10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2009
|
|
|
o |
|
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
|
|
(IRS Employer |
or organization)
|
|
Identification No.) |
|
2200 Rand Building, Buffalo, NY
|
|
14203 |
(Address of Principal executive offices)
|
|
(Zip Code) |
(716) 853-0802
(Registrants Telephone No. 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
þ
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
As of May 7, 2009 there were 5,718,934 shares of the registrants common stock outstanding.
RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of March 31, 2009 and December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Investments at fair value (identified cost: 3/31/09
$14,468,610; 12/31/08 $14,386,451) |
|
$ |
28,208,441 |
|
|
$ |
28,126,282 |
|
Cash and cash equivalents |
|
|
1,967,663 |
|
|
|
2,757,653 |
|
Interest receivable (net of allowance $122,817) |
|
|
1,109,958 |
|
|
|
1,013,888 |
|
Other assets |
|
|
597,285 |
|
|
|
330,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
31,883,347 |
|
|
$ |
32,228,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS) |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Debentures guaranteed by the SBA |
|
$ |
8,100,000 |
|
|
$ |
8,100,000 |
|
Deferred tax liability |
|
|
3,378,000 |
|
|
|
3,490,000 |
|
Income taxes payable |
|
|
59,217 |
|
|
|
98,723 |
|
Accounts payable and accrued expenses |
|
|
128,344 |
|
|
|
292,731 |
|
Deferred revenue |
|
|
12,059 |
|
|
|
20,377 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
11,677,620 |
|
|
|
12,001,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (net assets): |
|
|
|
|
|
|
|
|
Common stock, $.10 par; shares authorized 10,000,000; shares issued 5,763,034 |
|
|
576,304 |
|
|
|
576,304 |
|
Capital in excess of par value |
|
|
6,973,454 |
|
|
|
6,973,454 |
|
Accumulated net investment (loss) |
|
|
(3,765,147 |
) |
|
|
(3,743,908 |
) |
Undistributed net realized gain on investments |
|
|
7,735,477 |
|
|
|
7,735,477 |
|
Net unrealized appreciation on investments |
|
|
8,732,845 |
|
|
|
8,732,845 |
|
Treasury stock, at cost, 44,100 shares |
|
|
(47,206 |
) |
|
|
(47,206 |
) |
|
|
|
|
|
|
|
Net assets (per share 3/31/09 $3.53, 12/31/08 $3.54) |
|
|
20,205,727 |
|
|
|
20,226,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (net assets) |
|
$ |
31,883,347 |
|
|
$ |
32,228,797 |
|
|
|
|
|
|
|
|
1
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
ended |
|
|
ended |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
Investment income: |
|
|
|
|
|
|
|
|
Interest from portfolio companies |
|
$ |
135,516 |
|
|
$ |
251,764 |
|
Interest from other investments |
|
|
9,134 |
|
|
|
34,584 |
|
Dividend and other investment income |
|
|
224,526 |
|
|
|
84,934 |
|
Other income |
|
|
9,083 |
|
|
|
7,083 |
|
|
|
|
|
|
|
|
|
|
|
378,259 |
|
|
|
378,365 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salaries |
|
|
111,922 |
|
|
|
108,384 |
|
Employee benefits |
|
|
36,176 |
|
|
|
43,630 |
|
Directors fees |
|
|
10,500 |
|
|
|
11,750 |
|
Professional fees |
|
|
71,221 |
|
|
|
60,290 |
|
Stockholders and office operating |
|
|
34,405 |
|
|
|
24,508 |
|
Insurance |
|
|
14,878 |
|
|
|
10,500 |
|
Corporate development |
|
|
9,534 |
|
|
|
16,562 |
|
Other operating |
|
|
2,453 |
|
|
|
1,978 |
|
|
|
|
|
|
|
|
|
|
|
291,089 |
|
|
|
277,602 |
|
Interest on SBA obligations |
|
|
118,359 |
|
|
|
125,766 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
409,448 |
|
|
|
403,368 |
|
|
|
|
|
|
|
|
Investment (loss) gain before income taxes |
|
|
(31,189 |
) |
|
|
(25,003 |
) |
|
|
|
|
|
|
|
Current income tax expense |
|
|
102,050 |
|
|
|
136,113 |
|
Deferred income tax benefit |
|
|
(112,000 |
) |
|
|
(152,813 |
) |
|
|
|
|
|
|
|
Net investment (loss) |
|
|
(21,239 |
) |
|
|
(8,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized loss on investments: |
|
|
|
|
|
|
|
|
Unrealized appreciation on investments: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
13,739,831 |
|
|
|
13,137,846 |
|
End of period |
|
|
13,739,831 |
|
|
|
13,008,146 |
|
|
|
|
|
|
|
|
Change in unrealized appreciation
before income taxes |
|
|
|
|
|
|
(129,700 |
) |
Deferred income tax benefit |
|
|
|
|
|
|
(46,187 |
) |
|
|
|
|
|
|
|
Net decrease in unrealized appreciation |
|
|
|
|
|
|
(83,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized loss on investments |
|
|
|
|
|
|
(83,513 |
) |
|
|
|
|
|
|
|
Net decrease in net assets from operations |
|
$ |
(21,239 |
) |
|
$ |
(91,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
5,718,934 |
|
|
|
5,718,934 |
|
Basic and diluted net decrease in net assets per
share from operations |
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
See accompanying notes
2
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net decrease in net assets from operations |
|
$ |
(21,239 |
) |
|
$ |
(91,816 |
) |
Adjustments to reconcile net decrease in net
assets to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
8,945 |
|
|
|
8,195 |
|
Decrease in unrealized appreciation of
investments |
|
|
|
|
|
|
129,700 |
|
Deferred tax benefit |
|
|
(112,000 |
) |
|
|
(199,000 |
) |
Payment in kind, interest accrued |
|
|
(4,840 |
) |
|
|
|
|
Non-cash conversion of debenture interest |
|
|
(11,918 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in interest receivable |
|
|
(96,070 |
) |
|
|
(211,549 |
) |
Increase in other assets |
|
|
(275,256 |
) |
|
|
(137,689 |
) |
Increase in prepaid income taxes |
|
|
|
|
|
|
(43,157 |
) |
Decrease in income taxes payable |
|
|
(39,506 |
) |
|
|
(474,465 |
) |
Decrease in accounts payable and accrued expenses |
|
|
(164,387 |
) |
|
|
(168,862 |
) |
Decrease in deferred revenue |
|
|
(8,318 |
) |
|
|
(23,930 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
(703,350 |
) |
|
|
(1,120,757 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(724,589 |
) |
|
|
(1,212,573 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments originated |
|
|
(81,756 |
) |
|
|
(524,990 |
) |
Proceeds from loan repayments |
|
|
16,355 |
|
|
|
548,499 |
|
Capital expenditures |
|
|
|
|
|
|
(1,190 |
) |
|
|
|
|
|
|
|
Net cash (used) provided by investing
activities |
|
|
(65,401 |
) |
|
|
22,319 |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(789,990 |
) |
|
|
(1,190,254 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
2,757,653 |
|
|
|
4,396,595 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
1,967,663 |
|
|
$ |
3,206,341 |
|
|
|
|
|
|
|
|
See accompanying notes
3
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
