product) | Membership Units. | 261,277 | 291,000 | |||||||||||||
www.grainful.com | Total BeetNPath | 620,277 | 650,000 | |||||||||||||
Carolina Skiff LLC (g) | 6.0825% Class A common | 1/30/04 | 7% | 5.5% | ||||||||||||
Waycross, GA. Manufacturer of fresh water, | membership interest. | 15,000 | 1,750,000 | |||||||||||||
ocean fishing and pleasure boats. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.carolinaskiff.com | ||||||||||||||||
ClearView Social, Inc. (e)(g) | 312,500 Series seed plus preferred | 1/4/16 | 6% | 0.6% | ||||||||||||
Buffalo, NY. Social media publishing tool for law, | shares. | 200,000 | 200,000 | |||||||||||||
CPA and professional firms. (Software) | ||||||||||||||||
www.clearviewsocial.com | ||||||||||||||||
First Wave Products Group, LLC (e)(g) | $500,000 senior term notes at 10% due | 4/19/12 | 7% | 0.8% | ||||||||||||
Batavia, NY. Sells First Crush automated pill | July 31, 2017. | 661,563 | 250,000 | |||||||||||||
crusher that crushes and grinds medical pills for | $280,000 junior term notes at 10% due | |||||||||||||||
nursing homes and medical institutions. (Health | July 31, 2017. | 316,469 | - | |||||||||||||
Care) | Warrant for 41,619 capital securities. | 22,000 | - | |||||||||||||
www.firstwaveproducts.com | Total First Wave | 1,000,032 | 250,000 | |||||||||||||
Genicon, Inc. | (g)1,586,902 Series B preferred shares. | 4/10/15 | 6% | 1,000,000 | 1,000,000 | 12.6% | ||||||||||
Winter Park, FL. Designs, produces and | (g)$2,000,000 promissory note at 8% | |||||||||||||||
distributes patented surgical instrumentation. | due May 1, 2020. | 1,936,002 | 1,936,002 | |||||||||||||
(Health Care) | (g)Warrant for 250,000 common | |||||||||||||||
www.geniconendo.com | shares. | 80,000 | 80,000 | |||||||||||||
(n)$1,000,000 promissory note at 8% | ||||||||||||||||
due May 1, 2020. | 967,777 | 967,777 | ||||||||||||||
(n)Warrant for 125,000 common | ||||||||||||||||
shares. | 40,000 | 40,000 | ||||||||||||||
Total Genicon | 4,023,779 | 4,023,779 |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
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 | ||||||||||
GiveGab, Inc. (e)(g) | 5,084,329 Series Seed preferred shares. | 3/13/13 | 6% | 616,221 | 424,314 | 1.3% | ||||||||||
Ithaca, NY. Online fundraising, day of giving | ||||||||||||||||
supporter engagement software for non-profit | ||||||||||||||||
organizations. (Software) | ||||||||||||||||
www.givegab.com | ||||||||||||||||
G-TEC Natural Gas Systems (e) | 16.639% Class A membership interest. | 8/31/99 | 17% | 0.3% | ||||||||||||
Buffalo, NY. Manufactures and distributes | 8% cumulative dividend. | 400,000 | 100,000 | |||||||||||||
systems that allow natural gas to be used as an | ||||||||||||||||
alternative fuel to gases. (Manufacturing) | ||||||||||||||||
www.gas-tec.com | ||||||||||||||||
Intrinsiq Materials, Inc. (e)(g) | 4,161,747 Series A preferred shares. | 9/19/13 | 12% | 1,125,673 | 400,000 | 1.3% | ||||||||||
Rochester, NY. Produces printable electronics | ||||||||||||||||
utilizing a unique process of nanomaterial based | ||||||||||||||||
ink in a room-temperature environment. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.intrinsiqmaterials.com | ||||||||||||||||
Knoa Software, Inc. (g) | 973,533 Series A-1 convertible | 11/20/12 | 7% | 4.0% | ||||||||||||
New York, NY. End user experience | preferred shares. | 750,000 | 750,000 | |||||||||||||
management and performance (EMP) solutions | 1,876,922 Series B preferred shares. | 479,155 | 479,155 | |||||||||||||
utilizing enterprise applications. (Software) | $48,466 convertible promissory note at | |||||||||||||||
www.knoa.com | 8% due May 9, 2018. | 48,466 | 48,466 | |||||||||||||
Total Knoa | 1,277,621 | 1,277,621 | ||||||||||||||
KnowledgeVision Systems, Inc. (e)(g) | 200,000 Series A-1 preferred shares. | 11/13/13 | 7% | 250,000 | - | 1.7% | ||||||||||
Lincoln, MA. Online presentation and training | 214,285 Series A-2 preferred shares. | 300,000 | 300,000 | |||||||||||||
software. (Software) | 129,033 Series A-3 preferred shares. | 165,001 | 165,001 | |||||||||||||
www.knowledgevision.com | Warrant for 46,743 Series A-3 shares. | 35,000 | 35,000 | |||||||||||||
$50,000 subordinated promissory note | ||||||||||||||||
at 8% payable on demand of majority of | ||||||||||||||||
noteholders after August 31, 2017. | 50,000 | 50,000 | ||||||||||||||
Total KnowledgeVision | 800,001 | 550,001 | ||||||||||||||
Mezmeriz, Inc. (e)(g) | 1,554,565 Series Seed preferred shares. | 1/9/08 | 14% | 742,850 | 351,477 | 1.1% | ||||||||||
Ithaca, NY. Micro-electronic mechanical systems | ||||||||||||||||
(MEMS) developer of carbon fiber MEMS mirror | ||||||||||||||||
modules for gesture recognition and 3D scanning. | ||||||||||||||||
(Electronics Developer) | ||||||||||||||||
www.mezmeriz.com | ||||||||||||||||
Microcision LLC (g)(m) | $1,500,000 subordinated promissory | 9/24/09 | 15% | 6.0% | ||||||||||||
Pennsauken Township, NJ. Manufacturer of | note at 12% (1% PIK) due December | |||||||||||||||
precision machined medical implants, | 31, 2024. | 1,914,140 | 1,914,140 | |||||||||||||
components and assemblies. (Manufacturing) | 15% Class A common membership | |||||||||||||||
www.microcision.com | interest. | - | - | |||||||||||||
Total Microcision | 1,914,140 | 1,914,140 | ||||||||||||||
New Monarch Machine Tool, Inc. (g) | 22.84 common shares. | 9/24/03 | 15% | 22,841 | 22,841 | 0.1% | ||||||||||
Cortland, NY. Manufactures and services | ||||||||||||||||
vertical/horizontal machining centers. | ||||||||||||||||
(Manufacturing) | ||||||||||||||||
www.monarchmt.com |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
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 | ||||||||||
OnCore Golf Technology, Inc. (e)(g) | 150,000 Series AA preferred shares. | 12/31/14 | 9% | 375,000 | - | 0.9% | ||||||||||
Buffalo, NY. Maker of patented golf balls. | $300,000 subordinated convertible | |||||||||||||||
(Consumer Product) | promissory notes at 6% (10% for | |||||||||||||||
www.oncoregolf.com | calendar year 2017) due January 24, | |||||||||||||||
2018. | ||||||||||||||||
(i)Interest receivable $50,342. | 300,000 | 300,000 | ||||||||||||||
Total OnCore | 675,000 | 300,000 | ||||||||||||||
SciAps, Inc. (e)(g) | 187,500 Series A convertible preferred | 7/12/13 | 8% | 5.6% | ||||||||||||
Woburn, MA. Instrumentation company | shares. | 1,500,000 | 700,000 | |||||||||||||
producing portable analytical devices using XRF, | 274,299 Series A-1 convertible | |||||||||||||||
LIBS and RAMAN spectroscopy to identify | preferred shares. | 504,710 | 250,000 | |||||||||||||
compounds, minerals, and elements. | 117,371 Series B convertible preferred | |||||||||||||||
(Manufacturing) | shares. | 250,000 | 250,000 | |||||||||||||
www.sciaps.com | 113,636 Series C preferred shares. | 175,000 | 175,000 | |||||||||||||
369,698 Series C-1 preferred shares. | 399,274 | 399,274 | ||||||||||||||
Total SciAps | 2,828,984 | 1,774,274 | ||||||||||||||
SOMS Technologies, LLC (e)(g) | 5,959,490 Series B membership | 12/2/08 | 9% | 1.7% | ||||||||||||
Valhalla, NY. Produces and markets the | interests. | 472,632 | 528,348 | |||||||||||||
microGreen Extended Performance Oil Filter. | ||||||||||||||||
(Consumer Products) | ||||||||||||||||
www.microgreenfilter.com | ||||||||||||||||
Teleservices Solutions Holdings, LLC (e) | 250,000 Class B preferred units. | 5/30/14 | 6% | 250,000 | - | 0.0% | ||||||||||
(g)(m) | 1,000,000 Class C preferred units. | 1,190,680 | - | |||||||||||||
Montvale, NJ. Customer contact center | 80,000 Class D preferred units. | 91,200 | - | |||||||||||||
specializing in customer acquisition and retention | 104,198 Class E preferred units. | 104,198 | - | |||||||||||||
for selected industries. (Contact Center) | PIK dividend for Series C and D at 12% | |||||||||||||||
www.ipacesetters.com | and 14%, respectively. | |||||||||||||||
Total Teleservices | 1,636,078 | - | ||||||||||||||
Tilson Technology Management, Inc. | (g)120,000 Series B preferred shares. | 1/20/15 | 11% | 600,000 | 600,000 | 7.8% | ||||||||||
Portland, ME. Cellular, fiber optic and wireless | 21,391 Series C convertible preferred | |||||||||||||||
information systems, construction, and | shares. | 200,000 | 200,000 | |||||||||||||
management. (Professional Services) | (g)$200,000 subordinated promissory | |||||||||||||||
www.tilsontech.com | note at 8% due September 28, 2021. | 200,000 | 200,000 | |||||||||||||
(n)65,790 Series D preferred shares. | 750,000 | 750,000 | ||||||||||||||
(n)$750,000 subordinated promissory | ||||||||||||||||
note at 8% due December 1, 2022. | 750,000 | 750,000 | ||||||||||||||
Total Tilson | 2,500,000 | 2,500,000 | ||||||||||||||
Subtotal Affiliate Investments | $20,871,129 | $17,016,795 | ||||||||||||||
Control Investments – 0.3% of net assets (l) | ||||||||||||||||
Advantage 24/7 LLC (e)(g) | 53% Membership interest. | 12/30/10 | 53% | $99,500 | $99,500 | 0.3% | ||||||||||
Williamsville, NY. Marketing program for wine | ||||||||||||||||
and spirits dealers. (Marketing Company) | ||||||||||||||||
www.advantage24-7.com | ||||||||||||||||
Subtotal Control Investments | $99,500 | $99,500 | ||||||||||||||
TOTAL INVESTMENTS – 101.1% | $36,689,319 | $32,284,062 | ||||||||||||||
OTHER ASSETS IN EXCESS OFLIABILITIES – (1.1%) | (365,377) | |||||||||||||||
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NET ASSETS – 100% | $31,918,685 | |||||||||||||||
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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
Notes to the Consolidated Schedule of Portfolio Investments
(a) At December 31, 2017, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable.
(b) The Date Acquired column indicates the date in which the Corporation first acquired an investment in the company or a predecessor company.
(c) Each equity percentage estimates the Corporation’s ownership interest in the applicable portfolio investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion of debentures, or other available data. If applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.
(d) The Corporation’s investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures,” which defines fair value and establishes guidelines for measuring fair value. At December 31, 2017, ASC 820 designates 100% of the Corporation’s investments as “Level 3” assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 3 “Investments” to the Consolidated Financial Statements).
(e) These investments arenon-income producing. All other investments are income producing.Non-income producing investments have not generated cash payments of interest or dividends including LLCtax-related distributions within the last twelve months, or are not expected to do so going forward.
(f) As of December 31, 2017, the total cost of investment securities was approximately $36.7 million. Net unrealized depreciation was approximately ($4.4) million, which was comprised of $2.4 million of unrealized appreciation of investment securities and ($6.8) million of unrealized depreciation of investment securities. At December 31, 2017, the aggregate gross unrealized gain for federal income tax purposes was $2.8 million and the aggregate gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized loss for federal income tax purposes was ($1.6) million based on a tax cost of $33.9 million.
(g) Rand Capital SBIC, Inc. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal repayment. There were no principal repayments during the year ended December 31, 2017.
(i) Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporation’s Statement of Financial Position.
(j)Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
(k) Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as thoseNon-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.
