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 March 31,June 30, 2019

 

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 May 2,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. 

Financial Statements and Supplementary Data

   1 
 

Consolidated Statements of Financial Position as of March  31,June  30, 2019 (Unaudited) and December 31, 2018

   1 
 

Consolidated Statements of Operations for the Three Months and Six Months Ended March  31,June 30, 2019 and 2018 (Unaudited)

   2 
 

Consolidated Statements of Changes in Net Assets for the Three Months and Six Months Ended March 31,June 30, 2019 and 2018 (Unaudited)

   3 
 

Consolidated Statements of Cash Flows for the ThreeSix Months Ended March  31,June  30, 2019 and 2018 (Unaudited)

   4 
 

Consolidated Schedule of Portfolio Investments as of March  31,June  30, 2019 (Unaudited)

   5 
 

Consolidated Schedule of Portfolio Investments as of December 31, 2018

   13 
 

Notes to the Consolidated Financial Statements (Unaudited)

   21 
Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   3435 
Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

   4044 
Item 4. 

Controls and Procedures

   4044 

PART II. – OTHER INFORMATION

  
Item 1. 

Legal Proceedings

   4246 
Item 1A. 

Risk Factors

   4246 
Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

   4246 
Item 3. 

Defaults upon Senior Securities

   4246 
Item 4. 

Mine Safety Disclosures

   4246 
Item 5. 

Other Information

   4246 
Item 6. 

Exhibits

   4347 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

  March 31,
2019

(Unaudited)
 December 31,
2018
   June 30,
2019
(Unaudited)
 December 31,
2018
 

ASSETS

      

Investments at fair value:

      

Control investments (cost of $0 and $99,500, respectively)

  $—    $99,500   $—    $99,500 

Affiliate investments (cost of $21,442,998 and $20,708,659, respectively)

   18,804,026  17,026,091 

Non-Control/Non-Affiliate investments (cost of $14,151,246 and $17,483,984, respectively)

   13,687,175  17,541,213 

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 
  

 

  

 

   

 

  

 

 

Total investments, at fair value (cost of $35,594,244 and $38,292,143, respectively)

   32,491,201  34,666,804 

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

   8,694,705  4,033,792    8,646,007  4,033,792 

Interest receivable (net of allowance: $161,000)

   137,214  145,532 

Interest receivable (net of allowance of $166,413 and $161,000, respectively)

   119,717  145,532 

Deferred tax asset

   425,461  525,198    842,218  525,198 

Prepaid income taxes

   846,120  1,138,708    503,067  1,138,708 

Other assets

   338,507  11,690    346,010  11,690 
  

 

  

 

   

 

  

 

 

Total assets

  $42,933,208  $40,521,724   $41,699,064  $40,521,724 
  

 

  

 

   

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

Liabilities:

      

Debentures guaranteed by the SBA (net of debt issuance costs)

  $10,758,657  $8,554,443   $10,768,075  $8,554,443 

Profit sharing and bonus payable

   —    125,000    —    125,000 

Accounts payable and accrued expenses

   154,082  245,758    264,529  245,758 

Deferred revenue

   40,867  72,336    34,407  72,336 
  

 

  

 

   

 

  

 

 

Total liabilities

   10,953,606  8,997,537    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 3/31/19 and 12/31/18

   686,304  686,304 

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    10,581,789  10,581,789 

Accumulated net investment loss

   (1,642,785 (1,665,552   (1,786,085 (1,665,552

Undistributed net realized gain on investments

   26,252,574  26,221,443    25,920,065  26,221,443 

Net unrealized depreciation on investments

   (2,429,175 (2,830,692   (3,300,915 (2,830,692

Treasury stock, at cost: 541,046 shares

   (1,469,105 (1,469,105   (1,469,105 (1,469,105
  

 

  

 

   

 

  

 

 

Total stockholders’ equity (net assets) (per share- 3/31/19: $5.06,12/31/18: $4.99)

   31,979,602  31,524,187 

Total stockholders’ equity (net assets) (per share- 6/30/19: $4.85,12/31/18: $4.99)

   30,632,053  31,524,187 
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity (net assets)

  $42,933,208  $40,521,724   $41,699,064  $40,521,724 
  

 

  

 

   

 

  

 

 

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  Three months
ended

March 31, 2019
 Three months
ended

March 31, 2018
   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

  $208,715  $147,036   $206,036  $175,990  $414,751  $323,026 

Non-Control/Non-Affiliate investments

   197,250  150,312    109,453  139,710  306,703  290,022 
  

 

  

 

   

 

  

 

  

 

  

 

 

Total interest from portfolio companies

   405,965  297,348    315,489  315,700  721,454  613,048 
  

 

  

 

 

Interest from other investments:

        

Non-Control/Non-Affiliate investments

   17,811  5,110    53,538  7,735  71,349  12,845 
  

 

  

 

   

 

  

 

  

 

  

 

 

Total interest from other investments

   17,811  5,110    53,538  7,735  71,349  12,845 
  

 

  

 

 

Dividend and other investment income:

        

Affiliate investments

   34,625  50,783    207,060  76,266  241,685  127,049 

Non-Control/Non-Affiliate investments

   —    3,382    —    2,676   —    6,058 
  

 

  

 

   

 

  

 

  

 

  

 

 

Total dividend and other investment income

   34,625  54,165    207,060  78,942  241,685  133,107 
  

 

  

 

 

Fee income:

        

Affiliate investments

   4,247  3,167    3,606  4,416  7,853  7,583 

Non-Control/Non-Affiliate investments

   256,722  3,019    3,353  6,725  260,075  9,744 
  

 

  

 

   

 

  

 

  

 

  

 

 

Total fee income

   260,969  6,186    6,959  11,141  267,928  17,327 
  

 

  

 

   

 

  

 

  

 

  

 

 

Total investment income

   719,370  362,809    583,046  413,518  1,302,416  776,327 
  

 

  

 

   

 

  

 

  

 

  

 

 

Expenses:

        

Salaries

   181,500  169,874    181,500  169,875  363,000  339,749 

Employee benefits

   62,932  63,745    40,167  45,251  103,099  108,996 

Directors’ fees

   28,624  34,875    28,624  28,624  57,248  63,499 

Professional fees

   226,655  101,687    111,273  37,341  337,928  139,028 

Stockholders and office operating

   61,255  64,439    319,506  64,599  380,761  129,038 

Insurance

   9,601  11,988    10,969  6,900  20,570  18,888 

Corporate development

   18,460  15,796    14,866  10,646  33,326  26,442 

Other operating

   1,584  2,691    1,225  2,424  2,809  5,115 
  

 

  

 

   

 

  

 

  

 

  

 

 
   590,611  465,095    708,130  365,660  1,298,741  830,755 

Interest on SBA obligations

   99,124  77,569    110,534  77,269  209,658  154,838 

Bad debt expense

   —    45,900    5,413  30,741  5,413  76,641 
  

 

  

 

��

   

 

  

 

  

 

  

 

 

Total expenses

   689,735  588,564    824,077  473,670  1,513,812  1,062,234 
  

 

  

 

   

 

  

 

  

 

  

 

 

Net investment gain (loss) before income taxes

   29,635  (225,755

Income tax expense (benefit)

   6,868  (52,426

Net investment loss before income taxes

   (241,031 (60,152 (211,396 (285,907
  

 

  

 

   

 

  

 

  

 

  

 

 

Net investment gain (loss)

   22,767  (173,329

Income tax benefit

   (97,731 (22,384 (90,863 (74,810
  

 

  

 

  

 

  

 

 

Net investment loss

   (143,300 (37,768 (120,533 (211,097
  

 

  

 

   

 

  

 

  

 

  

 

 

Net realized gain on sales and dispositions of investments:

   

Net realized gain (loss) on sales and dispositions of investments:

     

Control investments

   40,500   —      39,893   —    80,393   —   

Income tax expense

   9,369   —   

Affiliate investments

   (472,632  —    (472,632  —   
  

 

  

 

   

 

  

 

  

 

  

 

 

Net realized gain on sales and dispositions of investments

   31,131   —   

Net realized gain (loss) on sales and dispositions, before income taxes

   (432,739  —    (392,239  —   

Income tax benefit

   (100,230  —    (90,861  —   
  

 

