10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2020

 

[  ] 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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading Symbol(s)

  

Name of each exchange on which registered

Common Stock, $0.10 par value   RAND   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [  ] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [X] Smaller reporting company [  ]
      Emerging growth company [  ]

 

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

 

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

 

As of August 7, 2020, there were 2,587,500 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-Q

 

  PART I. – FINANCIAL INFORMATION  
     
Item 1. Financial Statements and Supplementary Data 1
     
  Consolidated Statements of Financial Position as of June 30, 2020 (Unaudited) and December 31, 2019 1
     
  Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2020 and 2019 (Unaudited) 2
     
  Consolidated Statements of Changes in Net Assets for the Three Months and Six Months Ended June 30, 2020 and 2019 (Unaudited) 3
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited) 4
     
  Consolidated Schedule of Portfolio Investments as of June 30, 2020 (Unaudited) 5
     
  Consolidated Schedule of Portfolio Investments as of December 31, 2019 13
     
  Notes to the Consolidated Financial Statements (Unaudited) 21
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 48
     
Item 4. Controls and Procedures 49
     
  PART II. – OTHER INFORMATION  
     
Item 1. Legal Proceedings 50
     
Item 1A. Risk Factors 50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
     
Item 3. Defaults upon Senior Securities 51
     
Item 4. Mine Safety Disclosures 51
     
Item 5. Other Information 51
     
Item 6. Exhibits 52

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements and Supplementary Data

 

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

   June 30, 2020    December 31, 2019 
   (Unaudited)     
ASSETS          
Investments at fair value:          
Affiliate investments (cost of $22,838,093 and $19,035,446, respectively)  $15,438,278   $12,151,435 
Non- Control/Non-Affiliate investments (cost of $23,888,277 and $25,584,017, respectively)   23,167,335    24,869,357 
Total investments, at fair value (cost of $46,726,370 and $44,619,463, respectively)   38,605,613    37,020,792 
Cash and cash equivalents   22,057,464    25,815,720 
Interest receivable (net of allowance of $166,413)   370,303    142,265 
Deferred tax asset   -    1,204,198 
Prepaid income taxes   35,071    343,096 
Other assets   59,409    265,378 
Total assets  $61,127,860   $64,791,449 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)          
Liabilities:          
Debentures guaranteed by the SBA (net of debt issuance costs)  $10,805,749   $10,786,913 
Accounts payable and accrued expenses   300,654    258,437 
Deferred tax payable   222,977    - 
Profit sharing and bonus payable   -    80,000 
Deferred revenue   87,166    37,583 
Total liabilities   11,416,546    11,162,933 
Commitments and contingencies (See Note 5)          
           
Stockholders’ equity (net assets):          
Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916 at 6/30/20 and 1,688,485 at 12/31/19; shares outstanding: 2,587,500 at 6/30/20 and 1,628,369 at 12/31/19   2,384,547    1,519,637 
Capital in excess of par value   34,142,455    34,142,455 
Treasury stock, at cost: shares: 61,416 at 6/30/20 and 60,116 at 12/31/19   (1,483,409)   (1,469,105)
Total distributable earnings   14,667,721    19,435,529 
Total stockholders’ equity (net assets) (per share – 6/30/20: $19.21, 12/31/19: $32.93)   49,711,314    53,628,516 
Total liabilities and stockholders’ equity (net assets)  $61,127,860   $64,791,449 

 

See accompanying notes

 

1
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  

Three months ended

June 30, 2020

  

Three months ended

June 30, 2019

  

Six months ended

June 30, 2020

  

Six months ended

June 30, 2019

 
Investment income:                    
Interest from portfolio companies:                    
Affiliate investments  $170,262   $206,036   $309,108   $414,751 
Non-Control/Non-Affiliate investments   400,424    109,453    797,279    306,703 
Total interest from portfolio companies   570,686    315,489    1,106,387    721,454 
                     
Interest from other investments:                    
Non-Control/Non-Affiliate investments   2,754    53,538    86,004    71,349 
Total interest from other investments   2,754    53,538    86,004    71,349 
                     