(l) Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where greater than 50% of the board representation is maintained.
(m) Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.
(n) Rand Capital SBIC II, L.P. investment.
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
Investments in and Advances to Affiliates
Company | Type of Investment | December 31, 2016 Fair Value | Gross Additions (1) | Gross Reductions (2) | December 31, 2017 Fair Value | Net Realized Gains (Losses) | Amount of Interest/ Dividend/ Fee Income (3) | |||||||||||||||||||
Control Investments: | ||||||||||||||||||||||||||
Advantage 24/7 LLC | 53% Membership interest. | $99,500 | $- | $- | $99,500 | $- | $- | |||||||||||||||||||
Total Control Investments | $99,500 | $- | $- | $99,500 | - | $- | ||||||||||||||||||||
Affiliate Investments: | ||||||||||||||||||||||||||
BeetNPath, LLC | 1,119,024 Series A-2 Preferred Membership | |||||||||||||||||||||||||
Units. | $359,000 | $- | $359,000 | - | $- | |||||||||||||||||||||
1,032,918 Series B Preferred Membership | - | |||||||||||||||||||||||||
Units | - | $291,000 | - | 291,000 | - | - | ||||||||||||||||||||
$150,000 convertible promissory note at 8%. | 150,000 | - | (150,000) | - | - | 4,800 | ||||||||||||||||||||
Total BeetNPath | 509,000 | 291,000 | (150,000) | 650,000 | - | 4,800 | ||||||||||||||||||||
Carolina Skiff LLC | 6.0825% Class A common membership interest. | 1,100,000 | 650,000 | - | 1,750,000 | - | 178,532 | |||||||||||||||||||
ClearView Social, Inc. | 312,500 Series seed plus preferred shares. | 200,000 | - | - | 200,000 | - | - | |||||||||||||||||||
First Wave Products | $500,000 senior term notes at 10%. | 250,000 | - | - | 250,000 | - | - | |||||||||||||||||||
Group, LLC | $280,000 junior term notes at 10%. | - | - | - | - | - | - | |||||||||||||||||||
Warrant for 41,619 capital securities. | - | - | - | - | - | - | ||||||||||||||||||||
Total First Wave | 250,000 | - | - | 250,000 | - | - | ||||||||||||||||||||
Genicon, Inc. | 1,586,902 Series B preferred shares. | 1,000,000 | - | - | 1,000,000 | - | - | |||||||||||||||||||
$1,100,000 senior term loans at 12%. | 1,100,000 | - | (1,100,000) | - | - | 50,234 | ||||||||||||||||||||
$600,000 term loan at 14%. | 600,000 | - | (600,000) | - | - | 32,200 | ||||||||||||||||||||
$2,000,000 promissory note at 8% | - | 2,016,002 | (80,000) | 1,936,002 | - | 129,752 | ||||||||||||||||||||
$1,000,000 promissory note at 8% | - | 1,007,777 | (40,000) | 967,777 | - | 60,860 | ||||||||||||||||||||
Warrant for 250,000 common shares | - | 80,000 | - | 80,000 | - | |||||||||||||||||||||
Warrant for 125,000 common shares | - | 40,000 | - | 40,000 | - | - | ||||||||||||||||||||
Total Genicon | 2,700,000 | 3,143,779 | (1,820,000) | 4,023,779 | - | 273,046 | ||||||||||||||||||||
GiveGab, Inc. | 5,084,329 Series Seed preferred shares. | 424,314 | - | - | 424,314 | - | - | |||||||||||||||||||
G-TEC Natural Gas Systems | 16.639% Class A membership interest. 8% cumulative dividend | 100,000 | - | - | 100,000 | - | - | |||||||||||||||||||
Intrinsiq Materials, Inc. | 4,161,747 Series A preferred shares. | 780,000 | - | (380,000) | 400,000 | - | - | |||||||||||||||||||
Knoa Software, Inc. | 973,533 Series A-1 convertible preferred | - | 750,000 | - | 750,000 | - | - | |||||||||||||||||||
shares. 1,876,922 Series B preferred shares. | 449,455 | 29,700 | - | 479,155 | - | - | ||||||||||||||||||||
$48,466 convertible promissory note at 8%. | 48,466 | - | - | 48,466 | - | 3,877 | ||||||||||||||||||||
Total Knoa | 497,921 | 779,700 | - | 1,277,621 | - | 3,877 | ||||||||||||||||||||
KnowledgeVision | 200,000 Series A-1 preferred shares. | - | - | - | - | - | - | |||||||||||||||||||
Systems, Inc. | 214,285 Series A-2 preferred shares. | 300,000 | - | - | 300,000 | - | - | |||||||||||||||||||
129,033 Series A-3 preferred shares. | 165,001 | - | - | 165,001 | - | - | ||||||||||||||||||||
$50,000 subordinated promissory note at 8% | - | 50,000 | - | 50,000 | - | 3,748 | ||||||||||||||||||||
Warrant for 46,743 Series A-3 shares. | 35,000 | - | - | 35,000 | - | - | ||||||||||||||||||||
Total Knowledge Vision | 500,001 | 50,000 | - | 550,001 | - | 3,748 | ||||||||||||||||||||
Mezmeriz, Inc. | 1,554,565 Series seed preferred shares. | 351,477 | - | - | 351,477 | - | - | |||||||||||||||||||
Microcision LLC | $1,500,000 subordinated promissory note at 12% (1% PIK). | 1,891,964 | 22,176 | - | 1,914,140 | - | 228,239 | |||||||||||||||||||
New Monarch Machine Tool, Inc. | 22.84 common shares. | 22,841 | - | - | 22,841 | - | 28,409 |
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
Investments in and Advances to Affiliates
Company | Type of Investment | December 31, 2016 Fair Value | Gross Additions (1) | Gross Reductions (2) | December 31, 2017 Fair Value | Net Realized Gains (Losses) | Amount of Interest/ Dividend/ Fee Income (3) | |||||||||||||||||||
OnCore Golf | 150,000 Series AA preferred shares. | - | - | - | - | - | - | |||||||||||||||||||
Technology, Inc. | $300,000 subordinated convertible | |||||||||||||||||||||||||
promissory notes at 6%. | 300,000 | - | - | 300,000 | - | 29,211 | ||||||||||||||||||||
Total OnCore | 300,000 | - | - | 300,000 | - | 29,211 | ||||||||||||||||||||
SciAps, Inc. | 187,500 Series A convertible preferred | |||||||||||||||||||||||||
shares. | 1,000,000 | - | (300,000) | 700,000 | - | - | ||||||||||||||||||||
274,299 Series A-1 convertible preferred | ||||||||||||||||||||||||||
shares. | 504,710 | - | (254,710) | 250,000 | - | - | ||||||||||||||||||||
117,371 Series B convertible preferred | ||||||||||||||||||||||||||
shares. | 250,000 | - | - | 250,000 | - | - | ||||||||||||||||||||
113,636 Series C preferred shares. | - | 175,000 | - | 175,000 | - | - | ||||||||||||||||||||
369,698 Series C-1 preferred shares. | - | 399,274 | - | 399,274 | - | - | ||||||||||||||||||||
$200,000 subordinated promissory note at | ||||||||||||||||||||||||||
10%. | 200,000 | - | (200,000) | - | - | 4,731 | ||||||||||||||||||||
$100,000 secured subordinated convertible | ||||||||||||||||||||||||||
note at 10%. | 100,000 | - | (100,000) | - | - | 2,376 | ||||||||||||||||||||
Total SciAps | 2,054,710 | 574,274 | (854,710) | 1,774,274 | - | 7,107 | ||||||||||||||||||||
SOMS | 5,959,490 Series B membership interests. | 528,348 | - | - | 528,348 | - | 6,024 | |||||||||||||||||||
Technologies, LLC | ||||||||||||||||||||||||||
Teleservices | 250,000 Class B preferred units. | - | - | - | - | - | - | |||||||||||||||||||
Solutions | 1,000,000 Class C preferred units. | 200,000 | - | (200,000) | - | - | - | |||||||||||||||||||
Holdings, LLC | 80,000 Class D preferred units. | 91,200 | - | ( 91,200) | - | - | - | |||||||||||||||||||
104,198 Class E preferred units. | 104,198 | - | (104,198) | - | - | - | ||||||||||||||||||||
Total Teleservices | 395,398 | - | (395,398) | - | - | - | ||||||||||||||||||||
Tilson Technology | 120,000 Series B preferred shares. | 600,000 | - | - | 600,000 | - | 20,000 | |||||||||||||||||||
Management, Inc. | 21,391 Series C convertible preferred | 200,000 | - | 200,000 | - | - | ||||||||||||||||||||
shares. | - | |||||||||||||||||||||||||
$200,000 subordinated promissory note at | 200,000 | - | 200,000 | - | 16,000 | |||||||||||||||||||||
8%. | - | 750,000 | 750,000 | 1,579 | ||||||||||||||||||||||
65,790 Series D preferred shares. | ||||||||||||||||||||||||||
$750,000 subordinated promissory note at | - | 750,000 | - | 750,000 | - | 5,096 | ||||||||||||||||||||
8%. | 1,000,000 | 1,500,000 | - | 2,500,000 | - | 42,675 | ||||||||||||||||||||
Total Tilson | ||||||||||||||||||||||||||
Total Affiliate Investments | $13,605,974 | $7,010,929 | ($3,600,108) | $17,016,795 | $- | $805,668 | ||||||||||||||||||||
Total Control and Affiliate Investments | $13,705,474 | $7,010,929 | ($3,600,108) | $17,116,295 | $- | $805,668 |
This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.
(1) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.
(2) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.
(3) Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate categories, respectively.
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2017 (Continued)
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Rand Capital Corporation and SubsidiariesSubsidiary
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 as an internally managed,closed-end, diversified, management investment company. We have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, we are required to comply with certain regulatory requirements. 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 – Regulation, Regulation as a Business Development Company in our Annual Report on Form10-K for the year ended December 31, 2017.2018.
Throughout our history, our principal business has been to make venture capital investments in early or expansion stage companies, often in upstate New York and regions in close proximity. In accordance with our strategic growth plan, we look for companies with strong leadership that are bringing to market new or unique products, technologies or services and have a high potential for growth. We invest in a mixture of debt and equity instruments. The debt securities typically have an equity component in the form of warrants or options to acquire stock or the right to convert the debt securities into equity securities.
We established our first small business investment company (“SBIC”) in 2002, Rand Capital SBIC, Inc. (“Rand SBIC”), whereby we utilized funds borrowed from the Small Business Administration (“SBA”) combined with our capital to invest in our portfolio companies. We historically made the majority of our venture capital investments through Rand SBIC. Rand SBIC’s predecessor was organized as a Delaware limited partnership and was converted into a New York corporation on December 31, 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. In 2012, the SEC granted an Order of Exemption for Rand with respect to the operations of Rand SBIC, and then Rand SBIC filed an election to be regulated as a BDC under the 1940 Act. Rand SBIC’s board of directors is comprised of the directors of Rand, a majority of whom are not “interested persons” of Rand or Rand SBIC.
During 2017 we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (“Rand SBIC II”), and began making investments through this SBIC subsidiary. During the first quarter of 2018, together with the SBA, we determined that the optimal structure was to revert back to investing in small businesses through our original SBIC, Rand SBIC, and the assets of Rand SBIC II were transferred to Rand SBIC. Rand SBIC has applied for $6 million in new SBA leverage commitment and is currently undergoing the review and approval process.
We operate as an internally managed investment company whereby our officers and employees conduct the business of the Corporation under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code. See Recent Developments.
In this Quarterly Report on Form10-Q, unless the context otherwise requires, “we”, the “Corporation”, “us”, and “our” refer to Rand Capital Corporation and Rand SBIC.
Our corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available free of charge on our website our annual and periodic 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 NASDAQNasdaq Capital Market under the ticker symbol “RAND”.
Recent Developments
As previously announced, on January 24, 2019, Rand entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among Rand, East Asset Management, LLC (“East”), and, solely for purposes of being bound by Sections 7.10 and 10.9(a) and (b) thereof, Rand Capital Management LLC (“RCM”). Pursuant to the terms of the Stock Purchase Agreement, at the closing of the transaction (the “Closing”), East will purchase 8,333,333.33 shares (the “Shares”) of Rand’s common stock, par value $0.10 per share, at a purchase price of $3.00 per Share for an aggregate purchase price of $25,000,000 (the “Stock Purchase”), which consideration is to be paid to Rand partially in cash and partially through the contribution of existing loans and other securities (the “Contributed Assets”). As a condition to Closing, Rand will enter into a Shareholder Agreement with East (the “Shareholder Agreement”), which provides East with the right to designate two or three persons, depending upon the size of Rand’s board of directors (the “Board”), but in no case a majority, for nomination for election to Rand’s board of directors.