  

 

  

 

  

 

 

Net realized loss on sales and dispositions of investments

   (332,509  —    (301,378  —   

Net change in unrealized depreciation on investments:

        

Affiliate investments

   1,043,595  (250,000   (372,448 (306,441 671,148  (556,441

Non-Control/Non-Affiliate investments

   (521,300 (201,489   (750,000 (450,000 (1,271,300 (651,489
  

 

  

 

   

 

  

 

  

 

  

 

 

Change in unrealized depreciation before income taxes

   522,296  (451,489

Deferred income tax expense (benefit)

   120,779  (104,405

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

   401,517  (347,084   (871,740 (593,526 (470,223 (940,610
  

 

  

 

   

 

  

 

  

 

  

 

 

Net realized and unrealized gain (loss) on investments

   432,648  (347,084

Net realized and unrealized loss on investments

   (1,204,249 (593,526 (771,601 (940,610
  

 

  

 

   

 

  

 

  

 

  

 

 

Net increase (decrease) in net assets from operations

  $455,415  ($520,413

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  6,321,988  6,321,988 

Basic and diluted net increase (decrease) in net assets from operations per share

  $0.07  ($0.08

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

March 31, 2019
 Three months
ended

March 31, 2018
   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

  $31,524,187  $31,918,685   $31,979,602  $31,398,272  $31,524,187  $31,918,685 

Net investment gain (loss)

   22,767  (173,329

Net realized gain on sales and dispositions of investments

   31,131   —   

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

   401,517  (347,084   (871,740 (593,526 (470,223 (940,610
  

 

  

 

   

 

  

 

  

 

  

 

 

Net increase (decrease) in net assets from operations

   455,415  (520,413

Net decrease in net assets from operations

   (1,347,549 (631,294 (892,134 (1,151,707
  

 

  

 

   

 

  

 

  

 

  

 

 

Net assets at end of period

  $31,979,602  $31,398,272   $30,632,053  $30,766,978  $30,632,053  $30,766,978 
  

 

  

 

   

 

  

 

  

 

  

 

 

Accumulated net investment loss

  ($1,642,785 ($1,770,475  ($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)

 

  Three months
ended

March 31, 2019
 Three months
ended
March 31, 2018
   Six months
ended
June 30, 2019
 Six months
ended
June 30, 2018
 

Cash flows from operating activities:

      

Net increase (decrease) in net assets from operations

  $455,415  ($520,413

Adjustments to reconcile net increase (decrease) in net assets to net cash provided by (used in) 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

   (650,012 (450,000   (900,012 (1,225,000

Proceeds from sale of portfolio investments

   39,893   —   

Proceeds from loan repayments

   3,500,000  70,131    3,525,000  70,131 

Net realized gain on portfolio investments

   (40,500  —   

Net realized loss on portfolio investments

   392,239   —   

Change in unrealized depreciation on investments before income taxes

   (522,296 451,489    600,152  1,207,930 

Deferred income tax expense (benefit)

   99,737  (104,405

Deferred tax benefit

   (317,020 (347,040

Depreciation and amortization

   8,842  7,400    18,325  14,800 

Original issue discount amortization

   (10,191 (9,080   (20,382 (19,271

Non-cash conversion of debenture interest

   (101,398 (8,701   (212,131 (77,154

Change in interest receivable allowance

   —    45,900    5,413  76,641 

Changes in operating assets and liabilities:

      

Decrease in interest receivable

   8,318  17,019    20,402  26,510 

Increase in other assets

   (326,882 (39,943   (334,451 (14,202

Decrease (increase) in prepaid income taxes

   292,588  (35,375

Decrease in accounts payable and accrued expenses

   (91,676 (70,609

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   (125,000 (132,000

(Decrease) increase in deferred revenue

   (31,469 15,814    (37,928 28,173 
  

 

  

 

   

 

  

 

 

Total adjustments

   2,010,061  (242,360   3,308,912  (389,951
  

 

  

 

   

 

  

 

 

Net cash provided by (used in) operating activities

   2,465,476  (762,773   2,416,778  (1,541,658
  

 

  

 

   

 

  

 

 

Cash flows from financing activities:

      

Proceeds from SBA debentures

   2,250,000   —      2,250,000   —   

Origination costs to SBA

   (54,563  —      (54,563  —   
  

 

  

 

   

 

  

 

 

Net cash provided by financing activities

   2,195,437   —      2,195,437   —   
  

 

  

 

   

 

  

 

 

Net increase (decrease) in cash and cash equivalents

   4,660,913  (762,773   4,612,215  (1,541,658

Cash and cash equivalents:

      

Beginning of period

   4,033,792  6,262,039    4,033,792  6,262,039 
  

 

  

 

   

 

  

 

 

End of period

  $8,694,705  $5,499,266   $8,646,007  $4,720,381 
  

 

  

 

   

 

  

 

 

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31,June 30, 2019

(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 – 42.8% 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    8.7
Advantage 24/7 LLC (g)  $140,000 Term Note at 13% due   12/30/10    0      0.4

Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company)

www.advantage24-7.com

  January 1, 2022      140,000    140,000   

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

 

 

 

   0.9

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   6/13/14    0      2.5
  December 31, 2020.      1,257,858    498,844   
  $444,915 Promissory Note at 9%         
  

(4% PIK) due December 31, 2020.

                                 Total Empire

      

   444,915

1,702,773

 

 

   

302,569

801,413

 

 

  

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    1.9
GoNoodle, Inc. (g)(l)  $1,000,000 Secured Note at 12% due   2/6/15    <1      3.2
Nashville, TN. Student engagement education software  January 31, 2020, (1% PIK).      1,042,262    1,042,262   
providing core aligned physical activity breaks. (Software)  Warrant for 47,324 Series C Preferred.                  25                25   
www.gonoodle.com                                  Total GoNoodle      1,042,287    1,042,287   

Mercantile Adjustment Bureau, LLC (g)

Williamsville, NY. Full service accounts receivable

  $1,199,039 Subordinated Secured Note at 13% (3% for the calendar   10/22/12    4      1.5
management and collections company. (Contact Center) www.mercantilesolutions.com  

year 2018) due January 31, 2019.

(e) $150,000 Subordinated Debenture at

      1,199,040    500,000   
  

8% due June 30, 2018.

Warrant for 3.29% Membership Interests.

      150,000    —     
  

Option for 1.5% Membership Interests.

                                 Total Mercantile

      

     97,625

1,446,665

 

 

   

       —  

500,000

 

 

  

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

 

 

 

   6.7
PostProcess Technologies LLC (e)(g)  $300,000 Convertible Promissory   7/25/16    0      0.9

Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing)

www.postprocess.com

  Note at 5% due July 28, 2020.      300,000    300,000   

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 – 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

March 31,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

 

 

 

 

 

   6.9

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

 

 

 

 

   

500,000

750,000

   500,000

1,750,000

 

 

 

 

   5.5

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)  $600,000 Term Note at 14% due   11/16/18    0      1.9

Herndon, VA. Develops and delivers IT training. (Software)

www.t2000inc.com

  November 15, 2021.      610,777    610,777   
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       $14,151,246   $13,687,175   

Affiliate Investments – 58.8% of net assets (k)

           
BeetNPath, LLC (Grainful) (e)(g)  1,119,024 SeriesA-2 Preferred   10/20/14    9      0.4
Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)  

Membership Units.

1,032,918 Series B Preferred

     $359,000   $—     
www.grainful.com  

Membership Units.

$262,626.64 Convertible Secured

      261,277    —     
  

Notes at 8% due December 21, 2019.

                                 Total BeetNPath

      

262,627

882,904

 

 

   

130,000

130,000

 

 

  
Carolina Skiff LLC (g)  6.0825% Class A Common   1/30/04    7      5.5

Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing)

www.carolinaskiff.com

  Membership Interest.      15,000    1,750,000   

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.firstwavetechnologies.com

  670,443.2 Class A Common.   4/19/12    5  661,563    33,000    0.1

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

March 31,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
  

        

  

(a)

    

Type of Investment

  

(b)

Date

Acquired

  

(c)

    

Equity

    Cost     

(d)(f)

Fair

Value

   Percent
of Net
Assets

Genicon, Inc. (g)(l)

Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care)

  

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

    

3,465,080

   120,000

4,585,080

 

 

 

 

 

   

1,000,000

    

3,465,080

          —  

4,465,080

 

 

 

 

 

   14.0
www.geniconendo.com      
      

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   

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.