ended |
|
|
ended |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Net assets at beginning of period |
|
$ |
20,226,966 |
|
|
$ |
19,817,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) |
|
|
(21,239 |
) |
|
|
(8,303 |
) |
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation
of investments |
|
|
|
|
|
|
(83,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets from operations |
|
|
(21,239 |
) |
|
|
(91,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
20,205,727 |
|
|
$ |
19,726,007 |
|
|
|
|
|
|
|
|
See accompanying notes
4
RAND
CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
(d) |
|
|
Per |
|
|
|
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Company, Geographic Location, Business Description, (Industry) and Website |
|
Type of Investment |
|
Acquired |
|
|
Equity |
|
|
Cost |
|
|
Value |
|
|
of Rand |
|
Non-Control/Non-Affiliate Investments: (k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adampluseve, Inc. (dba Adam) (g)
New York, NY. Luxury sports wear designer for men and women. (Fashion Design)
www.shopadam.com |
|
Warrants to purchase 1,715 Series A preferred shares. |
|
|
7/14/06 |
|
|
|
2 |
% |
|
$ |
68,000 |
|
|
$ |
133,341 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GridApp Systems, Inc. (e)(g)
New York, NY. Provider of database automation software that helps businesses gain control of their heterogeneous database applications through a centralized software console. (Software)
www.gridapp.com |
|
$660,000 term note at 4% simple interest, 8% deferred interest (PIK) due January 4, 2012. $6,667 convertible note at 4% due November 28, 2018. |
|
|
11/25/08 |
|
|
|
3 |
% |
|
|
671,507 |
|
|
|
671,507 |
|
|
|
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kionix, Inc.
Ithaca, NY. Develops innovative MEMS based inertial sensors used in consumer electronics, automation and healthcare sectors. (Manufacturing)
www.kionix.com |
|
30,241 shares Series B preferred stock. 696,296 shares Series C preferred stock. (g) 2,862,091 shares Series A preferred stock. 714,285 shares Series B preferred stock. |
|
|
5/17/02 |
|
|
|
2 |
% |
|
|
1,506,044 |
|
|
|
2,000,000 |
|
|
|
.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezmeriz, Inc. (g)
Ithaca, NY. Developer of micro mirror technology that replaces silicon with carbon fibers in micro-electronic mechanical systems (MEMS) enabling efficient, wide-angle, Pico projectors
to be embedded in mobile devices. (Electronics Developer)
www.mezmeriz.com |
|
$100,000 convertible note at 9% due January 9, 2010. |
|
|
1/9/08 |
|
|
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonic Products Group, Inc (OTC:PHPG.OB) (a)(i)
Northvale, NJ. Develops and manufactures products for laser photonics industry. (Manufacturing)
www.inrad.com |
|
66,000 shares common stock. |
|
|
10/31/00 |
|
|
|
<1 |
% |
|
|
165,000 |
|
|
|
112,000 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerset Gas Transmission Company, LLC (e)
Columbus, OH. Natural gas transportation company. (Oil and Gas)
www.somersetgas.com |
|
26.5337 units. |
|
|
7/10/02 |
|
|
|
2 |
% |
|
|
719,097 |
|
|
|
786,748 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synacor Inc. (g)
Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software)
www.synacor.com |
|
234,558 Series A preferred shares. 600,000 Series B preferred shares. 240,378 Series C preferred shares. 897,438 common shares. |
|
|
11/18/02 |
|
|
|
4 |
% |
|
|
1,349,479 |
|
|
|
4,168,001 |
|
|
|
.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
|
$ |
4,579,127 |
|
|
$ |
7,971,597 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: (l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APF Group, Inc. (e)(g)
Yonkers, NY. Manufacturer of museum quality picture frames and framed mirrors for museums, art galleries, retail frame shops, upscale designers and prominent collectors. (Manufacturing) www.apfgroup.com |
|
$587,796 consolidated senior subordinated note at 8% due June 30, 2011. $13,514 senior subordinated note at 14% due June 30, 2011. Warrants to purchase 10.2941 shares of common stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/8/04 |
|
|
|
6 |
% |
|
$ |
619,253 |
|
|
$ |
311,918 |
|
|
$ |
.05 |
|
5
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2009 (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
(d) |
|
|
Per |
|
|
|
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Company, Geographic Location, Business Description, (Industry) and Website |
|
Type of Investment |
|
Acquired |
|
|
Equity |
|
|
Cost |
|
|
Value |
|
|
of Rand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: (l) (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associates Interactive, LLC (e)(g)
Buffalo, NY. Provider of training content and certifications used to train retail sales associates. (Education and Training) www.associatesinteractive.com |
|
$247,813 promissory note at 9% due December 19, 2012. $43,518 secured note at 10% due December 19, 2012. Investor units totaling 22.55% of company. |
|
|
10/15/07 |
|
|
|
23 |
% |
|
|
293,518 |
|
|
|
293,518 |
|
|
|
.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com |
|
$985,000 Class A preferred membership interest at 7.5%. Redeemable January 31, 2010. 5% common membership interest. (j) Interest receivable $669,327. |
|
|
1/30/04 |
|
|
|
5 |
% |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EmergingMed.com, Inc. (g)
New York, NY. Cancer clinical trial matching and referral service. (Software) www.emergingmed.com |
|
$500,000 senior subordinated note at 10% due December 19, 2010. Warrants for 7.0% of common stock. (j) Interest receivable $164,167. |
|
|
12/19/05 |
|
|
|
7 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden Goal LLC (g)
Fort Ann, NY. Youth soccer and lacrosse tournament park. (Sports and Entertainment)
www.goldengoalpark.com |
|
191,811 Class C units at 4%. $38,237.98 convertible promissory notes at 13% due January 26, 2012. |
|
|
12/10/07 |
|
|
|
6 |
% |
|
|
675,652 |
|
|
|
438,238 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innov-X Systems, Inc. (g)
Woburn, MA. Manufactures portable x-ray fluorescence (XRF) analyzers used in metals/alloy analysis. (Manufacturing) www.innovxsys.com |
|
2,642 Series A preferred stock. Warrants for 21,596 common shares. 8% cumulative dividend. (j) Interest receivable $182,411. |
|
|
9/27/04 |
|
|
|
9 |
% |
|
|
1,000,000 |
|
|
|
8,761,700 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara Dispensing Technologies, Inc.