Dividend and other investment income:                    
Affiliate investments   13,125    207,060    26,250    241,685 
Non-Control/Non-Affiliate investments   81,313    -    81,313    - 
Total dividend and other investment income   94,438    207,060    107,563    241,685 
                     
Fee income:                    
Affiliate investments   4,167    3,606    5,417    7,853 
Non-Control/Non-Affiliate investments   2,500    3,353    5,000    260,075 
Total fee income   6,667    6,959    10,417    267,928 
Total investment income   674,545    583,046    1,310,371    1,302,416 
Expenses:                    
Base management fee (see Note 8)   141,386    -    281,763    - 
Interest on SBA obligations   104,190    110,534    208,380    209,658 
Professional fees   77,917    111,273    257,036    337,928 
Stockholders and office operating   116,299    319,506    167,844    380,761 
Directors’ fees   28,375    28,624    56,750    57,248 
Insurance   7,400    10,969    18,068    20,570 
Corporate development   132    14,866    2,006    33,326 
Other operating   107    1,225    465    2,809 
Salaries   -    181,500    -    363,000 
Employee benefits   -    40,167    -    103,099 
Bad Debt Expense   -    5,413    -    5,413 
Total expenses   475,806    824,077    992,312    1,513,812 
Net investment income (loss) before income taxes   198,739    (241,031)   318,059    (211,396)
Income tax benefit   -    (97,731)   (419,101)   (90,863)
Net investment income (loss)   198,739    (143,300)   737,160    (120,533)
                     
Net realized gain (loss) on sales and dispositions of investments:                    
Control investments   -    39,893    -    80,393 
Affiliate investments   -    -    -    (472,632)
Non-Control/Non-Affiliate investments   18,595    (472,632)   2,412,046    - 
Income tax benefit   -    (100,230)   -    (90,861)
Net realized gain (loss) on sales and dispositions of investments   18,595    (332,509)   2,412,046    (301,378)
Net change in unrealized depreciation on investments:                    
Affiliate investments   (5,613)   (372,448)   (515,804)   671,148 
Non-Control/Non-Affiliate investments   211,850    (750,000)   (6,282)   (1,271,300)
                     
Change in unrealized depreciation before income taxes   206,237    (1,122,448)   (522,086)   (600,152)
Deferred income tax (benefit) expense   -    (250,708)   1,773,412    (129,929)
Net change in unrealized depreciation on investments   206,237    (871,740)   (2,295,498)   (470,223)
                     
Net realized and unrealized gain (loss) on investments   224,832    (1,204,249)   116,548    (771,601)
Net increase (decrease) in net assets from operations  $

423,571

   $

(1,347,549

)  $

853,708

   $

(892,134

)
Weighted average shares outstanding   2,103,093    702,443    1,950,058    702,443 
Basic and diluted net increase (decrease) in net assets from operations per share  $0.20   $(1.92)  $0.44   $(1.27)

 

See accompanying notes

 

2
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

  

Three months ended

June 30, 2020

  

Three months ended

June 30, 2019

  

Six months ended

June 30, 2020

  

Six months ended

June 30, 2019

 
                 
Net assets at beginning of period  $54,058,653   $31,979,602   $53,628,516   $31,524,187 
                     
Net investment income (loss)   198,739    (143,300)   737,160    (120,533)
Net realized gain (loss) on sales and dispositions of investments   18,595    (332,509)   2,412,046    (301,378)
Net change in unrealized depreciation on investments   206,237    (871,740)   (2,295,498)   (470,223)
Net increase (decrease) in net assets from operations   423,571    (1,347,549)   853,708    (892,134)
Purchase of treasury shares   (14,304)   -    (14,304)   - 
Payment of cash dividend   (4,756,606)   -    (4,756,606)   - 
Net assets at end of period  $49,711,314   $30,632,053   $49,711,314   $30,632,053 

 

See accompanying notes

 

3
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Six months

ended

June 30, 2020

  