   11/13/13    7  

250,000

300,000

165,001

35,000

 

 

 

 

   

—  

—  

165,001

35,000

 

 

 

 

   3.7   

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%
  (e) $75,000 Subordinated Promissory Notes at 8% payable on demand of majority of holders after August 31, 2019.     75,000    75,000   
  

$900,000 Term Note at 13% due April 30, 2021.

                        Total KnowledgeVision

      

   900,000

1,725,001

 

 

   

   900,000

1,175,001

 

 

  

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   1,554,565 Series Seed Preferred.  1/9/08  12%     742,850      351,477   1.1%
Microcision LLC (g)(l)  $1,500,000 Subordinated Promissory Note   9/24/09    15      8.0
Pennsauken Township, NJ. Manufacturer of precision  at 12% (1% PIK) due December 31, 2024.      1,938,186    1,938,186   

machined medical implants, components and assemblies. (Manufacturing)

www.microcision.com

  

15% Class A Common Membership Interest.

                        Total Microcision

      

          —  

1,938,186

 

 

   

   610,000

2,548,186

 

 

  

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   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   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

 

 

 

 

 

 

 

   5.1   

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

March 31,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
   

(a)

 

Type of Investment

  

(b)

Date

Acquired

   

(c)

    

Equity

 Cost   

(d)(f)

Fair

Value

  Percent
of Net
Assets
 

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.

   5/30/14    6  

250,000

1,190,680

91,200

   104,198

 

 

 

 

   

—  

—  

—  

      —  

 

 

 

 

  0.0
                                  Total Teleservices      1,636,078          —    
Tilson Technology Management, Inc. (g)  120,000 Series B Preferred.   1/20/15    11  600,000    1,950,000   15.5  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    21,391 Series C Preferred.     200,000    347,604   

construction and information system services

  70,176 Series D Preferred.     800,000    1,140,360    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    15,385 Series E Preferred.     500,012    500,012   

systems providers. Its affiliated entity, SQF, LLC

  211,567 SQF Hold Co. Common.      —      22,036    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    $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    $200,000 Subordinated Promissory Note at 8% due September 28, 2021.         200,000       200,000   
                                  Total Tilson      3,100,012    4,960,012                                    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  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       $21,442,998   $18,804,026         

 

    $

 

 

21,313,526

 

 

 

 

   

 

$18,302,106

 

 

 

  
       

 

   

 

  
TOTAL INVESTMENTS – 101.6%       $35,594,244   $32,491,201  
       

 

   

 

  
LIABILITIES IN EXCESS OF OTHER ASSETS – (1.6%)          (511,599 
TOTAL INVESTMENTS – 102%           $35,467,536    $31,242,045   
LIABILITIES IN EXCESS OF OTHER ASSETS – (2%)          (609,992)   
         

 

           

 

  
NET ASSETS – 100%         $31,979,602                $30,632,053   
         

 

           

 

  

RAND CAPITAL CORPORATION AND SUBSIDIARYSUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31,June 30, 2019 (Continued)

(Unaudited)

 

Notes to the Consolidated Schedule of Portfolio Investments

(a) At March 31,June 30, 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 March 31,June 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 March 31,June 30, 2019, the total cost of investment securities was approximately $35.6$35.5 million. Net unrealized depreciation was approximately ($3.1)4.2) million, which was comprised of $6.8 million of unrealized appreciation of investment securities and ($9.9)11.0) million of unrealized depreciation of investment securities. At March 31,June 30, 2019, the aggregate gross unrealized gain for federal income tax purposes was $6.5$6.4 million and the aggregate gross unrealized loss for federal income tax purposes was ($6.7)7.6) million. The net unrealized loss for federal income tax purposes was ($0.2)1.2) million based on a tax cost of $32.5$32.9 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 reductions during the first quarter of 2019.

(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 March 31, 2019.)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 SUBSIDIARYSUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31,June 30, 2019 (Continued)

(Unaudited)

 

Investments in and Advances to Affiliates

 

Company

  

Type of Investment

  December 31,
2018
Fair Value
   Gross
Additions (1)
   Gross
Reductions
(2)
  March 31,
2019
Fair Value
   Net
Realized
Gains
   Amount of
Interest/

Dividend/
Fee
Income (3)
 

Control Investments:

             
Advantage 24/7 LLC  $140,000 Term Note at 13%.  $99,500   $—     ($99,500 $—     $40,500   $—   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total Control Investments  $99,500   $—     ($99,500 $—     $40,500   $—   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
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    —      (132,627  130,000    —      5,552 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total BeetNPath   523,904    —      (393,904  130,000    —      5,552 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
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    —      —     1,000,000    —      —   
  $3,250,000 Promissory Notes at 8%.   3,385,586    79,494    —     3,465,080    —      98,709 
  Warrant for 500,000 Common.   37,500    —      (37,500  —      —      —   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total Genicon   4,423,086    79,494    (37,500  4,465,080    —      98,709 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
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    —      —   
  1,876,922 Series B Preferred.   479,155    —      —     479,155    —      —   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total Knoa   1,229,155    —      —     1,229,155    —      —   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
KnowledgeVision  200,000 SeriesA-1 Preferred.   —      —      —     —      —      —   
Systems, Inc.  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    —      1,479 
  $900,000 Term Note at 13%.   750,000    150,000    —     900,000    —      29,506 
  Warrant for 46,743 Series A-3.   35,000    —      —     35,000    —      —   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total KnowledgeVision   1,025,001    150,000    —     1,175,001    —      30,985 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
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    4,833    —     1,938,186    —      58,001 
  15% Class A Common Membership Interest.   610,000    —      —     610,000    —      —   
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
  Total Microcision   2,543,353    4,833    —     2,548,186    —      58,001 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
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    —      —   

Company

    

 

 

Type of Investment

    

 

 

December

31, 2018
Fair Value

    

 

  

Gross
Additions (1)

    

 

  

Gross
Reductions
(2)

    

 

  

June 30,
2019 Fair
Value

    

 

  

Net
Realized
Gains
(Losses)

    

 

  

Amount
of
Interest/

Dividend/

Fee
Income
(3)

 

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 SUBSIDIARYSUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31,June 30, 2019 (Continued)

(Unaudited)(Unaudited)

 

Investments in and Advances to Affiliates

Investments in and Advances to Affiliates Investments in and Advances to Affiliates 

Company

  

Type of Investment

  December 31,
2018
Fair Value
   Gross
Additions (1)
   Gross
Reductions
(2)
 March 31,
2019
Fair Value
   Net
Realized
Gains
   Amount of
Interest/

Dividend/
Fee
Income (3)
  Type of Investment 

December 31,
2018 Fair

Value

 Gross
Additions
(1)
 Gross
Reductions
(2)
 June 30, 2019
Fair Value
 Net
Realized
Gains
(Losses)
 

Amount of  
Interest/  

Dividend/  

Fee Income  

(3)  

 
SciAps, Inc.  187,500 Series A Convertible Preferred.   700,000    —      (277,000 423,000    —      —    

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

 

 

 

 

 

 

 

  

-

-

-

-

-

-

-

 

 

 

 

 

 

 

  

-  

-  

-  

-  

-  

-  

-  

 

 

 

 

 

 

 

  274,299 SeriesA-1 Convertible Preferred.   250,000    —      (108,000 142,000    —      —   
  117,371 Series B Convertible Preferred.   250,000    —      —    250,000    —      —   
  113,636 Series C Convertible Preferred.   175,000    —      —    175,000    —      —   
  369,698 SeriesC-1 Convertible Preferred.   399,274    —      —    399,274    —      —   
  147,059 Series D Convertible Preferred.   250,000    —      —    250,000    —      —   
    

 

   

 

   

 

  

 

   

 

   

 

 
  Total SciAps   2,024,274    —      (385,000 1,639,274    —      —   
    

 

   

 

   

 

  

 

   

 

   

 