Amherst, NY. Beverage dispensing technology development and products manufacturer, specializing in rapid pour beer dispensing systems for high volume stadium and concession operations. (Manufacturing)
www.exactpour.com |
|
202,081 Series B preferred stock. (g) 463,691 Series A preferred stock. 518,752 Series B preferred stock. |
|
|
3/8/06 |
|
|
|
14 |
% |
|
|
1,281,783 |
|
|
|
1,170,783 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAMSCO (e)(g)
Albany, NY. Distributor of water, sanitary, storm sewer and specialty construction materials to the contractor, highway and municipal construction markets. (Distributor)
www.ramsco.com |
|
$300,000 promissory notes at 9% due October 20, 2010. Warrants for 5.99% of common stock. |
|
|
11/19/02 |
|
|
|
6 |
% |
|
|
300,000 |
|
|
|
300,000 |
|
|
|
.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOMS Technologies, LLC (g)
Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Auto Parts Developer)
www.microgreenfilter.com |
|
$250,000 secured convertible note at 10% due December 2, 2010. |
|
|
12/2/08 |
|
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra Scan Corporation
Amherst, NY. Biometrics application developer of ultrasonic fingerprint technology. (Electronics Hardware/Software) www.ultra-scan.com |
|
536,596 common shares. 107,104 Series A-1 preferred shares. (g) 95,284 Series A-1 preferred shares. |
|
|
12/11/92 |
|
|
|
4 |
% |
|
|
938,164 |
|
|
|
1,203,000 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,858,370 |
|
|
$ |
14,229,157 |
|
|
$ |
2.48 |
|
6
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2009 (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
(d) |
|
|
Share |
|
Company, Geographic Location, Business |
|
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
Description, (Industry) and Website |
|
Type of Investment |
|
Acquired |
|
|
Equity |
|
|
Cost |
|
|
Value |
|
|
Rand |
|
|
Control Investments (m) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gemcor II, LLC (e)(g)(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
Seneca, NY. Designs and sells automatic riveting machines used in
the assembly of aircraft components. (Manufacturing)
www.gemcor.com |
|
$250,000 subordinated note at 8% due June 28, 2010 with warrant to purchase 6.25 membership units. 25 membership units. |
|
|
6/28/04 |
|
|
|
31 |
% |
|
$ |
586,844 |
|
|
$ |
5,786,845 |
|
|
$ |
1.02 |
|
G-TEC Natural Gas Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo,
NY. Manufactures and distributes systems that allow natural gas to be
used as an alternative fuel to gases. (Manufacturing)
www.gas-tec.com |
|
28.925% Class A membership interest. 8% cumulative dividend. |
|
|
8/31/99 |
|
|
|
29 |
% |
|
|
400,000 |
|
|
|
198,000 |
|
|
|
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
|
$ |
986,844 |
|
|
$ |
5,984,845 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments(e) |
|
Various |
|
|
|
|
|
|
|
|
|
|
2,044,269 |
|
|
|
22,842 |
|
|
|
.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio investments |
|
|
|
|
|
|
|
|
|
$ |
14,468,610 |
|
|
$ |
28,208,441 |
|
|
$ |
4.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2009 (Continued)
(Unaudited)
Notes to Consolidated Schedule of Portfolio Investments
(a) Unrestricted securities are freely marketable securities having readily available market
quotations. All other securities are restricted securities, which are subject to one or more
restrictions on resale and are not freely marketable. At March 31, 2009 restricted securities
represented 99% of the value of the investment portfolio. Freed Maxick & Battaglia, CPAs PC has
not examined the business descriptions of the portfolio companies.
(b) The Date Acquired column indicates the year in which the Corporation acquired its first
investment in the company or a predecessor company.
(c) The equity percentages estimate the Corporations ownership interest in the 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. Freed
Maxick & Battaglia, CPAs, PC has not audited the equity percentages of the portfolio companies.
The symbol <1% indicates that the Corporation holds an equity interest of less than one
percent.
(d) The Corporation has adopted the SBAs valuation guidelines for SBICs which describes the
policies and procedures used in valuing investments. Under the valuation policy of the
Corporation, unrestricted securities are valued at the closing price for publicly held securities
for the last three days of the month. Restricted securities, including securities of publicly-held
companies, which are subject to restrictions on resale, are valued at fair value as determined by
the Board of Directors. Fair value is considered to be the amount which 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 by the Board of Directors
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. The Corporation has
also adopted FAS No. 157 Fair Value Measurements which defines fair value and establishes
guidelines for measuring fair value and designates the Corporations investment as generally Level
3 assets due to their privately held restricted nature, their size and the nature of Rands
securities held.
(e) These investments are income producing. All other investments are non-income producing.
Income producing investments have generated cash payments of interest or dividends within the last
twelve months.
(f) Income Tax Information As of March 31, 2009, the aggregate cost of investment securities
approximated $14.5 million. Net unrealized appreciation aggregated approximately $13.7 million, of
which $16.6 million related to appreciated investment securities and $2.9 million related to
depreciated investment securities.
(g) Rand Capital SBIC, Inc. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal
repayment.
(i) Publicly owned company.
(j) Represents interest due (amounts over $50,000 net of reserves) from investment included as
interest receivable on the Corporations Balance Sheet. The total of all individual interest
receivable amounts less than $50,000 totals approximately $64,000.
(k) Non-Control/Non-Affiliate investments are investments that are neither Control Investments or
Affiliated Investments.
(l) 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 or Rand holds a Board seat.
(m) Control investments are defined by the 1940 Act as investments in companies in which more than
25% of the voting securities are owned or where greater than 50% of the board representation is
maintained.
8
Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
Note 1. ORGANIZATION
Rand Capital Corporation (Rand) was incorporated under the laws of New York on February 24,
1969. Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management
company that was registered under Section 8 of the Investment Company Act of 1940 (the 1940 Act).
On August 16, 2001, Rand elected to be treated as a business development company (BDC) under the
1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the purpose of operating it as a
small business investment company (SBIC) licensed by the U.S. Small Business Investment
Administration (SBA). The subsidiary received an SBA license to operate as an SBIC in August
2002. The subsidiary, which had been organized as a Delaware limited partnership, was converted
into a New York corporation on December 31, 2008, at which time its operations as a licensed small
business investment company was continued by a newly formed corporation under the name of Rand
Capital SBIC, Inc. (Rand SBIC). The following discussion will describe the operations of Rand,
its wholly-owned subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership
(collectively, the Corporation).
The Corporation is listed on the NASDAQ Small Capital Market under the symbol Rand.