The Stock Purchase Agreement also contemplates that, at the Closing, Rand will enter into an investment advisory and management agreement (the “Advisory Agreement”) with RCM pursuant to which RCM will serve as Rand’s external investment adviser. Pursuant to the terms of the Advisory Agreement, Rand will pay RCM a base management fee and an incentive fee. At the Closing, Rand will also enter into an administration agreement (the “Administration Agreement”) with RCM pursuant to which RCM will serve as Rand’s administrator.
The transactions contemplated by the Stock Purchase Agreement, including the entry into the Advisory Agreement with RCM (which we refer to as the “Transactions”), required receipt of shareholder approval. Rand’s shareholders approved all proposals related to the Transactions at a special meeting of shareholders that was held on May 16, 2019.
In connection with the completion of the Transactions, Rand intends to accelerate its shift to an investment strategy focused on higher yielding debt investments, to elect tax treatment as a regulated investment company (“RIC”), and in connection with such RIC election intends to pay a special dividend to shareholders, and intends to adopt a new dividend policy that may include regular cash dividends to shareholders.
Rand expects the Transactions to close in the second half of 2019, subject to receipt of required regulatory approvals.
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 United States generally accepted accounting principles (“GAAP”) of the consolidated financial position, results of operations, cash flows and statement of changes in net assets for the interim periods presented. 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. Our interim results for the ninesix months ended SeptemberJune 30, 20182019 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 Form10-K for the year ended December 31, 2017.2018. 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. Those filings include, but are not limited to, the following:
N-54A Election to Adopt Business Development Company status
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10-Q Quarterly Report on Form10-Q for the quarter ended March 31, 2019
Principles of Consolidation – The consolidated financial statements include the accounts of Rand and its two wholly-owned subsidiaries.subsidiary. 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.
Fair Value of SBA Debentures –In September 2018,March 2019, the SBIC Funding Corporation completed a pooling of SBA debentures that have a coupon rate of 3.548%3.113%, excluding a mandatory SBA annual charge estimated to be 0.804%0.094%, resulting in a total estimated fixed rate for ten years of 4.352%3.207%. The carrying value of Rand’s SBA debentures is a reasonable estimate of fair value because their stated interest rates approximate current interest rates that are available for debt with similar terms.
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 25% of the voting securities of the company or has greater than 50% representation on the company’s board. “Affiliate Investments” are companies in which the Corporation owns between 5% and 25% of the voting securities.“Non-Control/Non-Affiliate Investments” are those companies that are neither Control Investments nor Affiliate Investments.
Investments – Investments are valued at fair value as determined in good faith by the management of the Corporation and approved by the Board of Directors. The Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistent valuation process. 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 debt security 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, its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been used had a ready market for the investments existed and these differences could be material if the Corporation’s assumptions and judgments differ from results of actual liquidation events.
Qualifying Assets– All of the Corporation’s investments were made in privately held small business enterprises, that were not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act.
Cash and Cash Equivalents – Temporary cash investments having a maturity of less than a year when purchased are considered to be cash equivalents.
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.
Rand SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting Requirements for Small Business Investment Companies.” Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or a loan is in default for more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of any accrued interest.
The following investments are onnon-accrual status: BeetNPath, LLC (Beetnpath),G-TEC Natural Gas Systems(G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc. (Oncore) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance.
The Corporation holds debt securities in its investment portfolio that containpayment-in-kind (“PIK”) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically 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.
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 SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of financing fees was $28,266$42,428 and $18,557$15,327 for the ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. In addition, the Corporation recognized aone-time fee of $225,000 in conjunction with the repayment of the eHealth loan instrument. The board fees were $2,000$500 and $1,000$2,000 for the ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. In addition, we recorded a fee of approximately $142,000 for modifying a debt instrument during the nine months ended September 30, 2018.
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. The note is reported net of the OID and the OID is accreted into interest income over the life of the loan. The Corporation recognized $29,462$20,382 and $21,085$19,271 in OID income for ninethe six months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. OID income is estimated to be approximately $10,000$20,000 for the remainder of 2018.2019.
Deferred Debenture Costs – SBA debenture origination and commitment costs, which are netted against the debenture obligation (See Note 6 “SBA Debentures”), will be amortized ratably over the terms of the SBA debentures. Amortization expense was $20,550$18,195 and $13,700 for each of the ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017.respectively. Amortization expense on currently outstanding debentures for the next five years is estimated to average approximately $23,000$31,000 per year.
SBA Debentures –The Corporation had $8,000,000$11,000,000 and $8,750,000 in outstanding SBA debentures at SeptemberJune 30, 20182019 and December 31, 20172018, respectively, with a weighted average interest rate, including the SBA annual fee, of 3.54%.3.45% at June 30, 2019. The debentures are presented net of deferred debenture costs (See Note 6 “SBA Debentures”). The $8,000,000$11,000,000 in outstanding SBA leverage matures from 2022 through 2025.2029.
In the event of a future default of such SBA obligations, the Corporation has consented to the exercise, by the SBA, of all rights of the SBA under 13 C.F.R. 107.1810(i) “SBA remedies for automatic events of default” and has agreed to take all actions that the SBA may so require. These actions may include the Corporation’s automatic consent to the appointment of the SBA, or its designee, as receiver under Section 311(c) of the Small Business Investment Act of 1958.
Net Assets per Share – Net assets per share are based on the number of shares of common stock outstanding. The Corporation does not have any common stock equivalents outstanding.
Supplemental Cash Flow Information – Income taxes (refunded) paidrefunded during the ninesix months ended SeptemberJune 30, 2019 and 2018 were $630,274 and 2017 were ($17,006) and $590,940,$17,051, respectively. Interest paid during each of the ninesix months ended SeptemberJune 30, 2019 and 2018 was $153,513 and 2017 was $282,875.$140,275, respectively. The Corporation converted $279,319$232,513 and $262,105$77,154 of interest receivable into investments during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
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 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 SeptemberJune 30, 20182019 and December 31, 2017,2018, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued.
On October 25, 2018, the Board of Directors extended the repurchase authorization for up to 1,000,000 shares of the Corporation’s outstanding common stock on the open market through October 25, 2019 at prices no greater than the then current net asset value. No shares were repurchased during the ninesix months ended SeptemberJune 30, 2018.2019. At SeptemberJune 30, 2018,2019, the total treasury shares held was 541,046 shares with a total cost of $1,469,105.
Profit Sharing and Stock Option Plan –In 2001, the stockholdersshareholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the “Option Plan”), that provides for the award of stock options to purchase up to 200,000 common shares to eligible employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporation’s employees in connection with the formation of its SBIC subsidiary. As of SeptemberJune 30, 2018,2019, no stock options had been
awarded under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no stock options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation.
In 2002, the Corporation established a Profit Sharing Plan (the “Plan”) for its executive officers in accordance with Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital losses and unrealized depreciation of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporation’s interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the Corporation’s net income, as defined in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporation’s net investment gain (loss) and its net realized gain (loss) on investments, prior to inclusion of the estimated profit sharing obligation. The profit sharing payments are split equally between the Corporation’s two executive officers, each of whom is fully vested in the Plan.
The Corporation did not record any expense pursuant to the Plan for the ninesix months ended SeptemberJune 30, 20182019 and 2017, respectively. Included in the profit sharing and bonus payable line on the Consolidated Statement of Financial Position at December 31, 2017 was $132,000 that was paid during the first quarter of 2018.
Income Taxes –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 no uncertain tax positions recorded at SeptemberJune 30, 2019 or December 31, 2018.
It is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax expense. There were no amounts recognized for interest or penalties for the ninesix months ended SeptemberJune 30, 20182019 or 2017.2018.
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 insurable limits. Management does not anticipatenon-performance by such banks.
The following are the concentrations of the top five portfolio company values to the fair value of the Corporation’s total investment portfolio:
September 30, 2018 | December 31, 2017 | |||||||
Genicon, Inc. (Genicon) | 13 | % | 12 | % | ||||
eHealth Global Technologies, Inc. (eHealth), | 11 | % | 11 | % | ||||
Rheonix, Inc. (Rheonix) | 9 | % | 9 | % | ||||
Tilson Technology Management, Inc. (Tilson) | 8 | % | 8 | % | ||||
Outmatch (Outmatch) | 7 | % | 7 | % |
As of June 30, 2019 | ||||
Tilson Technology Management, Inc. (Tilson) | 16 | % | ||
Genicon, Inc. (Genicon) | 13 | % | ||
ACV Auctions, Inc. (ACV) | 9 | % | ||
Microcision, LLC. (Microcision) | 8 | % | ||
Rheonix, Inc. (Rheonix) | 7 | % | ||
As of December 31, 2018 | ||||
Genicon, Inc. (Genicon) | 13 | % | ||
eHealth Global Technologies, Inc. (eHealth) | 10 | % | ||
ACV Auctions, Inc. (ACV) | 8 | % | ||
Tilson Technology Management, Inc. (Tilson) | 7 | % | ||
Microcision, LLC. (Microcision) | 7 | % |
Note 3. INVESTMENTS
The Corporation’s investments are carried at fair value 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 with no equity features. 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. A financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the company.
The Corporation uses several approaches to determine the fair value of an investment. The main approaches are:
Loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of the investment. A loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.
Equity securities may be valued using the “asset approach”, “market approach” or “income approach.” The asset approach involves estimating the liquidation value of the portfolio company’s assets. To the extent the value exceeds the remaining principal amount of the debt or loan securities of the portfolio company, the fair value of such securities is generally estimated to be their cost. However, where value is less than the remaining principal amount of the loan and debt securities, the Corporation may discount the value of an equity security. The market approach uses observable prices and other relevant information generated by similar market transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an investment.
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 average closing bid price for the last three trading days 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.
There were no Level 1 or 2 investments as of SeptemberJune 30, 2019 or December 31, 2018.
In the valuation process, the Corporation values restricted securities, categorized as Level 3 investments, using information from these portfolio companies, which may include:
Audited and unaudited statements of operations, balance sheets and operating budgets;
Current and projected financial, operational and technological developments of the portfolio company;
Current and projected ability of the portfolio company to service its debt obligations;
The current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur;
Pending debt or capital restructuring of the portfolio company;
Current information regarding any offers to purchase the investment, or recent fundraising transactions;
Current ability of the portfolio company to raise additional financing if needed;
Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
Internal circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio company;
Qualitative assessment of key management;
Contractual rights, obligations or restrictions associated with the investment; and
Other factors deemed relevant by the Corporation’s management to assess valuation.