 
SOMS Technologies, LLC  5,959,490 Series B membership Interests.   —      —      —     —      —      —    5,959,490 Series B membership Interests.  -   -   -   -   (472,632)   -   
Teleservices Solutions Holdings, LLC  250,000 Class B Preferred Units.   —      —      —     —      —      —    

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  

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-  

-  

-  

-  

-  

 

 

 

 

 

  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.   600,000    1,350,000    —    1,950,000    —      10,582  

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  

 

 

 

 

 

 

 

 

 

 

  21,391 Series C Preferred.   200,000    147,604    —    347,604    —      —          
  70,176 Series D Preferred.   800,000    340,360    —    1,140,360    —      —     

 

 

 
  15,385 Series E Preferred.   —      500,012    —    500,012    —      —   
  211,567 SQF Hold Co. Common.   —      22,036    —    22,036    —      —    Total Affiliate Investments          $17,026,091   $2,937,499   ($1,661,484)   $18,302,106   ($472,632)   $664,289   
  $200,000 Subordinated Promissory Note at 8%.   200,000    —      —    200,000    —      3,945   

 

 

 
  $800,000 Subordinated Promissory Note at 8%.   800,000    —      —    800,000    —      15,770 
    

 

   

 

   

 

  

 

   

 

   

 

  Total Control and Affiliate Investments  $17,125,591   $2,937,499   ($1,760,984)   $18,302,106   ($392,239)   $664,289   
  Total Tilson   2,600,000    2,360,012    —    4,960,012    —      30,297   

 

 

 
    

 

   

 

   

 

  

 

   

 

   

 

 
  Total Affiliate Investments  $17,026,091   $2,594,339   ($816,404 $18,804,026   $—     $247,587 
    

 

   

 

   

 

  

 

   

 

   

 

 
  Total Control and Affiliate Investments  $17,125,591   $2,594,339   ($915,904 $18,804,026   $40,500   $247,587 
    

 

   

 

   

 

  

 

   

 

   

 

 

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

March 31,June 30, 2019 (Continued)

(Unaudited)

 

 

Industry Classification

  Percentage of Total
Investments (at fair value)
as of March 31,June 30, 2019

Software

  35.534.6%

Healthcare

  24.023.8

Manufacturing

  19.320.0

Professional Services

  15.315.9

Contact Center

  1.6

Oil and Gas

  1.51.6

Consumer Product

1.3

Electronics

  1.1

Marketing

Consumer Product Electronics
  1.0
Marketing  0.4
  

 

Total Investments

  100100%
  

 

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

  

(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%  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%  

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%

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%  

$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%  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%  

$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%  

$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%  

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%  $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

  

(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%  

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%  

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%  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%  

$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%  Membership Interest.  10/1/98  5%   310,357      -    0.0% 
UStec/Wi3(e) (Manufacturing)  Common stock.  12/17/98  <1%   100,500    —     0.0%  Common stock.  12/17/98  <1%   100,500      -    0.0% 
        

 

 

 

  
SubtotalNon-Control/Non-Affiliate Investments        $17,483,984   $17,541,213           

 

 

 

    $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%  

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%  

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%  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%  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
of Net
Assets

  

(a)

    

Type of Investment

  

(b)

Date

Acquired

  

(c)

    

Equity

 

Cost

   

(d)(f)

Fair

Value

   

Percent
of Net
Assets

 

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%  

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%  

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%  

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%  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%  

$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%  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%  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%  

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
of Net
Assets

  

(a)

    

Type of Investment

  

(b)

Date

Acquired

  

(c)

Equity

 

Cost

   

(d)(f)

Fair

Value

 

Percent
of Net
Assets

 

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%  

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%  

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%  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%  Membership Interest  12/2/08   9%   472,632                -   0.0% 
Subtotal Affiliate Investments        $20,708,659   $17,026,091         

 

 

 

 

$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%  45% Membership Interest.  12/30/10   45%   $99,500    $99,500   0.3% 
Subtotal Control Investments         $99,500    $99,500         

 

 

 

$99,500

 

 

  

 

 

 

$99,500

 

 

 
 
TOTAL INVESTMENTS – 110%        $38,292,143   $34,666,804          $38,292,143    $34,666,804  
LIABILITIES IN EXCESS OF OTHER ASSETS – (10%)           (3,142,617          

 

 

 

(3,142,617

 

 
          

 

  
NET ASSETS – 100%          $31,524,187                $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 December 31, 2018, the total cost of investment securities was approximately $38.3 million. Net unrealized depreciation was approximately ($3.6) million, which was comprised of $5.3 million of unrealized appreciation of investment securities and ($8.9) million of unrealized depreciation of investment securities. At December 31, 2018, the aggregate gross unrealized gain for federal income tax purposes was $5.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($5.9) million. The net unrealized loss for federal income tax purposes was ($0.7) million based on a tax cost of $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 Consolidated Statements 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.

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2018 (Continued)

 

Investments in and Advances to Affiliates

Investments in and Advances to Affiliates 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
Income (3)

   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
Income (3)

 
Control Investments:                                     
Advantage 24/7 LLC  45% Membership Interest.  $99,500   $—     $—    $99,500   $—    $60,000   45% Membership Interest.   $99,500    $     -    $       -    $99,500    $       -    $60,000 

Total Control Investments

Total Control Investments

   $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.  $359,000   $—     $(359,000 $—     $—    $—   
  1,032,918 Series B Preferred Membership Units.   291,000    —      (29,723 261,277    —     —   
  $262,626.64 Convertible Secured Note at 8%   —      262,627    —    262,627    —    5,413 
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total BeetNPath   650,000    262,627    (388,723 523,904    —    5,413 
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   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    —     —     312,500 Series Seed Plus Preferred.   200,000    -    -    200,000    -    - 
First Wave Technologies, Inc.  $500,000 senior term notes at 10%.   250,000    —      (250,000  —      (316,469  —     

$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


 

 

   

-

-

-

-

-

 

 

 

 

 

  $280,000 junior term notes at 10%.   —      —      —     —      —     —   
  Warrant for 41,619 capital securities.   —      —      —     —      (22,000  —   
  670,443.2 Class A Common.   —      33,000    —    33,000    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total First Wave   250,000    33,000    (250,000 33,000    (338,469  —   
    

 

   

 

   

 

  

 

   

 

  

 

 
Genicon, Inc.  1,586,902 Series B Preferred.   1,000,000    —      —    1,000,000    —     —     

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

 

 

 

 

  $3,250,000 Promissory Notes at 8%.   2,903,779    481,807    —    3,385,586    —    348,512 
  Warrant for 250,000 Common.   120,000    —      (82,500 37,500    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total Genicon   4,023,779    481,807    (82,500 4,423,086    —    348,512 
    

 

   

 

   

 

  

 

   

 

  

 

 
GiveGab, Inc.  5,084,329 Series Seed Preferred.   424,314    191,907    (616,221  —      —     —     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  —     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  —      —     —     4,161,747 Series A Preferred.   400,000    -    (400,000   -    -    - 
Knoa Software, Inc.  973,533 SeriesA-1 Convertible Preferred.   750,000    —      —    750,000    —     —     

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

 

 

 

 

  1,876,922 Series B Preferred.   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 Systems, Inc.  200,000 SeriesA-1 Preferred.   —      —      —     —      —     —     

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

 

 

 

 

 

 

 

 

  214,285 SeriesA-2 Preferred.   300,000    —      (300,000  —      —     —   
  129,033 SeriesA-3 Preferred.   165,001    —      —    165,001    —     —   
  $75,000 Subordinated Promissory Notes at 8%   50,000    25,000    —    75,000    —    5,408 
  $750,000 term note at 11%   —      750,000    —    750,000    —    60,241 
  Warrant for 46,743 SeriesA-3.   35,000    —      —    35,000    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total KnowledgeVision   550,001    775,000    (300,000 1,025,001    —    65,649 
    

 

   

 

   

 

  

 

   

 

  

 

 

Mezmeriz, Inc.