Six months

ended

June 30, 2019

 
Cash flows from operating activities:          
Net increase (decrease) in net assets from operations  $853,708   $(892,134)
Adjustments to reconcile net increase (decrease) in net assets to net cash provided by operating activities:          
Investments in portfolio companies   (4,047,503)   (900,012)
Proceeds from sale of portfolio investments   4,557,542    39,893 
Proceeds from loan repayments   -    3,525,000 
Net realized (gain) loss on portfolio investments   (2,412,046)   392,239 
Change in unrealized depreciation on investments before income taxes   522,086    600,152 
Deferred tax benefit   1,427,175    (317,020)
Depreciation and amortization   18,837    18,325 
Original issue discount amortization   (29,303)   (20,382)
Non-cash conversion of debenture interest   (175,596)   (212,131)
Change in interest receivable allowance   -    5,413 
Changes in operating assets and liabilities:          
(Increase) decrease in interest receivable   (228,038)   20,402 
Decrease (increase) in other assets   205,965    (334,451)
Decrease in prepaid income taxes   308,025    635,641 
Increase in accounts payable and accrued expenses   42,217    18,771 
Decrease in profit sharing and bonus payable   (80,000)   (125,000)
Increase (decrease) in deferred revenue   49,585    (37,928)
Total adjustments   158,946    3,308,912 
Net cash provided by operating activities   1,012,654    2,416,778 
           
Cash flows from financing activities:          
Payment of cash dividend   (4,756,606)   - 
Purchase of treasury shares   (14,304)     
Proceeds from SBA debentures   -    2,250,000 
Origination costs to SBA   -    (54,563)
Net cash (used in) provided by financing activities   (4,770,910)   2,195,437 
           
Net (decrease) increase in cash and cash equivalents   (3,758,256)   4,612,215 
Cash and cash equivalents:          
Beginning of period   25,815,720    4,033,792 
End of period  $22,057,464   $8,646,007 

 

See accompanying notes

 

4
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020

(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 – 46.6% of net assets: (j)                                        
                                         
ACV Auctions, Inc. (e)(g)   1,181,160 Series A Preferred.   8/12/16     <1 %   $ 163,000     $ 6,531,815       13.1 %
Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software)                                        
www.acvauctions.com                                        
                                         
Advantage 24/7 LLC (g)   $140,000 Term Note at 7%   12/30/10     0 %                     0.1 %
Williamsville, NY. Marketing program for wine and   due January 1, 2022                 65,000       65,000          
spirits dealers. (Marketing Company)                                        
www.advantage24-7.com                                        
                                         

AIKG LLC (Andretti) (e)(i)(l)

   $4,250,000 Term Notes at   11/8/19     0 %                    

9.0

 %
Marietta, GA. Entertainment company engaged in   12% (+4% PIK) due December 28,                                    
indoor karting, games and food. (Entertainment)   2023.                

4,487,514

      

4,487,514

          
www.andrettikarting.com   (i) Interest receivable $180,206.                                    
                                         
Apollo Investment Corporation   35,000 shares   3/16/20     <1 %     364,084       330,167       0.7 %
NASDAQ: AINV (n) Public BDC                                        
New York, NY.                                        
                                         
Ares Capital Corporation NASDAQ: ARCC (n)   27,000 shares   3/16/20     <1 %     343,460       383,310       0.8 %
Public BDC                                        
New York, NY.                                        
                                         
Centivo Corporation (e)(g)   190,967 Series A-1 Preferred.   7/5/17     <1 %     200,000       200,000       0.6 %
New York, NY. Tech-enabled health solutions   337,808 Series A-2 Preferred.                 101,342       101,342          
company that helps self-insured employers   Total Centivo                 301,342       301,342          
and employees save money and have a better experience their. (Health Care)                                        
www.centivo.com                                        
                                         

Empire Genomics, LLC (g)

   $1,209,014 Senior Secured   6/13/14     0 %                     1.2 %
Buffalo, NY. Molecular diagnostics company that   Convertible Term Notes at 10%                                    
offers a comprehensive menu of assay services for   due December 31, 2020.                 1,308,675       157,654          
diagnosing and guiding patient therapeutic treatments.   $444,915 Promissory Note at 9%                                    
(Health Care)   (5% deferred) due December 31,                                    
www.empiregenomics.com    2020.                 444,915       444,915          
    Total Empire                 1,753,590       602,569          
                                         

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)

   670,443.2 Class A Common.   4/19/12     4 %     661,563       33,000       0.1 %
www.firstwavetechnologies.com                                        
                                         

FS KKR Capital Corp. NYSE: FSK (n)

Philadelphia, PA.