SBIC Subsidiary
Since 2002, Rand has operated a wholly-owned SBIC subsidiary in order to have access to the
various forms of leverage provided by the SBA to SBICs. Rand operates Rand SBIC, and Rand formerly
operated the limited partnership SBIC predecessor of Rand SBIC, for the same investment purposes
and with investments in the same kinds of securities as Rand. The operations of the SBIC
predecessor were, and the operations of Rand SBIC are, consolidated with those of Rand for both
financial reporting and tax purposes.
Rand initially capitalized the predecessor SBIC with $5 million in Regulatory Capital in
January 2002 and in August 2002 Rand received notification that its Small Business Investment
Company (SBIC) application and license had been approved by the Small Business Administration
(SBA). The approval allowed the SBIC to obtain loans up to two times its initial $5 million of
regulatory capital from the SBA for purposes of making new investments in portfolio companies.
The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its approved debenture
leverage as a partial prepayment of the SBAs nonrefundable 3% leverage fee. As of March 31, 2009,
Rand SBIC had drawn $8,100,000 in leverage from the SBA. On September 30, 2008, the remaining
leverage commitment and $1,900,000 of approved leverage expired when the commitment was not used by
the Corporation. The remaining unamortized prepaid leverage fee of $19,000 was expensed in 2008.
The Corporation intends to re-apply to the SBA for the remaining $1,900,000 in leverage in 2009.
SBA debentures are issued with 10-year maturities. Interest only is payable semi-annually
until maturity. Ten-year SBA debentures may be prepaid with a penalty during the first 5 years, and
then are pre-payable without penalty. The Corporation expects to use Rand SBIC as its primary
investment vehicle.
9
On May 28, 2002, Rand and the predecessor SBIC subsidiary filed an Exemption Application with
the SEC seeking an order for a number of operating exemptions that the SEC has commonly granted
from certain restrictions under the 1940 Act that would otherwise limit the operations of the
wholly-owned subsidiary. After the filing of the Exemption Application, the Corporation had
extended discussions with the staff of the Division of Investment Management of the SEC concerning
the application. The principal substantive issue in these discussions was the structure of the
predecessor of Rand SBIC as a limited partnership.
Rand formed the predecessor SBIC in 2002 as a limited partnership because that was the
organizational form that the SBA strongly encouraged for all new entities seeking licenses as
SBICs. Rand organized the SBIC subsidiary in a manner that was consistent with the SBAs model
limited partnership forms for licensed SBICs. In that structure, the general partner of Rand SBIC
was a limited liability company whose managers were the principal executive officers of Rand.
Under the rules and interpretations of the SEC applicable to BDCs (which the subsidiary SBIC
intended to become), if a BDC is structured in limited partnership form, then it must have general
partners who serve as a board of directors, or a general partner with very limited authority and a
separate board of directors, all of the persons who serve on the board of directors must be natural
persons, and a majority of the directors must not be interested persons of the BDC. Since the
managers of the limited liability company general partner of the SBIC subsidiary were the principal
executive officers of Rand, and since both the limited liability company general partner and the
subsidiary SBIC were wholly-owned by Rand, Rand believed that the board of directors of Rand was
the functional equivalent of a board of directors for both the general partner limited liability
company and for the SBIC limited partnership. Nevertheless, the staff of the Division of Investment
Management of the SEC maintained the view that if the limited partnership subsidiary was to be
operated as a limited partnership BDC in compliance with the 1940 Act, then the organizational
documents of the limited partnership would have to specifically provide that it would have a board
of directors consisting of natural persons, a majority of whom would not be interested persons.
With the approval of the SBA, effective December 31, 2008 Rand merged the Rand SBIC limited
partnership into a corporation whose board of directors is the same as that of Rand. The SBA
formally approved the re-licensing of the new corporation as an SBIC in February 2009. As a result
of the merger, Rand SBIC is a wholly-owned corporate subsidiary of Rand, and its board of directors
is comprised of directors of Rand, a majority of whom are not interested persons of Rand or Rand
SBIC.
On February 26, 2009, the Corporation filed an Exemption Application with the SEC seeking an
order under Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of, and Rule 17d-1 under, the 1940 Act for
exemptions from the application of Sections 12(d)(1), 18(a), 21(b), 57(a)(1), (2), (3), and (4),
and 61(a) of the 1940 Act to certain aspects of its operations. The application also seeks an
order under Section 12(h) of the Securities Exchange Act of 1934 Act (the Exchange Act) for an
exemption from separate reporting requirements for Rand SBIC under Section 13(a) of the Exchange
Act. In general, the Corporations application seeks exemptions that would permit:
|
|
|
Rand and Rand SBIC to engage in certain related party transactions that the
Corporation would otherwise be permitted to engage in as a BDC if its component parts
were organized as a single corporation; |
|
|
|
Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage
requirements for senior securities on a consolidated basis; and |
|
|
|
Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports
on a consolidated basis as part of Rands Exchange Act reports. |
10
The SEC has recently granted exemptions in response to applications that reflected similar
issues and factual circumstances, and Rand believes that it will receive the exemptions it has
requested for the operation of Rand SBIC as a BDC subsidiary of Rand.
Rand operates Rand SBIC through Rand Management for the same investment purposes, and with
investments in similar kinds of securities, as Rand. Rand SBICs operations are consolidated with
those of Rand for both financial reporting and tax purposes.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation In Managements opinion, the accompanying consolidated financial
statements include all adjustments necessary for a fair presentation of the consolidated financial
position, results of operations, and cash flows for the interim periods presented. Certain
information and note disclosures normally included in audited annual financial statements prepared
in accordance with United States generally accepted accounting principles (GAAP), have been
omitted; however, the Corporation believes that the disclosures made are adequate to make the
information presented not misleading. The interim results for the period ending March 31, 2009 are
not necessarily indicative of the results for the full year.
These statements should be read in conjunction with the consolidated financial statements and
the notes included in the Corporations Annual Report on Form 10-K for the year ended December 31,
2008. Information contained in this filing should also be reviewed in conjunction with the
Corporations related filings with the SEC prior to the date of this report. Those filings
include, but are not limited to, the following:
|
|
|
N-30-B2/ARS
|
|
Quarterly & Annual Reports to Shareholders |
N-54A
|
|
Election to Adopt Business Development Company status |
DEF-14A
|
|
Definitive Proxy Statement submitted to shareholders |
Form 10-K
|
|
Annual Report on Form 10-K for the year ended December 31, 2008 |
Form 10-Q |
|
Quarterly Report on Form 10-Q for the quarters ended September 30, 2008,
June 30, 2008 and March 31, 2008 |
Form N-23C-1
|
|
Reports by closed-end investment companies of purchases of their own securities |
The Corporations website is www.randcapital.com. The Corporations annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, charters for the Corporations
committees and other reports filed with the Securities and Exchange Commission (SEC) are
available through the Corporations website.