  1,554,565 Series Seed Preferred.   351,477    —      —    351,477    —     —     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.   1,914,140    19,213    —    1,933,353    —    230,559   

$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

 

 

 

  15% Class A Common Membership Interest.   —      610,000    —    610,000    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total Microcision   1,914,140    629,213    —    2,543,353    —    230,559 
    

 

   

 

   

 

  

 

   

 

  

 

 
New Monarch Machine Tool, Inc.  22.84 Common.   22,841    —      —    22,841    —    29,409   22.84 Common.   22,841    -    -    22,841    -    29,409 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2018 (Continued)

 

Investments in and Advances to Affiliates

Investments in and Advances to Affiliates 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
Income (3)

  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 Income
(3)

OnCore Golf Technology, Inc.  150,000 Series AA Preferred.   —      300,000    —    300,000    —     —    

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

 

 

 

 

  $300,000 Subordinated Convertible Promissory notes at 6%.   300,000    —      (300,000  —      —    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)   -   -   - 
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total OnCore   300,000    300,000    (300,000 300,000    —    27,370 
    

 

   

 

   

 

  

 

   

 

  

 

 
SciAps, Inc.  187,500 Series A Convertible Preferred.   700,000    —      —    700,000    —     —   
  274,299 SeriesA-1 Convertible Preferred.   250,000    —      —    250,000    —     —   
  117,371 Series B Convertible Preferred.   250,000    —      —    250,000    —     —   
  113,636 Series C Preferred.   175,000    —      —    175,000    —     —   
  369,698 SeriesC-1 Preferred.   399,274    —      —    399,274    —     —   
  147,059 Series D Convertible Preferred.   —      250,000    —    250,000    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
  Total SciAps   1,774,274    250,000    —    2,024,274    —     —   
    

 

   

 

   

 

  

 

   

 

  

 

 
SOMS Technologies, LLC  5,959,490 Series B membership Interests.   528,348    —      (528,348  —      —     —   
Teleservices Solutions  250,000 Class B Preferred Units.   —      —      —     —          

Holdings, LLC

  1,000,000 Class C Preferred Units.   —      —      —     —      —     —   
  80,000 Class D Preferred Units.   —      —      —     —      —     —   
  104,198 Class E Preferred Units.   —      —      —     —      —     —   

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    

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  

-

-

-

-

-

 

 

 

 

 

  Total Teleservices   —      —      —     —      —     —   
Tilson Technology Management, Inc.  120,000 Series B Preferred.   600,000    —      —    600,000    —    20,000  

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

 

 

 

   

 

 

  21,391 Series C Convertible Preferred.   200,000    —      —    200,000    —     —          
  70,176 Series D Preferred.   750,000    50,000    —    800,000    —    19,003   

 

 

 

  $200,000 Subordinated Promissory Note at 8%.   200,000    —      —    200,000    —    16,000 
  $800,000 Subordinated Promissory Note at 8%.   750,000    50,000    —    800,000    —    60,822  Total Affiliate Investments      $17,016,795   $3,023,554   ($3,014,258)    $17,026,091   ($1,464,142)   $1,075,423   
    

 

   

 

   

 

  

 

   

 

  

 

   

 

 

 

  Total Tilson   2,500,000    100,000    —    2,600,000    —    115,825 
    

 

   

 

   

 

  

 

   

 

  

 

  Total Control and Affiliate Investments          $17,116,295   $3,023,554   ($3,014,258)    $17,125,591   ($1,464,142)   $1,135,423 
  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 SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2018 (Continued)

 

Industry Classification

  

Percentage of Total

Investments (at fair value)

as of December 31, 2018

Software

  33.8%

Healthcare

  32.4

Manufacturing

  19.2

Professional Services

  7.5

Consumer Product

  2.4

Contact Center

  2.0

Oil and Gas

  1.4

Electronics

  1.0

Marketing

  0.3
  

 

Total Investments

  100%
  

 

Rand Capital Corporation and Subsidiary

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, 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 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.

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 Nasdaq 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”) are subject to, required receipt of shareholder approval. Rand has agreedRand’s shareholders approved all proposals related to holdthe Transactions at a special meeting of shareholders for purposes of obtaining these approvals, which will bethat was held on May 16, 2019.

Additional information regarding the Stock Purchase Agreement and the Transactions is available in Rand’s Definitive Proxy Statement filedIn connection with the Securities and Exchange Commission on April 18, 2019.

Incompletion of the event the Transactions, are completed, 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 threesix months ended March 31,June 30, 2019 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 FormForm 10-K for the year ended December 31, 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    ElectionElection to Adopt Business Development Company status

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 wholly-owned 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 March 2019, the SBIC Funding Corporation completed a pooling of SBA debentures that have a coupon rate of 3.113%, excluding a mandatory SBA annual charge estimated to be 0.094%, resulting in a total estimated fixed rate for ten years of 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) 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 $35,969$42,428 and $5,186$15,327 for the threesix months ended March 31,June 30, 2019 and 2018, 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 $0$500 and $1,000$2,000 for the threesix months ended March 31,June 30, 2019 and 2018, respectively.

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 $10,191$20,382 and $9,080$19,271 in OID income for the threesix months ended March 31,June 30, 2019 and 2018, respectively. OID income is estimated to be approximately $31,000$20,000 for the remainder of 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 $8,777$18,195 and $6,850$13,700 for the threesix months ended March 31,June 30, 2019 and 2018, respectively. Amortization expense on currently outstanding debentures for the next five years is estimated to average approximately $32,000$31,000 per year.

SBA Debentures –The Corporation had $11,000,000 and $8,750,000 in outstanding SBA debentures at March 31,June 30, 2019 and December 31, 2018, respectively, with a weighted average interest rate, including the SBA annual fee, of 3.45% at March 31,June 30, 2019. The debentures are presented net of deferred debenture costs (See Note 6 “SBA Debentures”). The $11,000,000 in outstanding SBA leverage matures from 2022 through 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 during the threesix months ended March 31,June 30, 2019 and 2018 were $255,308$630,274 and $17,051, respectively. Interest paid during each of the threesix months ended March 31,June 30, 2019 and 2018 was $153,513 and $140,275.$140,275, respectively. The Corporation converted $101,398$232,513 and $8,701$77,154 of interest receivable into investments during the threesix months ended March 31,June 30, 2019 and 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 March 31,June 30, 2019 and December 31, 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 threesix months ended March 31,June 30, 2019. At March 31,June 30, 2019, the total treasury shares held was 541,046 shares with a total cost of $1,469,105.

Profit Sharing and Stock Option PlanIn 2001, the shareholders 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 March 31,June 30, 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 threesix months ended March 31,June 30, 2019 and 2018, respectively.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 MarchJune 30, 2019 or December 31, 2019.2018.

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 threesix months ended March 31,June 30, 2019 or 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:

 

   As of
March 31,June 30,
2019
 

Tilson Technology Management, Inc. (Tilson)

   1516

Genicon, Inc. (Genicon)

   1413

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.

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 MarchJune 30, 2019 or December 31, 2019.2018.

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 March 31,June 30, 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

  $—     $1,750,025   $2,645,496   $5,897,202   $10,292,723 

Non-Control/Non-Affiliate Loan and Debt

   500,000    1,843,675    —      1,050,777    3,394,454 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TotalNon-Control/Non-Affiliate

  $500,000   $3,593,700   $2,645,496   $6,947,979   $13,687,175 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Affiliate Equity

  $2,360,000   $22,841   $4,268,430   $4,644,489   $11,295,760 

Affiliate Loan and Debt

   1,938,186    130,000    3,465,080    1,975,000    7,508,266 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Affiliate

  $4,298,186   $152,841   $7,733,510   $6,619,489   $18,804,026 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 Investments

  $4,798,186   $3,746,541   $10,379,006   $13,567,468   $32,491,201 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Range

   3.9X-7X    1X    1X-4X    Not Applicable   

Unobservable Input

   EBITDA Multiple    Asset Value    Revenue Multiple    Transaction Price   

Weighted Average

   5.8X    1X    2.5X    Not Applicable   

Investment Type

 

Market Approach

EBITDA Multiple

  

Market

Approach

Liquidation

Seniority

  

Market Approach

Revenue Multiple

  

Market Approach
Transaction Pricing

  

Asset

Value
Liquidation
Seniority

  

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

TotalNon-Control/Non-Affiliate

 $500,000  $5,074,196  $2,645,496  $4,720,247   —    $12,939,939 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Affiliate