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 small and in early stages of development 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 recent investments of less than one year old, 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 debt 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 SeptemberJune 30, 2018:2019:
Investment Type | Market Approach EBITDA Multiple | Market Approach Liquidation Seniority | Market Approach Revenue Multiple | Market Approach Transaction Pricing | Totals | |||||||||||||||
Non-Control/Non-Affiliate Equity | $ | — | $ | 25 | $ | 2,645,496 | $ | 6,209,950 | $ | 8,855,471 | ||||||||||
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Non-Control/Non-Affiliate Debt | $ | 949,040 | 1,739,639 | 3,500,000 | 300,000 | 6,488,679 | ||||||||||||||
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| |||||||||||
TotalNon-Control/Non-Affiliate | $ | 949,040 | $ | 1,739,664 | $ | 6,145,496 | $ | 6,509,950 | $ | 15,344,150 | ||||||||||
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Affiliate Equity | $ | 4,420,000 | $ | 22,841 | $ | 4,053,430 | $ | 1,031,477 | $ | 9,527,748 | ||||||||||
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Affiliate Debt | 5,935,859 | — | — | 1,265,000 | 7,200,859 | |||||||||||||||
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Total Affiliate | $ | 10,355,859 | $ | 22,841 | $ | 4,053,430 | $ | 2,296,477 | $ | 16,728,607 | ||||||||||
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Control Equity | $ | — | $ | — | $ | 99,500 | $ | — | $ | 99,500 | ||||||||||
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Total Control | $ | — | $ | — | $ | 99,500 | $ | — | $ | 99,500 | ||||||||||
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Total Level 3 Investments | $ | 11,304,899 | $ | 1,762,505 | $ | 10,298,426 | $ | 8,806,427 | $ | 32,172,257 | ||||||||||
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| |||||||||||
Range | 4X-9X | 1X | 1X-3.3X | Not Applicable | ||||||||||||||||
Unobservable Input | EBITDA Multiple | Asset Value | Revenue Multiple | Transaction Price | ||||||||||||||||
Weighted Average | 5.6X | 1X | 2.1X | Not Applicable |
Investment Type | Market Approach EBITDA Multiple | Market Approach Liquidation Seniority | Market Approach Revenue Multiple | Market Approach | Asset Value | Totals | ||||||||||||||||||
Non-Control/Non-Affiliate Equity | $ | — | $ | 3,202,757 | $ | 2,645,496 | $ | 3,694,470 | $ | — | $ | 9,542,723 | ||||||||||||
Non-Control/Non-Affiliate Loan and Debt | 500,000 | 1,871,439 | — | 1,025,777 | — | 3,339,216 | ||||||||||||||||||
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| |||||||||||||
TotalNon-Control/Non-Affiliate | $ | 500,000 | $ | 5,074,196 | $ | 2,645,496 | $ | 4,720,247 | — | $ | 12,939,939 | |||||||||||||
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Affiliate Equity | $ | — | $ | 22,841 | $ | 3,768,430 | $ | 7,004,489 | $ | 1,943,031 | $ | 10,795,760 | ||||||||||||
Affiliate Loan and Debt | — | — | 3,588,315 | 1,975,000 | — | 7,506,346 | ||||||||||||||||||
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Total Affiliate | $ | — | $ | 22,841 | $ | 7,356,745 | $ | 8,979,489 | $ | 1,943,031 | $ | 18,302,106 | ||||||||||||
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Total Level 3 Investments | $ | 500,000 | $ | 5,097,037 | $ | 10,002,241 | $ | 13,699,736 | $ | 1,943,031 | $ | 31,242,045 | ||||||||||||
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Range | 6.0X | 1X | 1X-4X | Not Applicable | Not Applicable | |||||||||||||||||||
Unobservable Input | EBITDA Multiple | Asset Value | Revenue Multiple | Transaction Price | Asset Value | |||||||||||||||||||
Weighted Average | 6.0X | 1X | 2.6X | Not Applicable | Not Applicable |
The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at SeptemberJune 30, 2018:2019:
Fair Value Measurements at Reported Date Using | ||||||||||||||||
Description | September 30, 2018 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Other Significant Unobservable Inputs (Level 3) | ||||||||||||
Loan investments | $ | 4,325,000 | $ | — | $ | — | $ | 4,325,000 | ||||||||
Debt investments | 9,364,538 | — | — | 9,364,538 | ||||||||||||
Equity investments | 18,482,719 | — | — | 18,482,719 | ||||||||||||
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Total | $ | 32,172,257 | $ | — | $ | — | $ | 32,172,257 | ||||||||
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|
Fair Value Measurements at Reported Date Using | ||||||||||||||||
Description | June 30, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Other Significant Unobservable Inputs (Level 3) | ||||||||||||
Loan investments | $ | 2,145,692 | $ | — | $ | — | $ | 2,145,692 | ||||||||
Debt investments | 8,757,870 | — | — | 8,757,870 | ||||||||||||
Equity investments | 20,338,483 | — | — | 20,338,483 | ||||||||||||
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Total | $ | 31,242,045 | $ | — | $ | — | $ | 31,242,045 | ||||||||
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The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value on a Recurring Basis at December 31, 2017:
Fair Value Measurements at Reported Date Using | ||||||||||||||||
Description | December 31, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Other Significant Unobservable Inputs (Level 3) | ||||||||||||
Loan investments | $ | 3,550,000 | $ | — | $ | — | $ | 3,550,000 | ||||||||
Debt investments | 10,096,244 | — | — | 10,096,244 | ||||||||||||
Equity investments | 18,637,818 | — | — | 18,637,818 | ||||||||||||
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Total | $ | 32,284,062 | $ | — | $ | — | $ | 32,284,062 | ||||||||
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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, 2018:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments | ||||||||||||||||
Description | Loan Investments | Debt Investments | Equity Investments | Total | ||||||||||||
Ending Balance, December 31, 2017, of Level 3 Assets | $ | 3,550,000 | $ | 10,096,244 | $ | 18,637,818 | $ | 32,284,062 | ||||||||
Realized loss included in net change in net assets from operations: | ||||||||||||||||
Intrinsiq Material, Inc. (Intrinsiq) | — | — | (1,125,673 | ) | (1,125,673 | ) | ||||||||||
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Total Realized Losses | — | — | (1,125,673 | ) | (1,125,673 | ) | ||||||||||
Unrealized Losses included in net change in net assets from operations: | ||||||||||||||||
Empire Genomics, LLC (Empire Genomics) | — | (901,360 | ) | — | (901,360 | ) | ||||||||||
First Wave Products Group, LLC (First Wave) | — | (250,000 | ) | — | (250,000 | ) | ||||||||||
GiveGab, Inc. (Givegab) | — | — | 191,907 | 191,907 | ||||||||||||
Intrinsiq | — | — | 725,673 | 725,673 | ||||||||||||
SOMS Technologies, LLC (SOMS) | — | — | (498,348 | ) | (498,348 | ) | ||||||||||
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Total Unrealized Losses | — | (1,151,360 | ) | 419,232 | (732,128 | ) | ||||||||||
Purchases of Securities/Changes toSecurities/Non-cash conversions: | ||||||||||||||||
BeetNPath, LLC (Beetnpath) | — | 140,000 | — | 140,000 | ||||||||||||
Centivo Corporation (Centivo) | — | — | 201,342 | 201,342 | ||||||||||||
Empire Genomics | — | 274,106 | — | 274,106 | ||||||||||||
Genicon, Inc. (Genicon) | — | 153,548 | — | 153,548 | ||||||||||||
GoNoodle, Inc. (GoNoodle) | — | 7,739 | — | 7,739 | ||||||||||||
KnowledgeVision Systems, Inc. (Knowledgevision) | 775,000 | — | — | 775,000 | ||||||||||||
Microcision LLC (Microcision) | — | 14,392 | — | 14,392 | ||||||||||||
SciAps, Inc. (Sciaps) | — | — | 250,000 | 250,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Purchases of Securities/Changes toSecurities/Non-cash conversions | 775,000 | 589,785 | 451,342 | 1,816,127 | ||||||||||||
Repayments and Sale of Securities: | ||||||||||||||||
Empire Genomics | — | (21,665 | ) | — | (21,665 | ) | ||||||||||
Knoa Software, Inc. (Knoa) | — | (48,466 | ) | — | (48,466 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Repayments and Sale of Securities | — | (70,131 | ) | — | (70,131 | ) | ||||||||||
Transfers within Level 3 | — | (100,000 | ) | 100,000 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending Balance, September 30, 2018, of Level 3 Assets | $ | 4,325,000 | $ | 9,364,538 | $ | 18,482,719 | $ | 32,172,257 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Change in unrealized depreciation on investments for the period included in changes in net assets |
| ($ | 732,128 | ) | ||||||||||||
|
| |||||||||||||||
Net realized loss on investments for the period included in changes in net assets |
| ($ | 1,125,673 | ) | ||||||||||||
|
|
Fair Value Measurements at Reported Date Using | ||||||||||||||||
Description | December 31, 2018 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Other Significant Unobservable Inputs (Level 3) | ||||||||||||
Loan investments | $ | 4,935,777 | $ | — | $ | — | $ | 4,935,777 | ||||||||
Debt investments | 9,397,979 | — | — | 9,397,979 | ||||||||||||
Equity investments | 20,330,048 | — | — | 20,330,048 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 34,666,804 | $ | — | $ | — | $ | 34,666,804 | ||||||||
|
|
|
|
|
|
|
|
The following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3) for the ninesix months ended SeptemberJune 30, 2017:2019:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments | |||||||||||||||||||||||||||||||
Description | Loan Investments | Debt Investments | Equity Investments | Total | Loan | Debt Investments | Equity Investments | Total | ||||||||||||||||||||||||
Ending Balance, December 31, 2016, of Level 3 Assets | $ | 3,200,000 | $ | 6,700,221 | $ | 17,600,260 | $ | 27,500,481 | ||||||||||||||||||||||||
Ending Balance, December 31, 2018, of Level 3 Assets | $ | 4,935,777 | $ | 9,397,979 | $ | 20,333,048 | $ | 34,666,804 | ||||||||||||||||||||||||
Realized gain included in net change in net assets from operations: | ||||||||||||||||||||||||||||||||
Advantage 24/7 LLC (Advantage 24/7) | — | — | (40,500 | ) | (40,500 | ) | ||||||||||||||||||||||||||
Gemcor II LLC (Gemcor) | — | — | 39,893 | 39,893 | ||||||||||||||||||||||||||||
SOMS Technologies, LLC (SOMS) | — | — | (472,632 | ) | (472,632 | ) | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total Realized Gains and Losses | — | — | (392,239 | ) | (392,239 | ) | ||||||||||||||||||||||||||
Unrealized Gains and Losses included in net change in net assets from operations: | ||||||||||||||||||||||||||||||||
ACV Auctions, Inc. (ACV Auctions) | — | — | 119,356 | 119,356 | ||||||||||||||||||||||||||||
Athenex, Inc. (Athenex) | — | — | 308,336 | 308,336 | ||||||||||||||||||||||||||||
BeetNPath, LLC (Beetnpath) | — | — | 29,723 | 29,723 | — | (262,627 | ) | (261,277 | ) | (523,904 | ) | |||||||||||||||||||||
City Dining Cards, Inc. (Loupe) | — | — | (500,000 | ) | (500,000 | ) | ||||||||||||||||||||||||||
Genicon, Inc. (Genicon) | — | (215,080 | ) | (537,500 | ) | (752,580 | ) | |||||||||||||||||||||||||
Mercantile Adjustment Bureau, LLC (Mercantile) | — | (250,000 | ) | — | (250,000 | ) | — | (200,000 | ) | — | (200,000 | ) | ||||||||||||||||||||
SciAps, Inc. (Sciaps) | — | (300,000 | ) | (300,000 | ) | — | — | (385,000 | ) | (385,000 | ) | |||||||||||||||||||||
Teleservices Solutions Holdings, LLC (Teleservices) | — | (395,398 | ) | (395,398 | ) | |||||||||||||||||||||||||||
SocialFlow, Inc. (Socialflow) | — | — | (1,071,300 | ) | (1,071,300 | ) | ||||||||||||||||||||||||||
SOMS | — | — | 472,632 | 472,632 | ||||||||||||||||||||||||||||
Tilson Technology Management, Inc. (Tilson) | — | — | 1,860,000 | 1,860,000 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total Unrealized Gains and Losses | — | (250,000 | ) | (737,983 | ) | (987,983 | ) | — | (677,707 | ) | 77,555 | (600,152 | ) | |||||||||||||||||||
Purchases of Securities/Changes toSecurities/Non-cash conversions: | ||||||||||||||||||||||||||||||||
Beetnpath | — | 100,000 | 11,277 | 111,277 | ||||||||||||||||||||||||||||
Centivo Corporation (Centivo) | — | 100,000 | — | 100,000 | ||||||||||||||||||||||||||||
eHealth Global Technologies, Inc. (eHealth) | 2,000,000 | — | — | 2,000,000 | ||||||||||||||||||||||||||||
Advantage 24/7 | 140,000 | — | — | 140,000 | ||||||||||||||||||||||||||||
Empire Genomics, LLC (Empire Genomics) | — | 201,489 | — | 201,489 | — | 49,821 | — | 49,821 | ||||||||||||||||||||||||
Genicon, Inc. (Genicon) | 300,000 | 893,588 | 120,000 | 1,313,588 | ||||||||||||||||||||||||||||
Genicon | — | 417,809 | — | 417,809 | ||||||||||||||||||||||||||||
GoNoodle, Inc. (GoNoodle) | — | 7,662 | — | 7,662 | — | 5,205 | — | 5,205 | ||||||||||||||||||||||||