   25,000 shares   3/16/20     <1 %     338,980       347,917       0.7 %
                                         

GiveGab, Inc. (e)(g)

   5,084,329 Series Seed Preferred.   3/13/13     4 %     616,221       616,221       1.2 %
Ithaca, NY. Nonprofit giving platform that provides an easy and effective way for fundraising professionals to raise money online. (Software)
                                       
www.givegab.com                                        
                                         
Golub Capital BDC, Inc. NASDAQ: GBDC (n)  

31,250 shares

   3/16/20     <1 %     403,910       358,125       0.7 %
Public BDC                                        
New York, NY.                                        
                                         
GoNoodle, Inc. (g)(l)
   $1,500,000 Secured Note at 12%   2/6/15     <1 %                    

3.0

 %
Nashville, TN. Student engagement education   (1% PIK) due September 30, 2024.                

1,509,980

      

1,509,980

          
software providing core aligned physical activity   Warrant for 47,324 Series C                                    
breaks. (Software)   Preferred.                 25       25          
www.gonoodle.com   Warrant for 21,948 Series D                                    
    Preferred.                 38       38          
    Total GoNoodle                 1,510,043       1,510,043          

 

5
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020 (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 

HDI Acquisition LLC (Hilton Displays) (l)

  $1,245,119 Term Loan at 12% (+2%  11/8/19   0%           2.6%
Greenville, NC. HDI is engaged in manufacturing,  PIK) due June 20, 2023.           1,262,205    1,262,205      
installation and maintenance of signage and brands.                          
(Manufacturing)                          
www.hiltondisplays.com                          
                           

Lumious (Tech 2000, Inc.) (g)

  $850,000 Replacement Term Note at  11/16/18   0%           1.7%
Herndon, VA. Develops and delivers IT training.  14% due November 15, 2021.           860,777    860,777      
(Software) www.t2000inc.com                          
                           

Mattison Avenue Holdings LLC (e)(l)

  $1,031,406 Second Amended, Restated   11/8/19   0%           2.2%
Dallas, TX. Provider of upscale salon spaces for  and Consolidated Promissory Note at                       
lease. (Professional Services)  14% (2% PIK) due June 9, 2022.           1,079,356    1,079,356      
www.mattisonsalonsuites.com                          
                           

Mercantile Adjustment Bureau, LLC (g)

  $1,199,039 Subordinated Secured Note at  10/22/12   4%           1.0%
Williamsville, NY. Full service accounts receivable  13% (3% for the calendar year 2020) due                        
management and collections company. (Contact Center)  January 31, 2022.           1,199,040    500,000      
www.mercantilesolutions.com  (e) $150,000 Subordinated Debenture                       
   at 8% due January 31, 2022.           150,000    -      
   Warrant for 3.29% Membership Interests.                       
   Option for 1.5% Membership Interests.           97,625     -      
  

Total Mercantile

           1,446,665    500,000      
                           

Open Exchange, Inc. (g)

  397,899 Series C Preferred  11/13/13   4%   1,193,697    543,283    2.2%
(Formerly KnowledgeVision Systems, Inc.)  397,899 Common.           208,243    108,656      
Lincoln, MA. Online presentation and training   $450,000 Replacement Term Note at 9%                      
software. (Software)  due September 30, 2022.           450,000    450,000      
www.openexc.com  Total Open Exchange           1,851,940    1,101,939      
                           

Owl Rock Capital Corporation NYSE: ORRC (n) Public BDC

New York, NY.