 $—    $22,841  $7,356,745  $8,979,489  $1,943,031  $18,302,106 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Level 3 Investments

 $500,000  $5,097,037  $10,002,241  $13,699,736  $1,943,031  $31,242,045 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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 March 31,June 30, 2019:

 

   Fair Value Measurements at Reported Date Using     Fair Value Measurements at Reported Date Using 

Description

  

March 31,
2019

   

Quoted Prices in
Active Markets for
Identical Assets

(Level 1)

   

Significant

Observable Inputs

(Level 2)

   

Other Significant

Unobservable

Inputs

(Level 3)

   

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

  $2,170,692   $—     $—     $2,170,692   $2,145,692   $—     $—    $2,145,692 

Debt investments

   8,732,026    —      —      8,732,026    8,757,870    —      —      8,757,870 

Equity investments

   21,588,483    —      —      21,588,483    20,338,483    —      —      20,338,483 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $32,491,201   $—     $—     $32,491,201   $31,242,045   $—     $—     $31,242,045 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at December 31, 2018:

 

   Fair Value Measurements at Reported Date Using     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)

   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   $4,935,777   $—     $—     $4,935,777 

Debt investments

   9,397,979    —      —      9,397,979    9,397,979    —      —      9,397,979 

Equity investments

   20,330,048    —      —      20,330,048    20,330,048    —      —      20,330,048 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $34,666,804   $—     $—     $34,666,804   $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 threesix months ended March 31,June 30, 2019:

 

   Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Venture Capital Investments
 

Description

  

Loan
Investments

   

Debt

Investments

   

Equity

Investments

   

Total

 

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)

   —      —      (99,500   (99,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Realized Gains and Losses

       (99,500   (99,500

Unrealized Gains and Losses included in net change in net assets from operations:

        

BeetNPath, LLC (Beetnpath)

   —      (132,627   (261,277   (393,904

Genicon, Inc. (Genicon)

   —      —      (37,500   (37,500

Mercantile Adjustment Bureau, LLC (Mercantile)

   —      (200,000   —      (200,000

SciAps, Inc. (Sciaps)

   —      —      (385,000   (385,000

SocialFlow, Inc. (Socialflow)

   —      —      (321,300   (321,300

Tilson Technology Management, Inc. (Tilson)

   —      —      1,860,000    1,860,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Unrealized Gains and Losses

   —      (332,627   854,923    522,296 

Purchases of Securities/Changes toSecurities/Non-cash conversions:

        

Advantage 24/7

   140,000    —      —      140,000 

Empire Genomics, LLC (Empire Genomics)

   —      24,664    —      24,664 

Genicon

   —      79,493    —      79,493 

GoNoodle, Inc. (GoNoodle)

   —      2,599    —      2,599 

KnowledgeVision Systems, Inc. (Knowledge Vision)

   150,000    —      —      150,000 

Microcision LLC (Microcision)

   —      4,833    —      4,833 

Tilson

   —      —      500,012    500,012 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Purchases of Securities/Changes toSecurities/Non-cash conversions

   290,000    111,589    500,012    901,601 

Repayments and Sale of Securities:

        

eHealth Global Technologies, Inc. (eHealth)

   (3,500,000   —      —      (3,500,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Repayments and Sale of Securities

   (3,500,000   —      —      (3,500,000

Transfers within Level 3

   444,915    (444,915   —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, March 31, 2019, of Level 3 Assets

  $2,170,692   $8,732,026   $21,588,483   $32,491,201 
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized depreciation on investments for the period included in changes in net assets

  $522,296 
  

 

 

 

Net realized gain on investments for the period included in changes in net assets

  $40,500 
  

 

 

 

The following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3) for the quarter ended March 31, 2018:

  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
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 

Unrealized Losses included in net change in net assets from operations:

        

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:

        

BeetNPath, LLC (Beetnpath)

   —      (262,627   (261,277   (523,904

Genicon, Inc. (Genicon)

   —      (215,080   (537,500   (752,580

Mercantile Adjustment Bureau, LLC (Mercantile)

   —      (200,000   —      (200,000

SciAps, Inc. (Sciaps)

   —      —      (385,000   (385,000

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

   —      (677,707   77,555    (600,152

Purchases of Securities/Changes toSecurities/Non-cash conversions:

        

Advantage 24/7

   140,000    —      —      140,000 

Empire Genomics, LLC (Empire Genomics)

   —      (201,489   —      (201,489   —      49,821    —      49,821 

First Wave Products Group, LLC (First Wave)

   —      (250,000   —      (250,000
  

 

   

 

   

 

   

 

 

Total Unrealized Losses

   —      (451,489   —      (451,489

Purchases of Securities/Changes toSecurities/Non-cash conversions:

        

Centivo Corporation (Centivo)

   —      —      201,342    201,342 

Genicon, Inc. (Genicon)

   —      9,080    —      9,080 

Genicon

   —      417,809    —      417,809 

GoNoodle, Inc. (GoNoodle)

   —      2,573    —      2,573    —      5,205    —      5,205 

KnowledgeVision Systems, Inc. (Knowledge Vision)

   150,000    —      —      150,000 

Microcision LLC (Microcision)

   —      4,786    —      4,786    —      9,678    —      9,678 

SciAps, Inc. (Sciaps)

   —      —      250,000    250,000 

Tilson

   —      —      500,012    500,012 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Purchases of Securities/Changes toSecurities/Non-cash conversions

   —      16,439    451,342    467,781    290,000    482,513    500,012    1,272,525 

Repayments and Sale of Securities:

                

Empire Genomics

   —      (21,665   —      (21,665

Knoa Software, Inc. (Knoa)

   —      (48,466   —      (48,466

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

   —      (70,131   —      (70,131   (3,525,000   —      (39,893   (3,704,893

Transfers within Level 3

   —      (100,000   100,000    —      444,915    (444,915   —      —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Ending Balance, March 31, 2018, of Level 3 Assets

  $3,550,000   $9,491,063   $19,189,160   $32,230,223 

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

  ($451,489600,152
  

 

 

 

Net realized gainloss 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
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 

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 March 31,June 30, 2019 and December 31, 2018, other assets was comprised of the following:

 

  March 31,
2019
   December 31,
2018
   June 30,
2019
   December 31,
2018
 

Prepaid expenses

  $297,378   $—     $334,359    $     —   

Operating receivables

   16,889    11,428    11,519    11,428 

Equipment (net)

   197    262    132    262 

Dividend receivable

   24,043    —   
  

 

   

 

   

 

   

 

 

Total other assets

  $338,507   $11,690   $346,010    $11,690 
  

 

   

 

   

 

   

 

 

Note 5. COMMITMENTS AND CONTINGENCIES

The Corporation had no commitments at March 31,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 ofon the Corporation’s consolidated financial statements to 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.

 

  March 31,
2019
   December 31,
2018
   June 30,
2019
   December 31,
2018
 

Debentures guaranteed by the SBA

  $11,000,000   $8,750,000   $11,000,000   $8,750,000 

Less unamortized issue costs

   (241,343   (195,557   (231,925   (195,557
  

 

   

 

   

 

   

 

 

Debentures guaranteed by the SBA, net

  $10,758,657   $8,554,443   $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 periods indicated: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
 

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 gain

   —      —      22,767   —      —     —     22,767 

Net realized gain on sales and dispositions of investments

   —      —      —     31,131    —     —     31,131 

Change in unrealized depreciation on investments

   —      —      —     —      401,517   —     401,517 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

March 31, 2019

  $686,304   $10,581,789   ($1,642,785 $26,252,574   ($2,429,175 ($1,469,105 $31,979,602 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   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)

   —      —      (173,329  —      —     —     (173,329

Net realized gain on sales and dispositions of investments

   —      —      —     —      —     —     —   

Change in unrealized depreciation on investments

   —      —      —     —      (347,084  —     (347,084
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

March 31, 2018

  $686,304   $10,581,789   ($1,770,475 $27,215,738   ($3,845,979 ($1,469,105 $31,398,272 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   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 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Note 8. FINANCIAL HIGHLIGHTS

The following schedule provides the financial highlights, calculated based on weighted average shares outstanding, for the threesix months ended March 31,June 30, 2019 and 2018:

 