KnowledgeVision Systems, Inc. (Knowledge Vision) | 50,000 | — | — | 50,000 | 150,000 | — | — | 150,000 | ||||||||||||||||||||||||
Mercantile | — | 107,497 | — | 107,497 | ||||||||||||||||||||||||||||
Microcision LLC (Microcision) | — | 17,403 | — | 17,403 | — | 9,678 | — | 9,678 | ||||||||||||||||||||||||
Sciaps | — | — | 274,274 | 274,274 | ||||||||||||||||||||||||||||
Tilson | — | — | 500,012 | 500,012 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total Purchases of Securities/Changes toSecurities/Non-cash conversions | 2,350,000 | 1,427,639 | 405,551 | 4,183,190 | 290,000 | 482,513 | 500,012 | 1,272,525 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Repayments and Sale of Securities: | ||||||||||||||||||||||||||||||||
Advantage 24/7 | (25,000 | ) | — | (140,000 | ) | (165,000 | ) | |||||||||||||||||||||||||
eHealth Global Technologies, Inc. (eHealth) | (3,500,000 | ) | — | — | (3,500,000 | ) | ||||||||||||||||||||||||||
Gemcor | — | — | (39,893 | ) | (39,893 | ) | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total Repayments and Sale of Securities | (3,525,000 | ) | — | (39,893 | ) | (3,704,893 | ) | |||||||||||||||||||||||||
Transfers within Level 3 | (2,000,000 | ) | 1,450,000 | 550,000 | — | 444,915 | (444,915 | ) | — | — | ||||||||||||||||||||||
Transfers out of Level 3 | — | — | (725,000 | ) | (725,000 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Ending Balance, September 30, 2017, of Level 3 Assets | $ | 3,550,000 | $ | 9,327,860 | $ | 17,092,828 | $ | 29,970,688 | ||||||||||||||||||||||||
Ending Balance, June 30, 2019, of Level 3 Assets | $ | 2,145,692 | $ | 8,757,870 | $ | 20,338,483 | $ | 31,242,045 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Change in unrealized depreciation on investments for the period included in changes in net assets |
| ($ | 987,983 | ) | ||||||||||||||||||||||||||||
Net realized gain on investments for the period included in changes in net assets |
| $ | — |
Change in unrealized depreciation on investments for the period included in changes in net assets | ($ | 600,152 | ) | |
Net realized loss on investments for the period included in changes in net assets | ($ | 301,378 | ) | |
The following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3) for the six months ended June 30, 2018:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments | ||||||||||||||||
Description | Loan | Debt Investments | Equity Investments | Total | ||||||||||||
Ending Balance, December 31, 2017, of Level 3 Assets | $ | 3,550,000 | $ | 10,096,244 | $ | 18,637,818 | $ | 32,284,062 | ||||||||
Unrealized Losses included in net change in net assets from operations: | ||||||||||||||||
Empire Genomics, LLC (Empire Genomics) | — | (651,489 | ) | — | (651,489 | ) | ||||||||||
First Wave Products Group, LLC (First Wave) | — | (250,000 | ) | — | (250,000 | ) | ||||||||||
GiveGab, Inc. (Givegab) | — | — | 191,907 | 191,907 | ||||||||||||
SOMS Technologies, LLC (SOMS) | — | — | (498,348 | ) | (498,348 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Unrealized Losses | — | (901,489 | ) | (306,441 | ) | (1,207,930 | ) | |||||||||
Purchases of Securities/Changes toSecurities/Non-cash conversions: | ||||||||||||||||
Centivo Corporation (Centivo) | — | — | 201,342 | 201,342 | ||||||||||||
Genicon, Inc. (Genicon) | — | 80,348 | — | 80,348 | ||||||||||||
GoNoodle, Inc. (GoNoodle) | — | 5,153 | — | 5,153 | ||||||||||||
KnowledgeVision Systems, Inc. (Knowledgevision) | — | 775,000 | — | 775,000 | ||||||||||||
Microcision LLC (Microcision) | — | 9,582 | — | 9,582 | ||||||||||||
SciAps, Inc. (Sciaps) | — | — | 250,000 | 250,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Purchases of Securities/Changes toSecurities/Non-cash conversions | — | 870,083 | 451,342 | 1,321,425 | ||||||||||||
Repayments and Sale of Securities: | ||||||||||||||||
Empire Genomics | — | (21,665 | ) | — | (21,665 | ) | ||||||||||
Knoa Software, Inc. (Knoa) | — | (48,466 | ) | — | (48,466 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Repayments and Sale of Securities | — | (70,131 | ) | — | (70,131 | ) | ||||||||||
Transfers within Level 3 | — | (100,000 | ) | 100,000 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending Balance, June 30, 2018, of Level 3 Assets | $ | 3,550,000 | $ | 9,894,707 | $ | 18,882,719 | $ | 32,327,426 | ||||||||
|
|
|
|
|
|
|
|
Change in unrealized depreciation on investments for the period included in changes in net assets | ($ | 1,207,930 | ) | |
NOTE 4. OTHER ASSETS
At SeptemberJune 30, 20182019 and December 31, 2017,2018, other assets was comprised of the following:
September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
Prepaid expenses | $ | 34,621 | $ | — | $ | 334,359 | $ — | |||||||||
Operating receivables | 2,899 | 3,204 | 11,519 | 11,428 | ||||||||||||
Equipment (net) | 840 | 2,490 | 132 | 262 | ||||||||||||
Dividend receivable | — | 37,160 | ||||||||||||||
|
|
|
| |||||||||||||
Total other assets | $ | 38,360 | $ | 42,854 | $ | 346,010 | $11,690 | |||||||||
|
|
|
|
Note 5. COMMITMENTS AND CONTINGENCIES
The Corporation had one commitmentno commitments at June 30, 2019.
In addition, the Corporation analyzed the new Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 842 standard, Leases, and deemed the effect on the Corporation’s consolidated financial statements to fund a $50,000 investment at September 30, 2018.be immaterial.
Note 6. SBA DEBENTURES
Pursuant to FASB Accounting Standard Update (ASU)2015-03, the debt origination costs associated with the SBA debt obligations are presented as a direct deduction of the related debt obligation.
September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
Debentures guaranteed by the SBA | $ | 8,000,000 | $ | 8,000,000 | $ | 11,000,000 | $ | 8,750,000 | ||||||||
Less unamortized issue costs | (124,277 | ) | (144,827 | ) | (231,925 | ) | (195,557 | ) | ||||||||
|
|
|
| |||||||||||||
Debentures guaranteed by the SBA, net | $ | 7,875,723 | $ | 7,855,173 | $ | 10,768,075 | $ | 8,554,443 | ||||||||
|
|
|
|
Note 7. CHANGES IN STOCKHOLDERS’ EQUITY
The following schedule analyzes the changes in stockholders’ equity section of the Consolidated Statement of Financial Position for the three months and six months ended June 30, 2019 and June 30, 2018:
Common Stock | Capital in excess of par value | Accumulated Net Investment Loss | Undistributed Net Realized Gain on Investments | Net Unrealized Depreciation on Investments | Treasury Stock, at cost | Total Stockholders’ Equity | ||||||||||||||||||||||
April 1, 2019 | $ | 686,304 | $ | 10,581,789 | ($ | 1,642,785 | ) | $ | 26,252,574 | ($ | 2,429,175 | ) | ($ | 1,469,105 | ) | $ | 31,979,602 | |||||||||||
Net investment loss | — | — | (143,300 | ) | — | — | — | (143,300 | ) | |||||||||||||||||||
Net realized loss on sales and dispositions of investments | — | — | — | (332,509 | ) | — | — | (332,509 | ) | |||||||||||||||||||
Change in unrealized depreciation on investments | — | — | — | — | (871,740 | ) | — | (871,740 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2019 | $ | 686,304 | $ | 10,581,789 | ($ | 1,786,085 | ) | $ | 25,920,065 | ($ | 3,300,915 | ) | ($ | 1,469,105 | ) | $ | 30,632,053 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Common Stock | Capital in excess of par value | Accumulated Net Investment Loss | Undistributed Net Realized Gain on Investments | Net Unrealized Depreciation on Investments | Treasury Stock, at cost | Total Stockholders’ Equity | ||||||||||||||||||||||
April 1, 2018 | $ | 686,304 | $ | 10,581,789 | ($ | 1,770,475 | ) | $ | 27,215,738 | ($ | 3,845,979 | ) | ($ | 1,469,105 | ) | $ | 31,398,272 | |||||||||||
Net investment loss | — | — | (37,768 | ) | — | — | — | (37,768 | ) | |||||||||||||||||||
Change in unrealized depreciation on investments | — | — | — | — | (593,526 | ) | — | (593,526 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2018 | $ | 686,304 | $ | 10,581,789 | ($ | 1,808,243 | ) | $ | 27,215,738 | ($ | 4,439,505 | ) | ($ | 1,469,105 | ) | $ | 30,766,978 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | Capital in excess of par value | Accumulated Net Investment Loss | Undistributed Net Realized Gain on Investments | Net Unrealized Depreciation on Investments | Treasury Stock, at cost | Total Stockholders’ Equity | ||||||||||||||||||||||
January 1, 2019 | $ | 686,304 | $ | 10,581,789 | ($ | 1,665,552 | ) | $ | 26,221,443 | ($ | 2,830,692 | ) | ($ | 1,469,105 | ) | $ | 31,524,187 | |||||||||||
Net investment loss | — | — | (120,533 | ) | — | — | — | (120,533 | ) | |||||||||||||||||||
Net realized loss on sales and dispositions of investments | — | — | — | (301,378 | ) | — | — | (301,378 | ) | |||||||||||||||||||
Change in unrealized depreciation on investments | — | — | — | — | (470,223 | ) | — | (470,223 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2019 | $ | 686,304 | $ | 10,581,789 | ($ | 1,786,085 | ) | $ | 25,920,065 | ($ | 3,300,915 | ) | ($ | 1,469,105 | ) | $ | 30,632,053 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Common Stock | Capital in excess of par value | Accumulated Net Investment Loss | Undistributed Net Realized Gain on Investments | Net Unrealized Depreciation on Investments | Treasury Stock, at cost | Total Stockholders’ Equity | ||||||||||||||||||||||
January 1, 2018 | $ | 686,304 | $ | 10,581,789 | ($ | 1,597,146 | ) | $ | 27,215,738 | ($ | 3,498,895 | ) | ($ | 1,469,105 | ) | $ | 31,918,685 | |||||||||||
Net investment loss | — | — | (211,097 | ) | — | — | — | (211,097 | ) | |||||||||||||||||||
Change in unrealized depreciation on investments | — | — | — | — | (940,610 | ) | — | (940,610 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2018 | $ | 686,304 | $ | 10,581,789 | ($ | 1,808,243 | ) | $ | 27,215,738 | ($ | 4,439,505 | ) | ($ | 1,469,105 | ) | $ | 30,766,978 | |||||||||||
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|
|
|
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|
Note 7.8. FINANCIAL HIGHLIGHTS
The following schedule provides the financial highlights, calculated based on weighted average shares outstanding, for the ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:
Nine months ended September 30, 2018 (Unaudited) | Nine months ended September 30, 2017 (Unaudited) | Six months ended June 30, 2019 (Unaudited) | Six months ended June 30, 2018 (Unaudited) | |||||||||||||
Income from investment operations (1): | ||||||||||||||||
Investment income | $ | 0.23 | $ | 0.17 | $ | 0.21 | $ | 0.12 | ||||||||
Operating expenses | 0.24 | 0.25 | 0.24 | 0.16 | ||||||||||||
|
|
|
| |||||||||||||
Investment loss before income taxes | (0.01 | ) | (0.08 | ) | (0.03 | ) | (0.04 | ) | ||||||||
Income tax benefit | 0.00 | (0.03 | ) | (0.01 | ) | (0.01 | ) | |||||||||
|
|
|
| |||||||||||||
Net investment loss | (0.01 | ) | (0.05 | ) | (0.02 | ) | (0.03 | ) | ||||||||
Net realized and unrealized loss on investments | (0.20 | ) | (0.10 | ) | (0.12 | ) | (0.15 | ) | ||||||||
|
|
|
| |||||||||||||
Decrease in net asset value | (0.21 | ) | (0.15 | ) | (0.14 | ) | (0.18 | ) | ||||||||
Net asset value, beginning of period | 5.05 | 5.16 | 4.99 | 5.05 | ||||||||||||
|
|
|
| |||||||||||||
Net asset value, end of period | $ | 4.84 | $ | 5.01 | $ | 4.85 | $ | 4.87 | ||||||||
|
|
|
| |||||||||||||
Per share market price, end of period | $ | 2.40 | $ | 2.96 | $ | 2.62 | $ | 2.69 | ||||||||
|
|
|
| |||||||||||||
Total return based on market value | (20.5 | %) | (6.3 | %) | 4.80 | % | (10.93 | %) | ||||||||
Total return based on net asset value | (4.2 | %) | (2.9 | %) | (2.83 | %) | (3.61 | %) | ||||||||
Supplemental data: | ||||||||||||||||
Ratio of operating expenses before income taxes to average net assets | 4.8 | % | 4.9 | % | 4.87 | % | 3.39 | % | ||||||||
Ratio of operating expenses including income taxes to average net assets | 2.9 | % | 3.2 | % | 3.87 | % | 2.30 | % | ||||||||
Ratio of net investment loss to average net assets | (0.2 | %) | (0.9 | %) | (0.39 | %) | (0.67 | %) | ||||||||
Portfolio turnover | 4.2 | % | 13.4 | % | 3.2 | % | 3.8 | % | ||||||||
Net assets, end of period | $ | 30,587,676 | $ | 31,692,476 | $ | 30,632,053 | $ | 30,766,978 | ||||||||
Weighted shares outstanding, end of period | 6,321,988 | 6,321,988 | 6,321,988 | 6,321,988 |
(1) | Per share data are based on weighted average shares outstanding and the results are rounded to the nearest cent. |
The Corporation’s interim period results could fluctuate as a result of a number of factors; therefore results for any interim period should not be relied upon as being indicative of performance for the full year or in future periods.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for any future periods.