Principles of Consolidation The consolidated financial statements include the accounts of
Rand, its wholly-owned subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership
(collectively, the Corporation). All intercompany accounts and transactions have been eliminated
in consolidation.
Cash
and Cash Equivalents Temporary cash investments having a maturity of three months or
less when purchased are considered to be cash equivalents.
Revenue Recognition Interest Income - Interest income generally 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.
11
The Rand SBIC interest accrual is also regulated by the SBAs 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 companys ability to continue as a going concern or the loan is in default more
than 120 days. Management also utilizes other qualitative and quantitative measures to determine
the value of a portfolio investment and the collectability of any accrued interest.
Original Issue Discount Investments may create original issue discount or OID income. This
situation arises when the Corporation purchases a warrant and a note from a portfolio company
simultaneously. The transaction 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 then reported net of the OID, which is accreted into interest income over the
life of the loan. The Corporation had no OID for the quarters ending March 31, 2009 or 2008.
Deferred Debenture Costs SBA debenture origination and commitment costs, which are included
in other assets, are amortized ratably over the terms of the SBA debentures. Amortization expense
was $6,996 for the three months ended March 31, 2009, compared to $6,995 for the three months ended
March 31, 2008.
Net Assets per Share Net assets per share are based on the number of shares of common stock
outstanding. There are no common stock equivalents.
Supplemental Cash Flow Information Income taxes paid, net of refunds received, during the
three months ended March 31, 2009 and 2008 amounted to $141,556 and $653,735, respectively.
Interest paid during the three months ended March 31, 2009 and 2008 amounted to $234,200 and
$235,494, respectively. During the three months ended March 31, 2009, the Corporation converted
$11,917 of interest receivable into equity investments. There were no equity conversions during the
three months ended March 31, 2008.
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, 2009 and December 31, 2008, there were
500,000 shares of $10.00 par value preferred stock authorized and unissued.
The Board of Directors has authorized the repurchase of up to 285,947 shares of the
Corporations outstanding stock on the open market at prices that are no greater than current net
asset value through October 23, 2009. During 2003 and 2002 the Corporation purchased 44,100 shares
of its stock for a total cost of $47,206. No additional shares have been repurchased since 2003.
Profit Sharing and Stock Option Plan In July 2001, the stockholders of the Corporation
authorized the establishment of an Employee Stock Option Plan (the Plan). The Plan provides for
the award of options to purchase up to 200,000 common shares to eligible employees. In 2002, the
Corporation placed the Plan on inactive status as it developed a new profit sharing plan for the
Corporations employees in connection with the establishment of its SBIC subsidiary. As of March
31, 2009, no stock options had been awarded under the Plan. Because Section 57(n) of the of the
Investment Company Act of 1940 (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 options will be granted under the Plan while any profit sharing
plan is in effect with respect to the Corporation
12
In 2002, the Corporation established a Profit Sharing Plan for its executive officers in
accordance with Section 57(n) of the 1940 Act. Under the Profit Sharing Plan, Rand 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
subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporations
interpretation of such policies. Any profit sharing paid cannot exceed 20% of the Corporations
net income, as defined. The profit sharing payments will be split equally between Rands two
executive officers, who are fully vested in the Plan. There were no contributions to, or payments
made under, the Plan during the quarters ended March 31, 2009 or March 31, 2008.
Income Taxes The Corporation complies with FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies
the accounting and disclosure for uncertain tax positions by requiring that a tax position meet a
more likely than not threshold for the benefit of the tax position to be recognized in the
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. FIN 48 also provides guidance on measurement,
recognition of tax benefits, classification, interim period accounting disclosure, and transition
requirements in accounting for uncertain tax positions.
There have been no changes in liabilities recorded for uncertain tax positions in the first
quarter of 2009 and the Corporation does not expect that the amounts of unrecognized tax positions
will change significantly within the next 12 months.
It is the Corporations policy to include interest and penalties related to income tax
liabilities in income tax expense. There was no accrued interest or penalties recorded in the
Consolidated Balance Sheet at December 31, 2008 and March 31, 2009.
The Corporation is currently open to audit under the statute of limitations by the Internal
Revenue Service for the years ending December 31, 2005 through 2008. The Corporations state income
tax returns are open to audit under the statute of limitations for the years ended December 31,
2005 through 2008. The New York State Department of Revenue recently informed the Corporation
that they are auditing the Corporations New York corporate income tax returns for the years ended
December 31, 2005 through 2007. All anticipated adjustments have been recorded as a FIN 48
liability at March 31, 2009.
Concentration of Credit Risk At March 31, 2009 Innov-X Systems, Inc.(Innovex), Gemcor II,
LLC (Gemcor) and Synacor Inc. (Synacor) represent 31%, 21% and 15%, respectively, of the fair
value of the Corporations investment portfolio.
Note 3. INVESTMENTS
Investments are valued in accordance with the Corporations established valuation policy and
are stated at fair value as determined in good faith by the management of the Corporation and
submitted to the Board of Directors for approval. 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 consistently
applied valuation process for investments. The Corporation analyzes and values each individual
investment on a quarterly basis, and records unrealized depreciation for an investment that it
believes has become impaired, including where collection of a loan or realization of the recorded
value of an equity security is doubtful. Conversely, the Corporation will record unrealized
appreciation if it believes that the underlying portfolio company has appreciated in value and,
therefore, its equity security has 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 our assumptions and judgments differ from results of actual
liquidation events.
13
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 157, Fair Value Measurements. This statement defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted
accounting principles (GAAP), and expands disclosures about fair value measurements. This
statement was effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those years. On January 1, 2008, the Corporation
adopted SFAS 157.
SFAS No. 157 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, used in the
Corporations valuation at the measurement date.
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
Most of the Corporations investments are classified in Level 3 due to their privately held
restricted nature.
The following is a summary of the Corporations SFAS No. 157 findings.