  Three months ended
March 31, 2019
(Unaudited)
 Three months ended
March 31, 2018
(Unaudited)
   Six months ended
June 30, 2019
(Unaudited)
 Six months ended
June 30, 2018
(Unaudited)
 

Income from investment operations (1):

      

Investment income

  $0.11  $0.05   $0.21  $0.12 

Operating expenses

   0.11  0.09    0.24  0.16 
  

 

  

 

   

 

  

 

 

Investment loss before income taxes

   0.00  (0.04   (0.03 (0.04

Income tax benefit

   0.00  (0.01   (0.01 (0.01
  

 

  

 

   

 

  

 

 

Net investment gain (loss)

   0.00  (0.03

Net realized and unrealized gain (loss) on investments

   0.07  (0.05

Net investment loss

   (0.02 (0.03

Net realized and unrealized loss on investments

   (0.12 (0.15
  

 

  

 

   

 

  

 

 

Increase (decrease) in net asset value

   0.07  (0.08

Decrease in net asset value

   (0.14 (0.18

Net asset value, beginning of period

   4.99  5.05    4.99  5.05 
  

 

  

 

   

 

  

 

 

Net asset value, end of period

  $5.06  $4.97   $4.85  $4.87 
  

 

  

 

   

 

  

 

 

Per share market price, end of period

  $2.84  $2.69   $2.62  $2.69 
  

 

  

 

   

 

  

 

 

Total return based on market value

   13.60 (10.93%)    4.80 (10.93%) 

Total return based on net asset value

   1.44 (1.63%)    (2.83%)  (3.61%) 

Supplemental data:

      

Ratio of operating expenses before income taxes to average net assets

   2.17 1.86   4.87 3.39

Ratio of operating expenses including income taxes to average net assets

   2.60 1.36   3.87 2.30

Ratio of net investment loss to average net assets

   0.07 (0.55%)    (0.39%)  (0.67%) 

Portfolio turnover

   2.4 1.4   3.2 3.8

Net assets, end of period

  $31,979,602  $31,398,272   $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, 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

Currently, weWe 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. Rand SBIC was approved for an additional $6.0 million in new SBA leverage commitments during 2018 and has drawn down $3.0 million of that leverage as of March 31,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. The portfolio assets, which will be income-producing instruments that were originated ininstruments. Additionally, upon closing of the last 48 months. Additionally,pending Transactions (the “Transactions”), a new entity, Rand Capital Management LLC (“RCM”), will be established, assuming receipt of necessary shareholder approval and the closing of the transactions, and 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 at Rand. Rand’s shareholders approved all proposals related to the 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, areremains conditioned upon receipt of required regulatory approvals. Rand expects the Transactions to close in the second half of 2019, subject to shareholder and otherreceipt of required regulatory approvals.approval.

Following the closing of the above-described transactions (the “Transactions”)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 firstsecond quarter of 2019, we had $8.7$8.6 million in cash and cash equivalents available for future investments and expenses, an increase of $4.7$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 first quarter ofsix months ended June 30, 2019.

We believe the combination of cash on hand, proceeds from portfolio exits, 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 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 have sufficient cash to invest in new opportunities and to repurchase shares. At period end, we had authorization to repurchase an additional 458,954 shares of our Common Stock. However, our prioritized use of cash continues to be growing our portfolio.

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 repurchase shares. At period end, we had authorization to repurchase an additional 458,954 shares of our Common Stock. However, our prioritized use of cash continues to be growing our portfolio.

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, 2018 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Financial Condition

 

Overview:  March 31,
2019
   December 31,
2018
   Increase   % Increase   June 30,
2019
   December 31,
2018
   Increase
(Decrease)
   % Increase
(Decrease)
 

Total assets

  $42,933,208   $40,521,724   $2,411,484    6.0  $41,699,064   $40,521,724   $1,177,340    2.9

Total liabilities

   10,953,606    8,997,537    1,956,069    21.7   11,067,011    8,997,537    2,069,474    23.0
  

 

   

 

   

 

     

 

   

 

   

 

   

Net assets

  $31,979,602   $31,524,187   $455,415    1.4  $30,632,053   $31,524,187   ($892,134   (2.8%) 
  

 

   

 

   

 

     

 

   

 

   

 

   

Net asset value per share (NAV) was $5.06$4.85 at March 31,June 30, 2019 and $4.99 at December 31, 2018.

Our gross outstanding SBA debentures at March 31,June 30, 2019 were $11,000,000 and will mature from 2022 through 2029. Cash and cash equivalents approximated 27%28% of net assets at March 31,June 30, 2019, as compared to 13% at December 31, 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.

 

  March 31,
2019
   December 31,
2018
   Decrease   % Decrease   June 30,
2019
   December 31,
2018
   (Decrease)
Increase
   % (Decrease)
Increase
 

Investments, at cost

  $35,594,244   $38,292,143   ($2,697,899   (7.0%)   $35,467,536   $38,292,143   ($2,824,607   (7.4%) 

Unrealized depreciation, net

   (3,103,043   (3,625,339   522,296    (14.4%)    (4,225,491   (3,625,339   600,152    16.6
  

 

   

 

   

 

     

 

   

 

   

 

   

Investments at fair value

  $32,491,201   $34,666,804   ($2,175,603   (6.3%)   $31,242,045   $34,666,804   ($3,424,759   (9.9%) 
  

 

   

 

   

 

     

 

   

 

   

 

   

Our total investments at fair value, as estimated by management and approved by our Board of Directors, approximated 102% of net assets at March 31,June 30, 2019 versus 110% of net assets at December 31, 2018.

The change in investments during the threesix months ended March 31,June 30, 2019, at cost, is comprised of the following:

 

New investments:  Cost
Increase (Decrease)
   Cost
Increase (Decrease)
 

Tilson Technology Management, Inc. (Tilson)

  $500,012   $500,012 

Genicon Inc. (Genicon)

   250,000 

KnowledgeVision Systems, Inc. (Knowledgevision)

   150,000    150,000 

Advantage 24/7 LLC (Advantage 24/7)

   140,000    140,000 
  

 

   

 

 

Total of new investments

   790,012    1,040,012 

Other changes to investments:

    

Genicon Inc. (Genicon) interest conversion and OID amortization

   79,493 

Genicon interest conversion and OID amortization

   167,809 

Empire Genomics, LLC (Empire Genomics) capitalized fee income and interest conversion

   24,664    49,821 

Microcision LLC (Microcision) interest conversion

   4,833    9,678 

GoNoodle, Inc. (GoNoodle) interest conversion

   2,599    5,205 
  

 

   

 

 

Total of other changes to investments

   111,589    232,513 

Investments repaid, sold, liquidated or converted:

    

eHealth Global Technologies, Inc. (eHealth) loan repayment

   (3,500,000   (3,500,000

Advantage 24/7

   (99,500

SOMS Technologies, LLC (SOMS) realized loss

   (472,632

Advantage 24/7 investment conversion and loan repayment

   (124,500
  

 

   

 

 

Total of investments repaid, sold or liquidated

   (3,599,500   (4,097,132
  

 

   

 

 

Net change in investments, at cost

  ($2,697,899  ($2,824,607
  

 

   

 

 

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 March 31,June 30, 2019 to the three months ended March 31,June 30, 2018

Investment Income

 

  Three months
ended

March 31, 2019
   Three months
ended

March 31, 2018
   Increase
(Decrease)
   %
Increase
(Decrease)
   Three months
ended

June 30, 2019
   Three months
ended

June 30, 2018
   (Decrease)
Increase
   %
(Decrease)
Increase
 

Interest from portfolio companies

  $405,965   $297,348   $108,617    36.5  $315,489   $315,700   ($211   (0.1%) 

Interest from other investments

   17,811    5,110    12,701    248.6   53,538    7,735    45,803    592.2

Dividend and other investment income

   34,625    54,165    (19,540   (36.1%)    207,060    78,942    128,118    162.3

Fee income

   260,969    6,186    254,783    4,118.7   6,959    11,141    (4,182   (37.5%) 
  

 

   

 

   

 

     

 

   

 

   

 

   

Total investment income

  $719,370   $362,809   $356,561    98.3  $583,046   $413,518   $169,528    41.0
  

 

   

 

   

 

     

 

   

 

   

 

   

The total investment income that iswas received on a current basis for the three months ended March 31,June 30, 2019 iswas received from tennine portfolio companies. This contrasts with the eleveneight portfolio companies generating current income for the three months ended March 31,June 30, 2018.