FORWARD LOOKING STATEMENTS
Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report that do not relate to present or historical conditions are “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with the Securities and Exchange Commission. Forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements are based are assumptions concerning the state of the United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of our portfolio companies could be traded, liquidity within the United States financial markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties described under the caption “Risk Factors” contained in Part II, Item 1A of this report and in Part I, Item 1A of our Annual Report on Form10-K for the year ended December 31, 2017.2018.
There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement speaks only as of the date when it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and we cannot predict all of them.
Overview
We are currently an internally managed investment company that lends to and invests in small companies, often concurrently with other investors. We have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, we are required to comply with certain regulatory requirements. We have historically made the majority of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (“Rand SBIC”), which operates as a small business investment company (“SBIC”) and has been licensed by the U.S. Small Business Administration (“SBA”) since 2002. During 2017 we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (“Rand SBIC II”) and began making investments through this SBIC subsidiary. During the first quarter of 2018, together with the SBA, we determined that the optimal structure was to revert back to investing in small businesses through our original SBIC, Rand SBIC, and the assets of Rand SBIC II were transferred to Rand SBIC. Rand SBIC has appliedapproved for an additional $6$6.0 million in new SBA leverage commitments during 2018 and has drawn down $3.0 million of that leverage as of June 30, 2019.
In January 2019, we entered into a stock purchase agreement to sell approximately 8.3 million shares of our common stock to East Asset Management, LLC (“East”) for $25 million in cash and portfolio assets, which will be income-producing instruments. Additionally, upon closing of the pending Transactions (the “Transactions”), a new entity, Rand Capital Management LLC (“RCM”) will be retained by Rand to be its investment advisor as an external management company. RCM will have the same management team that is currently undergoingat Rand. Rand’s shareholders approved all proposals related to the review and approval process.Transactions at a special meeting of shareholders that was held on May 16, 2019.
The closing of the sale and issuance of common stock pursuant to the stock purchase agreement, as well as the externalization of the management structure, remains conditioned upon receipt of required regulatory approvals. Rand expects the Transactions to close in the second half of 2019, subject to receipt of required regulatory approval.
Following the closing of the above-described Transactions and contingent upon meeting certaintax-related conditions, we intend to elect to become a regulated investment company (“RIC”) for U.S. federal tax purposes. This will enable the pass through of capital gains and investment income to shareholders without payment of corporate-level U.S. federal income tax by Rand.
Outlook
At the end of the thirdsecond quarter of 2018,2019, we had approximately $4.4$8.6 million in cash and cash equivalents available for future investments and expenses. expenses, an increase of $4.6 million as compared to the end of 2018. The increase was primarily due to proceeds from a $3.5 million loan payoff by a portfolio company and $2.25 million of additional SBA leverage drawn down during the six months ended June 30, 2019.
We believe the combination of cash and cash equivalents on hand, proceeds from portfolio exits, anticipated additional SBA leverage, and prospective investment income provide sufficient capital for us to continue to add new investments to our portfolio while reinvesting in existing portfolio companies that demonstrate continued growth potential. Additionally, upon the anticipated closing of the Transactions described above, we will have additional investments in our portfolio and additional cash to invest. The following short and long-term trends provide us confidence in our ability to grow Rand:
We expect that well run businesses will require capital to grow and should be able to compete effectively given the strong macroeconomic environment and eager reception of new technologies and service concepts.
We continue to manage risk by investing with other investors, when possible.
We are actively involved with the governance and management of a majority of our portfolio companies, which enables us to support their operating and marketing efforts and facilitate their growth.
As our portfolio expands, we are able to better leverage our infrastructure.
We believe the anticipated receipt of cash and portfolio assets from East, as well as the establishment of RCM as an external management company, will broaden our potential pipeline of investment opportunities in order to build our portfolio and grow further. Strategically, we expect to advance our efforts to increase our income-producing investments that can support a regular cash dividend for shareholders and complement our equity investments that drive capital appreciation.
We have sufficient cash to invest in new opportunities and to opportunistically repurchase shares. At theperiod end, of the third quarter of 2018, we had authorization to repurchase an additional 458,954 shares of our common stock.Common Stock. However, our prioritized use of cash continues to be growing our portfolio.
When our portfolio expands, we are able to better leverage our infrastructure.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (GAAP), which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. A summary of our critical accounting policies can be found in our Annual Report on Form10-K for the year ended December 31, 20172018 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Financial Condition
September 30, 2018 | December 31, 2017 | Decrease | % Decrease | |||||||||||||||||||||||||||||
Overview: | June 30, 2019 | December 31, 2018 | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||||||||||||||||
Total assets | $ | 38,658,226 | $ | 40,133,913 | ($ | 1,475,687 | ) | (3.7 | %) | $ | 41,699,064 | $ | 40,521,724 | $ | 1,177,340 | 2.9 | % | |||||||||||||||
Total liabilities | 8,070,550 | 8,215,228 | (144,678 | ) | (1.8 | %) | 11,067,011 | 8,997,537 | 2,069,474 | 23.0 | % | |||||||||||||||||||||
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Net assets | $ | 30,587,676 | $ | 31,918,685 | ($ | 1,331,009 | ) | (4.2 | %) | $ | 30,632,053 | $ | 31,524,187 | ($ | 892,134 | ) | (2.8 | %) | ||||||||||||||
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Net asset value per share (NAV) was $4.84$4.85 at SeptemberJune 30, 20182019 and $5.05$4.99 at December 31, 2017.2018.
Our gross outstanding SBA debentures at SeptemberJune 30, 20182019 were $8,000,000$11,000,000 and will mature from 2022 through 2025.2029. Cash and cash equivalents approximated 14%28% of net assets at SeptemberJune 30, 2018,2019, as compared to 20%13% at December 31, 2017.2018.
Composition of Our Investment Portfolio
Our financial condition is dependent on the success of our portfolio holdings. We have invested substantially all of our assets in small tomedium-sized companies. The following summarizes our investment portfolio at the dates indicated.
September 30, 2018 | December 31, 2017 | Increase (Decrease) | % Increase (Decrease) | June 30, 2019 | December 31, 2018 | (Decrease) Increase | % (Decrease) Increase | |||||||||||||||||||||||||
Investments, at cost | $ | 37,309,642 | $ | 36,689,319 | $ | 620,323 | 1.7 | % | $ | 35,467,536 | $ | 38,292,143 | ($ | 2,824,607 | ) | (7.4 | %) | |||||||||||||||
Unrealized depreciation, net | (5,137,385 | ) | (4,405,257 | ) | (732,128 | ) | 16.6 | % | (4,225,491 | ) | (3,625,339 | ) | 600,152 | 16.6 | % | |||||||||||||||||
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Investments at fair value | $ | 32,172,257 | $ | 32,284,062 | ($ | 111,805 | ) | (0.3 | %) | $ | 31,242,045 | $ | 34,666,804 | ($ | 3,424,759 | ) | (9.9 | %) | ||||||||||||||
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Our total investments at fair value, as estimated by management and approved by our Board of Directors, approximated 105%102% of net assets at SeptemberJune 30, 20182019 versus 101%110% of net assets at December 31, 2017.2018.
The change in investments during the ninesix months ended SeptemberJune 30, 2018,2019, at cost, is comprised of the following:
Cost Increase (Decrease) | ||||||||
New investments: | Cost Increase (Decrease) | |||||||
Tilson Technology Management, Inc. (Tilson) | $ | 500,012 | ||||||
Genicon Inc. (Genicon) | 250,000 | |||||||
KnowledgeVision Systems, Inc. (Knowledgevision) | $ | 775,000 | 150,000 | |||||
SciAps, Inc. (Sciaps) | 250,000 | |||||||
Centivo Corporation (Centivo) | 200,000 | |||||||
BeetNPath, LLC (Beetnpath) | 140,000 | |||||||
Advantage 24/7 LLC (Advantage 24/7) | 140,000 | |||||||
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Total of new investments | 1,365,000 | 1,040,012 | ||||||
Other changes to investments: | ||||||||
Genicon interest conversion and OID amortization | 167,809 | |||||||
Empire Genomics, LLC (Empire Genomics) capitalized fee income and interest conversion | 274,106 | 49,821 | ||||||
Genicon Inc. (Genicon) interest conversion and OID amortization | 153,548 | |||||||
Microcision LLC (Microcision) interest conversion | 14,392 | 9,678 | ||||||
GoNoodle, Inc. (GoNoodle) interest conversion | 7,740 | 5,205 | ||||||
Centivo interest conversion | 1,342 | |||||||
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Total of other changes to investments | 451,128 | 232,513 | ||||||
Investments repaid, sold or liquidated: | ||||||||
Intrinsiq Material, Inc. (Intrinsiq) realized loss | (1,125,673 | ) | ||||||
Knoa Software Inc. (Knoa) repayment | (48,466 | ) | ||||||
Empire Genomics repayment | (21,666 | ) | ||||||
Investments repaid, sold, liquidated or converted: | ||||||||
eHealth Global Technologies, Inc. (eHealth) loan repayment | (3,500,000 | ) | ||||||
SOMS Technologies, LLC (SOMS) realized loss | (472,632 | ) | ||||||
Advantage 24/7 investment conversion and loan repayment | (124,500 | ) | ||||||
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Total of investments repaid, sold or liquidated | (1,195,808 | ) | (4,097,132 | ) | ||||
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Net change in investments, at cost | $ | 620,323 | ($ | 2,824,607 | ) | |||
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Results of Operations
Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debt instruments and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio.
Comparison of the three months ended SeptemberJune 30, 20182019 to the three months ended SeptemberJune 30, 20172018
Investment Income
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Increase | % Increase | Three months ended June 30, 2019 | Three months ended June 30, 2018 | (Decrease) Increase | % (Decrease) Increase | |||||||||||||||||||||||||
Interest from portfolio companies | $ | 450,289 | $ | 309,922 | $ | 140,367 | 45.3 | % | $ | 315,489 | $ | 315,700 | ($ | 211 | ) | (0.1 | %) | |||||||||||||||
Interest from other investments | 7,872 | 6,348 | 1,524 | 24.0 | % | 53,538 | 7,735 | 45,803 | 592.2 | % | ||||||||||||||||||||||
Dividend and other investment income | 48,856 | 76,813 | (27,957 | ) | (36.4 | %) | 207,060 | 78,942 | 128,118 | 162.3 | % | |||||||||||||||||||||
Fee income | 155,285 | 3,936 | 151,349 | 3,845.2 | % | 6,959 | 11,141 | (4,182 | ) | (37.5 | %) | |||||||||||||||||||||
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Total investment income | $ | 662,302 | $ | 397,019 | $ | 265,283 | 66.8 | % | $ | 583,046 | $ | 413,518 | $ | 169,528 | 41.0 | % | ||||||||||||||||
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The total investment income that iswas received on a current basis for the three months ended SeptemberJune 30, 2018 is2019 was received from tennine portfolio companies. This contrasts with the nineeight portfolio companies generating current income for the three months ended SeptemberJune 30, 2017.2018.
Interest from portfolio companies – Interest from portfolio companies wasremained approximately 45% higherthe same during the three months ended SeptemberJune 30, 20182019 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last year. The new debt instruments were originated from Genicon Inc. (Genicon), eHealth Global Technologies, Inc. (eHealth) and several other portfolio companies. In addition, during the third quarter of 2018 the Empire Genomics loans were modified and resulted in a recording of interest that had previously not been accrued of approximately $91,000. This amount was capitalized into the loan balance as part of the debt modification and isnon-recurring.
2018. The following investments are onnon-accrual status: BeetnPath, LLC (Beetnpath),G-TEC Natural Gas Systems(G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc. (Oncore) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balances.
Interest from other investments— – The increase in interest from other investments is primarily due to higher interest rates and higher average cash balance during the three months ended SeptemberJune 30, 20182019 versus the same period in 2017.2018.