  30,000 shares  3/16/20   <1%   347,067    371,700    0.8%
                           

PostProcess Technologies, Inc. (e)(g)

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

  360,002 Series A1 Preferred.  7/25/16   <1%   348,875    471,603    1.0%
                           

Rheonix, Inc. (e)

  9,676 Common.  10/29/09   4%   -    -    1.4%
Ithaca, NY. Developer of fully automated microfluidic   (g) 1,839,422 Series A Preferred.           2,099,999    -      
based molecular assay and diagnostic testing devices.   (g) 50,593 Common.           -    -      
(Health Care) www.rheonix.com  (g) 589,420 Series B Preferred.           702,732    702,732      
   Total Rheonix           2,802,731    702,732      
                           

SocialFlow, Inc. (e)(g)

  1,049,538 Series B Preferred.  4/5/13   4%   500,000    209,908    1.5%
New York, NY. Provides instant analysis of social  1,204,819 Series B-1 Preferred.           750,000    324,761      
networks using a proprietary, predictive analytic   717,772 Series C Preferred.           500,000    215,332      
algorithm to optimize advertising and publishing.   Total Social Flow           1,750,000    750,000      
(Software) www.socialflow.com                       
                           

Somerset Gas Transmission Company, LLC (e)(m)

Columbus, OH. Natural gas transportation.

(Oil and Gas) www.somersetgas.com

  26.5337 Units.  7/10/02   3%   719,097    500,000    1.0%

 

6
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020 (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  
Other Non-Control/Non-Affiliate Investments:                                
DataView, LLC (e)   Membership Interest.   10/1/98     5 %     310,357       -       0.0 %
(Software)                                        
                                         

UStec/Wi3 (e)

   Common stock.   12/17/98     <1 %     100,500       -       0.0 %

(Manufacturing)

 Subtotal Non-Control/Non-Affiliate Investments

                   $ 23,888,277     $

23,167,335

          
                                         

Affiliate Investments – 31.1% of net assets (k)

BeetNPath, LLC (Grainful) (e)(g)(m)

Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats under  

                                        
  1,119,024 Series A-2 Preferred Membership Units.   10/20/14     9 %   $ 359,000     $ -       0.0 %
  1,032,918 Series B Preferred Membership Units.                 261,277       -          
  $262,626.64 Convertible Secured Notes at 8% due December 21, 2019.                 262,627       -          
  Total BeetNPath                 882,904       -          
                                         

Carolina Skiff LLC (e)(g)(m)

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

       3.5 %
                                         

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       0.4 %
                                         

Filterworks Acquisition USA, LLC (l)(m)

   $2,283,702 Term Note at 12% (+2%   11/8/19     9 %                     5.8 %
Deerfield Beach, FL. Provides spray booth   PIK) due December 4, 2023.                 2,325,994       2,325,994          
equipment, frame repair machines and paint booth   562.5 Class A Units                 562,500       562,500          
filter services for collision shops. (Automotive)   Total Filterworks                 2,888,494       2,888,494          
www.filterworksusa.com                                        
                                   

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.   4/10/15     6 %     1,000,000       -       0.5 %
  $3,250,000 Promissory Notes at 10% due June 12, 2022, (10% PIK).                 3,743,377       -          
  $250,000 Promissory Note at 10% due June 12, 2021 (10% PIK).                 262,184       250,000          
  Warrants for Common.                 120,000       -          
  Total Genicon                 5,125,561       250,000          
                                         

Knoa Software, Inc. (e)(g)
New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software)

   973,533 Series A-1 Convertible Preferred.   11/20/12     7 %     750,000       750,000       2.5 %
  1,876,922 Series B Preferred.                 479,155       479,155          
  Total Knoa                 1,229,155       1,229,155          
www.knoa.com                                      
                                         

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       -       0.0 %
                                         

Microcision LLC (g)

 

   $1,500,000 Subordinated   9/24/09     5 %                     3.0 %
  Promissory Note at 11% due January 10, 2025.                 1,400,999       1,400,999          
  Membership Interest Purchase Warrant for 5%.                 110,000       110,000          
  Total Microcision                 1,510,999       1,510,999          

 

7
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020 (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  

New Monarch Machine Tool, Inc. (e)(g)

Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)

www.monarchmt.com

   22.84 Common.   9/24/03     15 %     22,841       22,841       0.1 %
                                         

OnCore Golf Technology, Inc. (e)(g)