Interest from portfolio companies – Interest from portfolio companies wasremained approximately 37% higherthe same during the three months ended March 31,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 BeetNPath LLC, KnowledgeVision Systems, Inc., Tech 2000, Inc. and several other portfolio companies.

2018. 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 three months ended March 31,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:

 

  Three months
ended

March 31, 2019
   Three months
ended

March 31, 2018
   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)

  $24,043   $41,095    —      39,169 

Tilson Technology Management, Inc. (Tilson)

   10,582    9,688 

New Monarch Machine Tool, Inc. (New Monarch)

   —      27,409 

Empire Genomics LLC (Empire Genomics)

   —      3,382    —      2,677 
  

 

   

 

   

 

   

 

 

Total dividend and other investment income

  $34,625   $54,165   $207,060   $78,942 
  

 

   

 

   

 

   

 

 

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 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
  

 

 

   

 

 

   

 

 

   

Total investment income

  $1,302,416   $776,327   $526,089    67.8
  

 

 

   

 

 

   

 

 

   

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 
  

 

 

   

 

 

 

Total dividend and other investment income

  $241,685   $133,107 
  

 

 

   

 

 

 

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 $35,969$42,428 and $5,186$15,327 for the threesix months ended March 31,June 30, 2019 and 2018, 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 $0$500 and $1,000$2,000 for the threesix months ended March 31,June 30, 2019 and 2018, respectively.

Expenses

 

   Three months ended
March 31, 2019
   Three months ended
March 31, 2018
   Increase   % Increase 

Total expenses

  $689,735   $588,564   $101,171    17.2
   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 March 31,June 30, 2019 versus the same period in 2018 was primarily caused by a 123%195%, or $124,968,$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 first quarter ofsix months ended June 30, 2019 because we continue to incurincurred expenses in connection with aforementioned stock purchase agreementTransactions, the special shareholder meeting held in May 2019 and the regulatory procedures that are required with such Transactions. These expenses also included external shareholder, legal, tax consulting and other advisory expenses to support the complex regulatory environment in which we operate.

In addition, we deferred $241,000$266,000 in stock issuance costs attributable to the Transactions. 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 Other Assets line on the Balance Sheet.item “Other assets.”

Net Realized GainLoss on Investments

 

   Three months ended
March 31, 2019
   Three months ended
March 31, 2018
   Change 

Realized gain on investments before income taxes

  $40,500   $—     $40,500 
   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 March 31,June 30, 2019, we recognized a realized loss on our investment in SOMS Technologies, LLC after the company ceased doing business and a $40,500 gain on our investment in Advantage 24/7 LLC. TheLLC after the company converted their equity into a new debt instrument and resultedinstrument. In addition, we received a final proceeds distribution of $39,893 from Gemcor II, LLC, a portfolio company we exited in the $40,500 gain.2016.

Change in Unrealized Depreciation of Investments

 

   Three months ended
March 31, 2019
   Three months ended
March 31, 2018
   Change 

Change in unrealized depreciation of investments before income taxes

  $522,296   ($451,489  $973,785 
   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 March 31,June 30, 2019 was comprised of the following:

 

   Three months ended
March 31, 2019
 

BeetNPath, LLC (Beetnpath)

  ($393,904

SciAps, Inc. (Sciaps)

   (385,000

SocialFlow, Inc. (Socialflow)

   (321,300

Mercantile Adjustment Bureau, LLC (Mercantile)

   (200,000

Genicon, Inc. (Genicon)

   (37,500

Tilson Technology Management, Inc. (Tilson)

   1,860,000 
  

 

 

 

Total change in net unrealized depreciation of investments before income taxes during the three months ended March 31, 2019

  $522,296 
  

 

 

 
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 valuations of our investments in Socialflow, Beetnpath, Sciaps Socialflow and Mercantile 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 threesix months ended March 31,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 2019 with a sophisticated newnon-strategic outside investor at a higher valuation than their prior financing round valuation.

We recognized a realized loss 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 March 31,June 30, 2018 was comprised of the following:

 

   ThreeSix months ended
March 31,June 30, 2018

Empire Genomics, LLC (Empire Genomics)

($651,489

SOMS Technologies, LLC (SOMS)

(498,348) 

First Wave Products Group (First Wave)

  ($(250,000

Empire Genomics, LLC (Empire Genomics)GiveGab, Inc. (Givegab)

   (201,489191,907) 
  

 

 

 

Total change in net unrealized depreciation of investments before income taxes during the threesix months ended March 31,June 30, 2018

  ($451,4891,207,930
  

 

 

 

Our valuation of First Wave was decreased to reflect a round of financing that was completed by First Wave in the second quarter of 2018.

The valuationvaluations of our investmentinvestments in Empire Genomics wasand 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 reflecting prior capitalized interest 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 third 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.

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 threesix months ended March 31,June 30, 2019 and 2018, the net increase (decrease)decrease in net assets from operations was $455,415($892,134) and ($520,413)1,151,707), respectively.

Liquidity and Capital Resources

Historically, our principal objective has been to achieve capital appreciation. Therefore, a significant portion of the investment portfolio is structured to maximize the potential for capital appreciation and may 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 March 31,June 30, 2019, our total liquidity consisted of approximately $8.7$8.6 million in cash and cash equivalents on hand and the availability of $3.0 million under our SBA leverage commitment.

Net cash used by operating activities has averaged approximately $820,000$1,200,000 over the last three years. The average cash used for investment in portfolio companies over the last three years was approximately $4,600,000.$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 March 31,June 30, 2019, we had the availability to borrow an 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, 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

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 March 31,June 30, 2019 we did not have anyoff-balance sheet arrangements or hedging or similar derivative financial instrument investments.

Item 4.    Controls and Procedures

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 of March 31,June 30, 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 March 31,June 30, 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.

PART II.

OTHER INFORMATION

Item 1.    Legal Proceedings

We and each of our directors have beenwere 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 allegesalleged 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. The plaintiff seeks, among other relief, to enjoin Rand from consummating the Transactions and an award to the plaintiff of costs of theThis action including a reasonable allowance for plaintiff’s attorneys’ and experts’ fees. We believe the lawsuit is baseless and intend to defend the matter vigorously.was voluntarily dismissed with prejudice on June 5, 2019.

Item 1A.    Risk Factors

See Part I, Item 1A, “Risk Factors,” of the Annual Report on Form10-K for the year ended December 31, 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
 

1/4/1/2019 – 1/31/4/30/2019

   —      —      —      458,954 

2/5/1/2019 – 2/28/5/31/19

   —      —      —      458,954 

3/6/1/2019 – 3/31/6/30/2019

   —      —      —      458,954 

 

(1)

There were no shares repurchased during the first quarter ofthree months ending June 30, 2019.

(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.

Item 3.    Defaults upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not Applicable.

Item 5.    Other Information

None.

Item 6.     Exhibits

 

 (a)

Exhibits

The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule12b-32 under the Securities Exchange Act of 1934.

 

(3.1)(i) Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) ofFormN-2 filed with the Securities Exchange Commission onApril 22, 1997. (FileNo. 333-25617).
(3.1)(ii) By-laws of the Corporation, incorporated by reference to Exhibit 3(ii) to the Corporation’s Quarterly Report on Form10-Q for the period ended September 30, 2016 filed with the Securities Exchange Commission on November 2, 2016. (FileNo. 814-00235).
(4) Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b)  of FormN-2 filed with the Securities Exchange Commission on April 22, 1997. (FileNo. 333-25617).
(31.1) Certification of Principal Executive Officer Pursuant to Rules13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended – filed herewith.
(31.2) Certification of Principal Financial Officer Pursuant to Rules13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended – filed herewith.
(32.1) Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital Corporation – filed herewith.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 2,August 6, 2019

 

RAND CAPITAL CORPORATION
By: /s/ Allen F. Grum
 Allen F. Grum, President
 
By: /s/ Daniel P. Penberthy
 Daniel P. Penberthy, Treasurer