Dividend and other investment income— – Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLC’s profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact of new investments or divestitures. The dividend distributions for the respective periods were:
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Three months ended June 30, 2019 | Three months ended June 30, 2018 | |||||||||||||
Knoa Software, Inc. (Knoa) | $ | 193,934 | $ | — | ||||||||||||
Tilson Technology Management, Inc. (Tilson) | 13,126 | 9,687 | ||||||||||||||
Carolina Skiff LLC (Carolina Skiff) | $ | 39,169 | $ | 41,999 | — | 39,169 | ||||||||||
Tilson Technology Management, Inc. (Tilson) | 9,687 | 5,000 | ||||||||||||||
New Monarch Machine Tool, Inc. (New Monarch) | — | 27,409 | — | 27,409 | ||||||||||||
Empire Genomics LLC (Empire Genomics) | — | 2,405 | — | 2,677 | ||||||||||||
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Total dividend and other investment income | $ | 48,856 | $ | 76,813 | $ | 207,060 | $ | 78,942 | ||||||||
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Fee income— – Fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of SBIC financings, and income from portfolio company board attendance fees and other miscellaneous fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized fees are carried on the Consolidated Statement of Financial Position in the line item “Deferred revenue.”
The income associated with the amortization of financing fees was $6,459 and $10,141 for the three months ended June 30, 2019 and 2018, respectively. The board fees were $500 and $1,000 for the three months ended June 30, 2019 and 2018, respectively.
Expenses
Three months ended June 30, 2019 | Three months ended June 30, 2018 | Increase | % Increase | |||||||||||||
Total expenses | $ | 824,077 | $ | 473,670 | $ | 350,407 | 74.0 | % |
Expenses predominately consist of interest expense on outstanding SBA borrowings, compensation expense, and general and administrative expenses, including stockholder and office operating expenses and professional fees.
The increase in expenses during the three months ended June 30, 2019 versus the same period in 2018 was primarily caused by a 395%, or $254,907, increase in shareholder expenses and a 198%, or $73,932, increase in professional fees. During the three months ended June 30, 2019, we held a special meeting of shareholders to approve all proposals related to the Transactions. We incurred additional shareholder expenses and professional fees related to this aforementioned special shareholder meeting, and the regulatory procedures that are required with such a meeting.
In addition, we deferred an additional $25,000 in stock issuance costs attributable to the Transactions during the three months ended June 30, 2019. These expenses are intended to be offset against the equity capital raise when the Transactions close, or expensed if the Transactions are not completed. The deferred expenses are included on our Consolidated Statement of Financial Position at June 30, 2019 in the line item “Other assets.”
Net Realized Loss on Investments
Three months ended June 30, 2019 | Three months ended June 30, 2018 | Change | ||||||||||
Realized loss on investments before income taxes | ($ | 432,739 | ) | $ | — | ($ | 432,739 | ) |
During the three months ended June 30, 2019, we recognized a realized loss on our investment in SOMS Technologies, LLC as the company ceased doing business. In addition, we received a final distribution of proceeds from an investment we exited in 2016, Gemcor LLC (Gemcor) of $39,893.
Change in Unrealized Depreciation of Investments
Three months ended June 30, 2019 | Three months ended June 30, 2018 | Change | ||||||||||
Change in unrealized depreciation of investments before income taxes | ($ | 1,122,448 | ) | ($ | 756,441 | ) | ($ | 366,007 | ) |
The change in unrealized depreciation, before income taxes, for the three months ended June 30, 2019 was comprised of the following:
Three months ended June 30, 2019 | ||||
SocialFlow, Inc. (Socialflow) | ($ | 750,000 | ) | |
Genicon, Inc. (Genicon) | (715,080 | ) | ||
BeetNPath, LLC (Beetnpath) | (130,000 | ) | ||
SOMS Technologies, LLC (SOMS) | 472,632 | |||
Total change in net unrealized depreciation of investments before income taxes during the three months ended June 30, 2019 | ($ | 1,122,448 | ) | |
The valuations of our investments in Beetnpath and Socialflow were decreased after we reviewed each of the portfolio company’s operations, commercial progress against their business plan, and past and projected financial condition and determined that a valuation adjustment was necessary.
Our valuation of Genicon was decreased during the three months ended June 30, 2019 to revalue our holdings based upon the liquidation preferences of our securities and as a result of a recent round of financing.
We recognized a realized loss on our investment in SOMS during the three months ended June 30, 2019.
The change in unrealized depreciation, before income taxes, for the three months ended June 30, 2018 was comprised of the following:
Three months ended June 30, 2018 | ||||
Empire Genomics, LLC (Empire Genomics) | ($ | 450,000 | ) | |
SOMS Technologies, LLC (SOMS) | (498,348 | ) | ||
GiveGab, Inc. (Givegab) | 191,907 | |||
Total change in net unrealized depreciation of investments before income taxes during the three months ended June 30, 2018 | ($ | 756,441 | ) | |
The valuations of our investments in Empire Genomics and SOMS were decreased after we reviewed each of the portfolio company’s operations and current and projected financial condition and determined that a valuation adjustment was necessary.
Givegab’s value was increased to the cost basis of the investment after a financial analysis of the portfolio company indicating continued improved performance.
All of these value adjustments resulted from a review by our management using the guidance set forth by ASC 820 and our established valuation policy.
Net Increase (Decrease) in Net Assets from Operations
We account for our operations under GAAP for investment companies. The principal measure of our financial performance is “net increase (decrease) in net assets from operations” on our consolidated statements of operations. For the three months ended June 30, 2019 and 2018, the net decrease in net assets from operations was ($1,347,549) and ($631,294), respectively.
Comparison of the six months ended June 30, 2019 to the six months ended June 30, 2018
Investment Income
Six months ended June 30, 2019 | Six months ended June 30, 2018 | Increase | % Increase | |||||||||||||
Interest from portfolio companies | $ | 721,454 | $ | 613,048 | $ | 108,406 | 17.7 | % | ||||||||
Interest from other investments | 71,349 | 12,845 | 58,504 | 455.5 | % | |||||||||||
Dividend and other investment income | 241,685 | 133,107 | 108,578 | 81.6 | % | |||||||||||
Fee income | 267,928 | 17,327 | 250,601 | 1,446.3 | % | |||||||||||
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Total investment income | $ | 1,302,416 | $ | 776,327 | $ | 526,089 | 67.8 | % | ||||||||
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Interest from portfolio companies – Interest from portfolio companies was approximately 18% higher during the six months ended June 30, 2019 versus the same period in 2018 due to the fact that we have originated more income-producing debt investments in the last year. The new debt instruments were originated from KnowledgeVision Systems, Inc. and Tech 2000, Inc.
The following investments are onnon-accrual status: BeetNPath, LLC (Beetnpath),G-TEC Natural Gas Systems(G-Tec) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balances.
Interest from other investments – The increase in interest from other investments is primarily due to higher interest rates and higher average cash balance during the six months ended June 30, 2019 versus the same period in 2018.
Dividend and other investment income – Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLC’s profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact of new investments or divestitures. The dividend distributions for the respective periods were:
Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||
Knoa Software, Inc. (Knoa) | $ | 193,934 | $ | — | ||||
Carolina Skiff LLC (Carolina Skiff) | 24,043 | 80,264 | ||||||
Tilson Technology Management, Inc. (Tilson) | 23,708 | 19,376 | ||||||
New Monarch Machine Tool, Inc. (New Monarch) | — | 27,409 | ||||||
Empire Genomics LLC (Empire Genomics) | — | 6,058 | ||||||
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Total dividend and other investment income | $ | 241,685 | $ | 133,107 | ||||
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Fee income – Fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of SBIC financings, income from portfolio company board attendance fees and other miscellaneous fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized fees are carried on the balance sheet under the line item “Deferred revenue.”
The income associated with the amortization of financing fees was $12,939$42,428 and $3,936$15,327 for the threesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively.
In addition, we recordedthe Corporation recognized aone-time debt modification fee of approximately $142,000 during$225,000 in conjunction with the three month ended September 30, 2018. We charged the fee to Empire Genomics and the fee was capitalized into the Empire Genomics loan balances as partrepayment of the debt modification.
eHealth loan instrument. The portion of total investment income that is received in cash, on a current basis, is received from nine portfolio companies.board fees were $500 and $2,000 for the six months ended June 30, 2019 and 2018, respectively.
Expenses
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Increase | % Increase | |||||||||||||
Total expenses | $ | 447,800 | $ | 439,048 | $ | 8,752 | 2.0 | % |
Six months ended June 30, 2019 | Six months ended June 30, 2018 | Increase | % Increase | |||||||||||||
Total expenses | $ | 1,513,812 | $ | 1,062,234 | $ | 451,578 | 42.5 | % |
Expenses predominately consist of interest expense on outstanding SBA borrowings, compensation expense, and general and administrative expenses, including stockholder and office operating expenses and professional fees.
The increase in expenses during the threesix months ended SeptemberJune 30, 20182019 versus the same period in 20172018 was primarily caused by a 69%195%, or $33,312,$251,723, increase in shareholder expense and a 143%, or $198,900, increase in professional fees. ProfessionalShareholder expense and professional fees arewere higher during the third quarter of 2018six months ended June 30, 2019 because we continue to incurincurred expenses in connection with developingaforementioned Transactions, the special shareholder meeting held in May 2019 and implementing our long-term growth strategy.the regulatory procedures that are required with such Transactions. These expenses also included external shareholder, legal, tax consulting and other advisory expenses to support refinement of our strategy, which involved assessing options relative to the complex regulatory environment in which we operate.
This increase wasIn addition, we deferred $266,000 in stock issuance costs attributable to the Transactions. These expenses are intended to be offset by a $26,299 recoveryagainst the equity capital raise when the Transactions close, or expensed if the Transactions are not completed. The deferred expenses are included on our Consolidated Statement of bad debt expense associated withFinancial Position at June 30, 2019 in the Empire Genomics loan modification for the three months ended September 30, 2018. There was no bad debt expense (recovery) for the three months ended September 30, 2017.line item “Other assets.”
Net Realized LossesLoss on Investments
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Change | ||||||||||
Realized loss on investments before income taxes | ($ | 1,125,673 | ) | $ | — | ($ | 1,125,673 | ) |
Six months ended June 30, 2019 | Six months ended June 30, 2018 | Change | ||||||||||
Realized loss on investments before income taxes | ($ | 392,239 | ) | $ | — | ($ | 392,239 | ) |
During the threesix months ended SeptemberJune 30, 2018,2019, we recognized a realized loss on our investment in Intrinsiq Material, Inc. (Intrinsiq) whenSOMS Technologies, LLC after the company was soldceased doing business and a $40,500 gain on our investment in Advantage 24/7 LLC after the company converted their equity into a debt instrument. In addition, we did not receive any proceeds. There were no realized gains or losses during the three months ended September 30, 2017.received a final proceeds distribution of $39,893 from Gemcor II, LLC, a portfolio company we exited in 2016.
Change in Unrealized Depreciation of Investments
Three months ended September 30, 2018 | Three months ended September 30, 2017 | Change | ||||||||||
Change in unrealized depreciation of investments before income taxes | $ | 475,802 | $ | 111,000 | $ | 364,802 |
Six months ended June 30, 2019 | Six months ended June 30, 2018 | Change | ||||||||||
Change in unrealized depreciation of investments before income taxes | ($ | 600,152 | ) | ($ | 1,207,930 | ) | $ | 607,778 |
The change in unrealized depreciation, before income taxes, for the threesix months ended SeptemberJune 30, 20182019 was comprised of the following:
Three months ended September 30, 2018 | ||||
Empire Genomics, LLC (Empire Genomics) | ($ | 249,871 | ) | |
Intrinsiq Material, Inc. (Intrinsiq) realized loss | 725,673 | |||
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Total change in net unrealized depreciation of investments before income taxes during the three months ended September 30, 2018 | $ | 475,802 | ||
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Six months ended June 30, 2019 | ||||
SocialFlow, Inc. (Socialflow) | ($ | 1,071,300 | ) | |
Genicon, Inc. (Genicon) | (752,580 | ) | ||
BeetNPath, LLC (Beetnpath) | (523,904 | ) | ||
SciAps, Inc. (Sciaps) | (385,000 | ) | ||
Mercantile Adjustment Bureau, LLC (Mercantile) | (200,000 | ) | ||
SOMS Technologies, LLC | 472,632 | |||
Tilson Technology Management, Inc. (Tilson) | 1,860,000 | |||
Total change in net unrealized depreciation of investments before income taxes during the six months ended June 30, 2019 | ($ | 600,152 | ) | |
The valuationvaluations of our investmentinvestments in Empire Genomics wasSocialflow, Beetnpath, Sciaps and Mercantile were decreased after we reviewed each of the portfolio company’s operations, commercial progress against their business plan, and currentpast and projected financial condition after the debt modification, and determined that a valuation adjustment was necessary.