Buffalo, NY. Patented and proprietary golf balls utilizing technology and innovation. (Consumer Product)

www.oncoregolf.com

   300,483 Preferred AA.   12/31/14     8 %     752,712       300,000       0.6 %
                                         
SciAps, Inc. (e)(g)   187,500 Series A Preferred.   7/12/13     6 %     1,500,000       -       5.2 %
Woburn, MA. Instrumentation company   274,299 Series A1 Convertible Preferred.                 504,710       -          
producingportable analytical devices using XRF,   117,371 Series B Convertible Preferred.                 250,000       250,000          
LIBS and RAMAN spectroscopy to identify   113,636 Series C Convertible Preferred.                 175,000       175,000          
compounds, minerals, and elements.   369,698 Series C1 Convertible Preferred.                 399,274       399,274          
(Manufacturing)   147,059 Series D Convertible Preferred.                 250,000       250,000          
www.sciaps.com   Warrant to purchase Series D-1                                    
    Preferred.                 45,000       45,000          
    $1,500,000 Secured Subordinated                

 

                  
    Promissory Note at 12% due April 23,                                    
    2023                 1,457,500       1,457,500          
    Total SciAps                

4,581,484

       2,576,774          
                                         
Teleservices Solutions Holdings, LLC (e)(g)(l)   250,000 Class B Preferred Units.   5/30/14     6 %     250,000       -       0.0 %
Montvale, NJ. Customer contact center   1,000,000 Class C Preferred Units.                 1,190,680       -          
specializing in customer acquisition and retention   80,000 Class D Preferred Units.                 91,200       -          
for selected industries. (Contact Center)   104,198 Class E Preferred Units.                 -       -          
www.ipacesetters.com    PIK dividend for Series C and D at 12%                                    
    and 14%, respectively.                 104,198       -          
    Total Teleservices                 1,636,078       -          
                                     
Tilson Technology Management, Inc. (g)   120,000 Series B Preferred.   1/20/15     9 %     600,000       1,950,000       9.5 %
 Portland, ME. Provides network deployment   21,391 Series C Preferred.                 200,000       347,604          
 construction and information system services   70,176 Series D Preferred.                 800,000       1,140,360          
 management for cellular, fiber optic and wireless   15,385 Series E Preferred.                 500,012       500,012          
 systems providers. Its affiliated entity, SQF, LLC is  

211,567 SQF Hold Co. Common.

                 -

       22,036          
 a CLEC supporting small cell 5G deployment.  

23,077 Series F Preferred.

                 750,003

       750,003          

(Professional Services)

  

Total Tilson

                 2,850,015        4,710,015           
www.tilsontech.com                                        
                                         
Other Affiliate Investments:                                        
G-TEC Natural Gas Systems (e)(m)   Membership Interest   8/31/99     17 %     400,000       -       0.0 %
(Manufacturing)                                        
                                         
Subtotal Affiliate Investments                   $ 22,838,093     $ 15,438,278          
Total investments – 77.7%                   $ 46,726,370     $ 38,605,613          
Other Assets in excess of liabilities – 22.3%                             11,105,701          
Net Assets – 100%                           $ 49,711,314          

 

8
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020 (Continued)

(Unaudited)

 

Notes to the Consolidated Schedule of Portfolio Investments

 

(a) At June 30, 2020, restricted securities represented 95% 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 the form of shares unless otherwise noted as units or interests, i.e., preferred shares, common shares.

 

(b) The Date Acquired column indicates the date on 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 June 30, 2020, ASC 820 designates 95% of the Corporation’s investments as “Level 3” assets. Under the valuation policy of the Corporation, unrestricted publicly traded securities are valued at the average closing 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 our external investment advisor Rand Capital Management, LLC (“RCM”) 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 are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or are not expected to do so going forward. However, if a debt or a preferred equity investment fails to make its most recent payment, then the investment will also be classified as non-income producing.