Assets Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reported Date Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Other Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
March 31, |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Description |
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venture Capital
Investments |
|
$ |
28,208,441 |
|
|
$ |
112,000 |
|
|
$ |
0 |
|
|
$ |
28,096,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant |
|
|
|
|
|
|
|
Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
Venture Capital Investments |
|
Beginning Balance, December 31, 2008, of Level 3 Assets |
|
|
|
|
|
$ |
28,014,282 |
|
|
|
|
|
|
|
|
|
|
Realized Gains or Losses included in net change in net assets from operations |
|
|
|
|
|
|
|
|
|
Unrealized gains or losses included in net change in net assets from operations |
|
|
|
|
|
|
|
|
|
Purchases of Securities |
|
|
|
|
|
|
|
|
Associates Interactive, LLC |
|
$ |
43,518 |
|
|
|
|
|
Golden Goal LLC |
|
$ |
38,238 |
|
|
|
|
|
APF Group, Inc |
|
$ |
11,917 |
|
|
|
|
|
GridApp Systems Inc. |
|
$ |
4,840 |
|
|
$ |
98,513 |
|
|
|
|
|
|
|
|
|
|
Repayments of Securities |
|
|
|
|
|
|
|
|
Gemcor II, LLC |
|
$ |
(16,354 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(16,354 |
) |
Transfers in or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance, March 31, 2009, of Level 3 Assets |
|
|
|
|
|
$ |
28,096,441 |
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized gains
or losses relating to assets still held at the reporting date. |
|
|
|
|
|
|
|
|
|
Gains and losses (realized and unrealized) included in Net decrease
in net assets from operations for the period above are reported as follows: |
|
|
|
|
|
|
|
|
|
Net Gain (Loss) on Sales and Dispositions |
|
|
|
|
|
$ |
0 |
|
|
Change in unrealized gains or losses relating to assets still held at reporting date |
|
|
|
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
14
Note 4. FINANCIAL HIGHLIGHTS
The following schedule provides the financial highlights for the three months ended March 31,
2009 and March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Income from investment operations (1): |
|
|
|
|
|
|
|
|
Investment income |
|
$ |
0.06 |
|
|
$ |
0.07 |
|
Expenses |
|
|
0.07 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
Investment (loss) gain before income taxes |
|
|
(0.01 |
) |
|
|
0.00 |
|
Income tax benefit |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
Net investment (loss) gain |
|
|
(0.01 |
) |
|
|
0.00 |
|
Net realized and unrealized gain on investments |
|
|
0.00 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
(Decrease) increase in net asset value |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
Net asset value, beginning of period |
|
|
3.54 |
|
|
|
3.47 |
|
Net asset value, end of period |
|
$ |
3.53 |
|
|
$ |
3.45 |
|
|
|
|
|
|
|
|
Per share market price, end of period |
|
$ |
3.98 |
|
|
$ |
4.58 |
|
|
|
|
|
|
|
|
Total return based on market value |
|
|
13.71 |
% |
|
|
27.22 |
% |
Total return based on net asset value |
|
|
(0.01 |
)% |
|
|
(0.50 |
)% |
Supplemental data: |
|
|
|
|
|
|
|
|
Ratio of expenses before income taxes to average net
assets |
|
|
2.03 |
% |
|
|
2.04 |
% |
Ratio of expenses including taxes to average net assets |
|
|
1.98 |
% |
|
|
1.96 |
% |
Ratio of net investment (loss) gain to average net assets |
|
|
(0.11 |
)% |
|
|
(0.04 |
)% |
Portfolio turnover |
|
|
0.35 |
% |
|
|
1.98 |
% |
Net assets, end of period |
|
$ |
20,205,727 |
|
|
$ |
19,726,007 |
|
Weighted average shares outstanding, end of period |
|
|
5,718,934 |
|
|
|
5,718,934 |
|
|
|
|
(1) |
|
Per share data are based on weighted average shares outstanding and the results are
rounded |
The Corporations quarterly results could fluctuate as a result of a number of factors, therefore
results for any one quarter should not be relied upon as being indicative of performance in future
quarters.
15
Item 2. Managements 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 our consolidated financial statements and related notes included
elsewhere in this report.
FORWARD LOOKING STATEMENTS
Statements included in this Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this document 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, and in Section 21F of the Securities Exchange Act of 1934. Additional oral
or written forward-looking statements may be made by the Corporation from time to time and those
statements may be included in documents that are filed with the Securities and Exchange Commission.
Such forward-looking statements involve risks and uncertainties that could cause results or
outcomes to differ materially from those expressed in the forward-looking statements.
Forward-looking statements may include, without limitation, statements relating to the
Corporations 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 national economy and the local markets in which the Corporations
portfolio companies operate, the state of the securities markets in which the securities of the
Corporations portfolio companies trade or could be traded, liquidity within the national financial
markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described in Part II, Item 1A of this report, the text of which is incorporated herein by
reference.
There may be other factors that we have not identified that affect the likelihood that the
forward-looking statements may prove to be accurate. Further, any forward-looking statement speaks
only as of the date 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.
Corporate Structure
The following discussion will describe the financial position and operations of Rand Capital
Corporation (Rand), its wholly-owned subsidiary Rand SBIC, Inc. (Rand SBIC), and the predecessor
wholly-owned limited partnership (collectively, the Corporation).
Rand is incorporated in New York and has elected to operate as a business development company
(BDC) under the 1940 Act. Its wholly-owned subsidiary, Rand SBIC, operates as a small business
investment company (SBIC) regulated by the Small Business Administration (SBA). The
Corporation anticipates that most, if not all, of its investments in the next year will be
originated through the SBIC subsidiary.
Business Developments
The financial markets have experienced extreme volatility since late 2007 due to uncertainty
and disruption in large segments of the credit markets. Throughout 2008 and the first quarter of
2009, the financial markets remained unstable causing significant distress on the functioning of
the markets and unprecedented strain on the availability of liquidity in the short-term debt
market. This lack of liquidity may continue to have far-reaching negative consequences across many
industries.
16
These and other economic factors may impact the operations and future financial performance of
the Corporation in the following ways:
|
|
|
The ability of the Corporations portfolio companies to obtain
necessary credit financing for their operations may be impaired. |
|
|
|
|
The Corporations portfolio companies may experience greater
difficulty in obtaining equity financing to continue to fund their
operations. |
|
|
|
|
The slowdown in capital goods spending may impact the goods and
services that the portfolio companies sell. |
|
|
|
|
The Corporation may find it more difficult to exit its investments as
access to public markets and the merger and acquisition industry
become impaired. |
|
|
|
|
The Corporations diversified portfolio of investments may experience
unexpected growth despite these market uncertainties based on their
own capitalization, industry niche, and current market acceptance for
their products/services. |
|
|
|
|
The Corporations SBA leverage commitment expired September 30, 2008,
and the SBAs interest in renewing Rands $1.9 million in undrawn
leverage may be adversely affected by the status of the financial
markets. |
While the effect of these market uncertainties on the Corporations portfolio cannot be
determined, many of the Corporations portfolio companies have begun to develop action plans
necessary to help align their resources (staffing, operating expenses and remaining capital) with
their business needs to create more competitive companies and increase their chances of future
success.
Critical Accounting Policies
The Corporation prepares its consolidated financial statements in accordance with U.S.
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 the Corporations December 31, 2008 Form 10-K under Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations.