IntrinsiqOur valuation of Genicon was solddecreased during the thirdsix months ended June 30, 2019 to revalue our holdings based upon the liquidation preferences of our securities and as a result of a recent round of financing.
In accordance with our valuation policy, we increased the value of our holdings in Tilson based on a significant equity financing during the first quarter of 2018 and2019 with a sophisticated newnon-strategic outside investor at a higher valuation than their prior financing round valuation.
We recognized a realized loss was recorded.on our investment in SOMS during the six months ended June 30, 2019.
The change in unrealized depreciation, before income taxes, for the threesix months ended September 30, 2017 was comprised of the following:
Three months ended September 30, 2017 | ||||
Athenex, Inc. (Athenex) | $ | 111,000 | ||
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Total change in net unrealized depreciation of investments before income taxes during the three months ended September 30, 2017 | $ | 111,000 | ||
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Athenex completed an initial public offering (IPO) during the second quarter of 2017 and its shares of common stock are now publicly traded on the NASDAQ Global Select Market under the symbol “ATNX”. At September 30, 2017 we held 46,296 shares of the common stock of Athenex and valued these shares using the average bid price for the last three trading days of the reporting period, which was then discounted 10% due to restrictions on the sale of the shares. Subsequent to quarter end, the sale restrictions on our shares in Athenex common stock were removed and these shares became freely tradable.
All of these value adjustments resulted from a review by our management using the guidance set forth by ASC 820 and our established valuation policy.
Net (Decrease) Increase in Net Assets from Operations
We account for our operations under GAAP for investment companies. The principal measure of our financial performance is “net (decrease) increase in net assets from operations” on our consolidated statements of operations. For the three months ended September 30, 2018 and 2017, the net (decrease) increase in net assets from operations was ($179,302) and $57,931, respectively.
Comparison of the nine months ended September 30, 2018 to the nine months ended September 30, 2017
Investment Income
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
Interest from portfolio companies | $ | 1,063,337 | $ | 833,653 | $ | 229,684 | 27.6 | % | ||||||||
Interest from other investments | 20,717 | 24,182 | (3,465 | ) | (14.3 | %) | ||||||||||
Dividend and other investment income | 181,963 | 197,403 | (15,440 | ) | (7.8 | %) | ||||||||||
Fee income | 172,612 | 19,557 | 153,055 | 782.6 | % | |||||||||||
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Total investment income | $ | 1,438,629 | $ | 1,074,795 | $ | 363,834 | 33.9 | % | ||||||||
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The total investment income that is received on a current basis for the nine months ended September 30, 2018 is received from ten portfolio companies. This contrasts with the nine portfolio companies generating current income for the nine months ended September 30, 2017.
Interest from portfolio companies – Interest from portfolio companies was approximately 28% higher during the nine months ended September 30, 2018 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last year. These new debt instruments were originated from Genicon Inc. (Genicon), eHealth Global Technologies, Inc. and several other portfolio companies. In addition, during the third quarter of 2018 the Empire Genomics loans were modified and resulted in a recording of interest that had previously not been accrued of approximately $91,000. This amount was capitalized into the loan balance as part of the debt modification.
The following investments are onnon-accrual status:G-TEC Natural Gas Systems(G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc. (Oncore) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance.
Interest from other investments—The decrease in interest from other investments is primarily due to lower average cash balances during the nine months ended September 30, 2018 versus the same period in 2017.
Dividend and other investment income—The dividend distributions for the respective periods were:
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | |||||||
Carolina Skiff LLC (Carolina Skiff) | $ | 119,433 | $ | 141,372 | ||||
Tilson Technology Management, Inc. (Tilson) | 29,063 | 15,000 | ||||||
New Monarch Machine Tool, Inc. (New Monarch) | 27,409 | 27,409 | ||||||
Empire Genomics LLC (Empire Genomics) | 6,058 | 7,598 | ||||||
SOMS Technologies, LLC (SOMS) | — | 6,024 | ||||||
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Total dividend and other investment income | $ | 181,963 | $ | 197,403 | ||||
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Fee income—The income associated with the amortization of financing fees was $28,266 and $18,557 for the nine months ended September 30, 2018 and 2017, respectively. The income from board fees was $2,000 and $1,000 for the nine months ended September 30, 2018 and 2017, respectively.
In addition, we recorded aone-time debt modification fee of approximately $142,000 during the nine month ended September 30, 2018. We charged the fee to Empire Genomics and the fee was capitalized into the Empire Genomics loan balances as part of the debt modification.
Expenses
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | Decrease | % Decrease | |||||||||||||
Total expenses | $ | 1,510,034 | $ | 1,562,620 | ($ | 52,586 | ) | (3.4 | %) |
The decrease in expenses during the nine months ended September 30, 2018 is due to an overall decrease of 29%, or $89,855, in professional fees as compared to the same period in 2017. This decrease was offset by a $50,342 charge to bad debt expense for the nine months ended September 30, 2018 while there was no bad debt expense for the nine months ended September 30, 2017.
Realized Losses on Investments
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | Change | ||||||||||
Realized loss on investments before income taxes | ($ | 1,125,673 | ) | $ | — | ($ | 1,125,673 | ) |
During the nine months ended September 30, 2018, we recognized a loss on our investment in Intrinsiq Material, Inc. (Intrinsiq) when the company was sold and we did not receive any proceeds.
Change in Unrealized Depreciation of Investments
Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | Change | ||||||||||
Change in unrealized depreciation of investments before income taxes | ($ | 732,128 | ) | ($ | 987,983 | ) | ($ | 255,855 | ) |
The change in unrealized depreciation, before income taxes, for the nine months ended SeptemberJune 30, 2018 was comprised of the following:
Empire Genomics, LLC (Empire Genomics) | ($ | ) | ||
SOMS Technologies, LLC (SOMS) | (498,348 | ) | ||
First Wave Products Group (First Wave) | (250,000 | ) | ||
GiveGab, Inc. (Givegab) | 191,907 | |||
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Total change in net unrealized depreciation of investments before income taxes during the | ($ | ) | ||
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The valuations of our investments in Empire Genomics and SOMS were decreased after we reviewed each of the portfolio company’s operations and current and projected financial condition and determined that a valuation adjustment was necessary.
Our valuation of First Wave was decreased to reflect an anticipated round of financing that was expected to be completed by First Wave in the fourththird quarter of 2018.
Givegab’s value was increased to the cost basis of the investment after a financial analysis of the portfolio company indicating continued improved performance. Intrinsiq was sold during the third quarter of 2018 and a realized loss was recorded.
The change in unrealized depreciation, before income taxes, for the nine months ended September 30, 2017 was comprised of the following:
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The valuations of our investments in Loupe, Mercantile and Teleservices were decreased after we reviewed each portfolio company and its current and projected financial condition and determined that a valuation adjustment was necessary.
The valuation of Sciaps was decreased to revalue our equity holdings based upon the liquidation preferences of our securities as compared to the most recent equity round of financing completed by Sciaps.
In accordance with our valuation policy, we increased the value of our investments in ACV and Beetnpath based on a significant equity financing by a newnon-strategic outside entity.
Athenex completed an initial public offering (IPO) during the second quarter of 2017 and its shares of common stock were publicly traded on the NASDAQ Global Select Market under the symbol “ATNX”. At September 30 2017 we held 46,296 shares of the common stock of Athenex and valued the shares using the average bid price for the last three trading days of the reporting period, which was then discounted due to restrictions on the sale of the shares.
All of these value adjustments resulted from a review by our management using the guidance set forth by ASC 820 and our established valuation policy.
Net DecreaseIncrease (Decrease) in Net Assets from Operations
We account for our operations under GAAP for investment companies. The principal measure of our financial performance is “net decreaseincrease (decrease) in net assets from operations” on our consolidated statements of operations. For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the net decrease in net assets from operations was ($1,331,009)892,134) and ($936,887)1,151,707), respectively.
Liquidity and Capital Resources
OurHistorically, our principal long-term objective ishas been to achieve growth in net asset value per share through capital appreciation. Therefore, a significant portion of ourthe investment portfolio is structured to maximize the potential for capital appreciation and certain portfolio investments may be structured to provide little or no current yield in the form of dividends or interest payments. As discussed above, on closing of the Transactions contemplated by the stock purchase agreement with East, we expect to receive interest bearing investments and subsequently to position the portfolio to earn a current yield.
As of SeptemberJune 30, 2018,2019, our total liquidity consisted of approximately $4.4$8.6 million in cash and cash equivalents on hand.hand and the availability of $3.0 million under our SBA leverage commitment.
Net cash used by operating activities has averaged approximately $626,000$1,200,000 over the last three years. The average cash used for investment in portfolio companies over the last three years was approximately $3,700,000.$1,980,000. Our cash flow from operations may fluctuate based on the timing of the receipt of dividend income and realized gains and the associated income taxes paid. We will generally use cash to fund our operating expenses and also to invest in companies, as we seek to build our portfolio utilizing our available cash and proceeds from liquidations of portfolio investments. We anticipate that we will continue to exit investments. However, the timing of liquidation events within the portfolio is difficult to project with any certainty. As of SeptemberJune 30, 2018,2019, we did not have any outstanding commitmentshad the availability to borrow fundsan additional $3.0 million from the SBA. Starting in 2022, our SBA debt begins to reach maturity, and this will require us to identify sources of future funding if liquidation of investments is not sufficient to fund operations and repay the SBA debt obligation.
We believe that the cash on hand, at September 30, 2018, the scheduled interest payments on our portfolio investments and the anticipated additionalour SBA leverage commitment will be sufficient to meet our cash needs for the next twelve months. We continue to seek potential exits from portfolio companies to increase the amount of liquidity available for new investments, operating activities and future SBA debenture repayment obligations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
Our investment activities contain elements of risk. Our investment portfolio consists of equity and debt securities in private companies and is subject to valuation risk. Because there is typically no public market for the equity and debt securities in which we invest, the valuation of the equity interests in the portfolio is stated at “fair value” as determined in good faith by our management and approved by our Board of Directors. This is in accordance with our investment valuation policy (see the discussion of valuation policy contained in “Note 3. Investments” in the consolidated financial statements contained in Item 1 of this report, which is hereby incorporated herein by reference.) In the absence of readily ascertainable market values, the estimated value of the portfolio may differ significantly from the values that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated statement of operations as “Net change in unrealized depreciation on investments.”
At times, a portion of our portfolio may include marketable securities traded in theover-the-counter market. In addition, there may be a portion of the portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow markets to trade in an orderly fashion, we may not be able to realize the fair value of our marketable investments or other investments in a timely manner.
As of SeptemberJune 30, 20182019 we did not have anyoff-balance sheet arrangements or hedging or similar derivative financial instrument investments.
Disclosure Controls and Procedures.The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that this information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as Septemberof June 30, 2018. 2019.
Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s controls and procedures were effective as of SeptemberJune 30, 2018.2019.
Changes in Internal Control over Financial Reporting.There have been no changes in our internal control over financial reporting during the Corporation’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
OTHER INFORMATION
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None.
We and each of our directors were named as defendants in a complaint that was filed in the United States District Court for the Western District of New York on April 29, 2019, captioned George Assad v. Rand Capital Corporation, et al., Case No.1:19-cv-00557. The complaint alleged violations of Section 14(a) of the Securities Exchange Act of 1934, as amended and Rule14a-9 promulgated under the Securities Exchange Act of 1934, as amended, in Rand’s definitive proxy statement prepared for purposes of seeking to obtain shareholder approval of the Transactions. This action was voluntarily dismissed with prejudice on June 5, 2019.
See Part I, Item 1A, “Risk Factors,” of the Annual Report on Form10-K for the year ended December 31, 2017.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issuer Purchases of Equity Securities |
Period | Total number of shares purchased (1) | Average price paid per share (2) | Total number of shares purchased as part of publicly announced plan (3) | Maximum number of shares that may yet be purchased under the share repurchase program | ||||||||||||
| — | — | — | 458,954 | ||||||||||||
| — | — | — | 458,954 | ||||||||||||
| — | — | — | 458,954 |
(1) | There were no shares repurchased during the |
(2) | The average price paid per share is calculated on a settlement basis and includes commission. |
(3) | On October 25, 2018, the Board of Directors extended the repurchase authorization of up to 1,000,000 shares of the Corporation’s common stock on the open market at prices no greater than the then current net asset value through October 25, 2019. |
None.
Not Applicable.
None.
(a) | Exhibits |