 

(f) As of June 30, 2020, the total cost of investment securities was approximately $46.7 million. Net unrealized depreciation was approximately ($8.1) million, which was comprised of $10.1 million of unrealized appreciation of investment securities and ($18.2) million of unrealized depreciation of investment securities. At June 30, 2020, the aggregate gross unrealized gain for federal income tax purposes was $10.1 million and the aggregate gross unrealized loss for federal income tax purposes was ($17.2) million. The net unrealized loss for federal income tax purposes was ($7.1) million based on a tax cost of $43.1 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 those Non-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.

 

(m) Equity holdings are held in a wholly owned (100%) “blocker corporation” of Rand Capital Corporation or Rand Capital SBIC, Inc. for federal income tax and Regulated Investment Company (RIC) compliance.

 

(n) Publicly traded company.

 

9
 

 

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2020 (Continued)

(Unaudited)

 

Investments in and Advances to Affiliates
Company  Type of Investment  December 31, 2019 Fair Value   Gross Additions (1)   Gross Reductions (2)   June 30, 2020 Fair Value   Net Realized Gains (Losses)  

Amount of Interest/

Dividend/

Fee Income (3)

 
Control Investments:                                 
   Total Control Investments  $-   $-   $-   $-   $-   $- 
Affiliate Investments:                                 
BeetNPath, LLC  1,119,024 Series A-2 Preferred Membership Units.  $-   $-   $-   $-   $-   $- 
   1,032,918 Series B Preferred Membership Units.   -    -    -    -    -    - 
   $262,626.64 Convertible Secured Notes at 8%.   -    -    -    -    -    - 
   Total BeetNPath   -    -    -    -    -    - 
                                  
Carolina Skiff LLC  6.0825% Class A Common Membership interest.   1,750,000    -    -    1,750,000    -    - 
                                  
ClearView Social, Inc.  312,500 Series Seed Plus Preferred.   200,000    -    -    200,000    -    - 
                                  
Filterworks  $2,283,702 Term Note at 12%.   2,302,653    23,341    -    2,325,994    -    163,388 
Acquisition USA, LLC  562.5 Class A Units.   562.500    -    -    562,500    -    - 
   Total Filterworks   2,865,153    23,341    -    2,888,494    -    163,388 
                                  
Genicon, Inc.  1,586,902 Series B Preferred.   -    -    -    -    -    - 
   $3,250,000 Promissory Notes at 10%.   500,000    -    (500,000)   -    -    17,054 
   $250,000 Promissory Note at 10%   250,000    -    -    250,000    -    - 
   Warrant for Common.   -    -    -    -    -    - 
   Total Genicon   750,000    -    (500,000)   250,000    -    17,054 
                                  
G-TEC Natural Gas Systems  16.639% Class A Membership Interest. 8% cumulative dividend.   -    -    -    -    -    - 
                                  
Knoa Software, Inc.  973,533 Series A-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    -    - 
                                  
Mezmeriz, Inc.  1,554,565 Series Seed Preferred.   -    -    -    -    -    - 
                                  
Microcision  $1,500,000 Subordinated Promissory Note at 10%   -    1,400,999    -    1,400,999    -    93,916 
   Membership Interest Purchase Warrant for 5%   -    110,000    -    110,000    56,916    - 
   Total Microcision   -    1,510,999    -    1,510,999    56,916    93,916 
                                  
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    -    - 
                                  
SciAps, Inc.  187,500 Series A Preferred.   -    -    -    -    -    - 
   274,299 Series A-1 Convertible Preferred.   -    -    -    -    -    - 
   117,371 Series B Convertible Preferred.   250,000    -    -    250,000    -    - 
   113,636 Series C Convertible Preferred.   175,000    -    -    175,000    -    - 
   369,698 Series C-1 Convertible Preferred.   399,274    -    -    399,274    -    - 
   147,059 Series D Convertible Preferred.   250,000    -    -    250,000    -    - 
   Warrant to Purchase Series D-1 Preferred.   -    45,000         45,000           
   $1,500,000 Subordinated Promissory Note at 12%.   -    1,500,000    (42,500)   1,457,500    -    40,167 
   Total SciAps   1,074,274    1,545,000    (42,500)   2,576,774    -    40,167 
                                  
Teleservices Solutions  250,000 Class B Preferred Units.   -    -    -    -    -    -