17
Financial Condition
Overview:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/09 |
|
|
12/31/08 |
|
|
Decrease |
|
|
% Decrease |
|
Total assets |
|
$ |
31,883,347 |
|
|
$ |
32,228,797 |
|
|
$ |
(345,450 |
) |
|
|
(1.1 |
%) |
Total liabilities |
|
|
11,677,620 |
|
|
|
12,001,831 |
|
|
|
(324,211 |
) |
|
|
(2.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
$ |
20,205,727 |
|
|
$ |
20,226,966 |
|
|
$ |
(21,239 |
) |
|
|
(0.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations financial condition is dependent on the success of its portfolio holdings.
The following summarizes the Corporations investment portfolio at the period-ends indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/09 |
|
|
12/31/08 |
|
|
Increase |
|
|
% Increase |
|
Investments, at cost |
|
$ |
14,468,610 |
|
|
$ |
14,386,451 |
|
|
$ |
82,159 |
|
|
|
0.6 |
% |
Unrealized appreciation, net |
|
|
13,739,831 |
|
|
|
13,739,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value |
|
$ |
28,208,441 |
|
|
$ |
28,126,282 |
|
|
$ |
82,159 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in investments, at cost, is comprised of the following:
|
|
|
|
|
New Investments: |
|
Amount |
|
Associates Interactive, LLC (Associates Interactive) |
|
$ |
43,518 |
|
Golden Goal, LLC (Golden Goal) |
|
|
38,238 |
|
|
|
|
|
Total of new investments made during the three months
ended March 31, 2009 |
|
$ |
81,756 |
|
|
|
|
|
|
Changes to Investments: |
|
|
|
|
APF Group, Inc (APF) interest conversion |
|
$ |
11,917 |
|
GridApp Systems, Inc. (GridApp) |
|
|
4,840 |
|
Total of changes to investments made during the three months
ended March 31, 2009 |
|
$ |
16,757 |
|
|
|
|
|
|
Investment Repayments: |
|
|
|
|
Gemcor II, LLC (Gemcor) |
|
|
(16,354 |
) |
|
|
|
|
Total of investment repayments during the three months
ended March 31, 2009 |
|
|
(16,354 |
) |
|
|
|
|
|
|
|
|
|
Total change in investments, at cost,
during the three months ended March 31, 2009 |
|
$ |
82,159 |
|
|
|
|
|
Net asset value (NAV) per share was $3.53/share at March 31, 2009 versus $3.54/share at
December 31, 2008.
The Corporations total investments at fair value, whose fair value have been estimated by the
Board of Directors, approximated 140% and 139% of net assets at March 31, 2009 and December 31,
2008, respectively.
Cash and cash equivalents approximated 10% of net assets at March 31, 2009 compared to 14% at
December 31, 2008.
18
Results of Operations
Investment Income
The Corporations investment objective is to achieve long-term capital appreciation on its
equity investments while maintaining a current cash flow from its debenture and pass through equity
instruments. Therefore, the Corporation invests in a mixture of debenture and equity instruments,
which will provide a current return on a portion of the investment portfolio. The investment income
is impacted by the Corporations ability to fund investments that fit its strategic profile and the
level of liquidity events within its investment portfolio which cannot be predicted with any
certainty. The equity features contained in the Corporations investment portfolio are structured
to realize capital appreciation over the long-term and may not generate current income in the form
of dividends or interest. In addition, the Corporation earns interest income from investing its
idle funds in money market instruments held at high grade financial institutions.
Comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% Increase |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Interest from portfolio companies |
|
$ |
135,516 |
|
|
$ |
251,764 |
|
|
$ |
(116,248 |
) |
|
|
(46.2 |
)% |
Interest from other investments |
|
|
9,134 |
|
|
|
34,584 |
|
|
|
(25,450 |
) |
|
|
(73.6 |
%) |
Dividend and other investment income |
|
|
224,526 |
|
|
|
84,934 |
|
|
|
139,592 |
|
|
|
164.4 |
% |
Other income |
|
|
9,083 |
|
|
|
7,083 |
|
|
|
2,000 |
|
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
$ |
378,259 |
|
|
$ |
378,365 |
|
|
$ |
(106 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest from portfolio companies The portfolio interest income decrease is a result of
several factors. Two portfolio companies (Contract Staffing, Inc. and New Monarch Machine Tool,
Inc.) repaid their debt instruments during 2008 and one portfolio company (Niagara Dispensing, Inc.
(Niagara Dispensing)) converted its debenture instrument into equity during 2008. In addition, non-
recurring interest of $43,067 was recognized on the escrow from Innov-X Systems, Inc. (Innov-X)
during the first quarter of 2008. The Innov-X escrow of $711,249 and the earned interest of
$43,067 were received in the second quarter of 2008.
After reviewing the portfolio companies performance and the circumstances surrounding the
investments, the Corporation has ceased accruing interest income on the following investment
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
Investment |
|
|
Year that Interest |
|
Company |
|
Rate |
|
|
Cost |
|
|
Accrual Ceased |
|
G-Tec Natural Gas Systems |
|
|
8 |
% |
|
$ |
400,000 |
|
|
|
2004 |
|
Rocket Broadband Networks, Inc. |
|
|
11.25 |
% |
|
|
35,000 |
|
|
|
2008 |
|
UStec, Inc. |
|
|
5 |
% |
|
|
100,000 |
|
|
|
2006 |
|
WineIsIt.com (Wineisit) |
|
|
10 |
% |
|
|
801,918 |
|
|
|
2005 |
|
Interest from other investments The decrease in interest from other investments is
primarily due to lower cash balances and a decrease in interest rates. The cash balance at March
31, 2009 and 2008 was $1,967,663 and $3,206,341, respectively.
Dividend and other investment income Dividend income is comprised of distributions from
Limited Liability Companies (LLCs) in which the Corporation has invested. The Corporations
investment agreements with certain LLCs require the entities to distribute funds to the Corporation
for payment of
income taxes on its allocable share of the entities profits. These dividends will fluctuate based
upon the profitability of the entities and the timing of the distributions.
19
Dividend income for the three months ended March 31, 2009 consisted of a distribution from
Gemcor II, LLC (Gemcor) for $224,526. Dividend income for the three months ended March 31, 2008
consisted of distributions from Gemcor for $84,934.
Other income Other income consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of a Rand SBIC financing.
The SBA regulations limit the amount of fees that can be charged to a portfolio company, and the
Corporation typically charges 1% to 3% to the portfolio companies. These fees are amortized
ratably over the life of the instrument associated with the fees. Upon the prepayment of a loan or
debt security, any unamortized closing fees are recorded as income. The unamortized fees are
carried on the balance sheet under Deferred Revenue. In addition, other income includes fees
charged by the Corporation to its portfolio companies for attendance at the portfolio company board
meetings.
The income associated with the amortization of financing fees was $2,083 for both the three
months ended March 31, 2009 and 2008. The annualized financing fee income based on the existing
portfolio will be approximately $4,600 for the remainder of 2009 and $2,700 in 2010.
The income associated with board attendance fees was $7,000 and $5,000 for the three months
ended March 31, 2009 and 2008, respectively.
Operating Expenses
Comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
Increase |
|
|
% Increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
$ |
409,448 |
|
|
$ |
403,368 |
|
|
$ |
6,080 |
|
|
|
1.5 |
% |
Operating expenses predominately consist of interest expense on SBA obligations, employee
compensation and benefits, directors fees, shareholder related costs, office expenses,
professional fees, and expenses related to identifying and reviewing investment opportunities.
The small increase in operating expenses during the three months ended March 31, 2009 can be
attributed to the 18% or $10,931 increase in professional fees. Professional fees consist of
legal, accounting and tax expenses. In order to comply with the SEC rules regarding the
Corporations operating structure, the Corporation has incurred additional legal fees associated
with the corporate reorganization of the SBIC subsidiary.
Net Realized Gains and Losses on Investments
There were no realized gains or losses during the three months ended March 31, 2009 or March
31, 2008.
Net Change in Unrealized Appreciation of Investments
The Corporation did not have any unrealized change in its investment value during the quarter
ended March 31, 2009.
20
The Corporation recorded a net decrease in unrealized appreciation on investments of
($129,700) during the three months ended March 31, 2008. The decrease of ($129,700) in unrealized
appreciation on investments is due to the following valuation changes made by the Corporation:
|
|
|
|
|
|
|
March 31, 2008 |
|
Niagara Dispensing Technologies, Inc. (Niagara Dispensing) |
|
$ |
(111,000 |
) |
Bioworks |
|
|
(28,000 |
) |
Photonic Products Group, Inc (Photonic) |
|
|
9,300 |
|
|
|
|
|
Total change in net unrealized appreciation during the
three months ended March 31, 2008 |
|
$ |
(129,700 |
) |
|
|
|
|
The Corporation subsequently converted its debt instruments in Niagara Dispensing to equity.
Therefore, it revalued its investment Niagara Dispensing as of March 31, 2008 based on the
valuation of equity shares at conversion.
The Corporations investment in Bioworks was valued at zero during the three months ended
March 31, 2008 based on an analysis of the liquidation preferences of senior securities in the
portfolio company.
Photonic is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the
end of each quarter.
All of these value adjustments resulted from a review by management using the guidance set
forth by SFAS 157 and the Corporations established valuation policy.
Net Decrease in Net Assets from Operations
The Corporation accounts for its operations under Generally Accepted Accounting Practices
(GAAP) for investment companies. The principal measure of its financial performance is net
decrease in net assets from operations on its consolidated statements of operations. For the three
months ended March 31, 2009, the net decrease in net assets from operations was ($21,239) as
compared to a net decrease in net assets from operations of ($91,816) for the same three month
period in 2008. The decrease for the quarter ending March 31, 2009 can be attributed to the net
investment loss of ($21,239) which represents a ($31,189) loss from operations and a net income tax
benefit of $9,950. The decrease for the period ending March 31, 2008 can be attributed to a
decrease of ($129,700) in unrealized appreciation , a ($25,003) loss from operations and a net
income tax benefit of $62,887.
Liquidity and Capital Resources
The Corporations principal objective is to achieve capital appreciation. Therefore, a
significant portion of the investment portfolio is structured to maximize the potential for capital
appreciation and certain of the Corporations portfolio investments may be structured to provide
little or no current yield in the form of dividends or interest payments.
As of March 31, 2009 the Corporations total liquidity, consisting of cash and cash
equivalents, was $1,967,663.
The Corporation had paid $100,000 to the SBA to reserve its approved $10,000,000 leverage. The
Corporation has drawn down $8,100,000 of this leverage as of March 31, 2009. The remaining leverage
commitment of $1,900,000 expired on September 30, 2008. In 2009, the Corporation intends to
re-apply to the SBA for the remaining $1,900,000 in leverage.
21
Management expects that the cash and cash equivalents at March 31, 2009, coupled with the
scheduled interest and dividend payments on its portfolio investments, will be sufficient to meet
the Corporations cash needs throughout 2009. The Corporation is also evaluating potential exits
from portfolio companies and a sale of its common stock in order to increase the amount of
liquidity available for new investments and operating activities. The potential sale of stock or
portfolio assets is subject to inherent market risks and volatility, which may affect the ability
of the Corporation to complete these sales and provide cash to the Corporation over the next twelve
months.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Corporations investment activities contain elements of risk. The portion of the
Corporations investment portfolio consisting of equity and equity-linked debt securities in
private companies is subject to valuation risk. Because there is typically no public market for the
equity and equity-linked debt securities in which it invests, the valuation of the equity interests
in the portfolio is stated at fair value as determined in good faith by the Board of Directors in
accordance with the Corporations investment valuation policy. (The discussion of valuation policy
contained in Item 1 Financial Statements and Supplementary Data in the Notes to Consolidated
Schedule of Portfolio Investments is hereby incorporated herein by reference.) In the absence of a
readily ascertainable market value, the estimated value of the Corporations 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 in the Corporations consolidated
Statements of Operations as Net change in unrealized appreciation.
At times, a portion of the Corporations portfolio may include marketable securities traded in
the over-the-counter market. In addition, there may be a portion of the Corporations 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 the markets to trade in an
orderly fashion, the Corporation may not be able to realize the fair value of its marketable
investments or other investments in a timely manner.
As of March 31, 2009 the Corporation did not have any off-balance sheet investments or hedging
investments.
Item 4T. Controls and Procedures
Management report on Internal Control Over Financial Reporting The management of the
Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting. The Corporations internal control system is a process designed to provide
reasonable assurance to the Corporations management and board of directors regarding the
preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets; provide reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Corporation; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Corporations assets that could have a material effect on our consolidated financial statements.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes
in conditions or that the degree of compliance with the policies or procedures may deteriorate.
22
Management assessed the effectiveness of the Corporations internal control over financial
reporting as of March 31, 2009. In making this assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Based on our assessment management believes that, as of March 31,
2009, the Corporations internal control over financial reporting is effective based on those
criteria.
This quarterly report does not include an attestation report of the Corporations registered
public accounting firm regarding internal control over financial reporting. Managements report
was not subject to attestation by the Corporations registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the company to provide only
managements report in this report.
Changes in Internal Control over Financial Reporting. There have been no significant changes in
our internal control or in other factors that could significantly affect those controls subsequent
to our evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
23
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
See Part I, Item 1A, Risk Factors, of the 2008 Annual Report on Form 10-K for the year ended
December 31, 2008. The Risk Factors from our 2008 report on Form 10-K remain applicable with the
exception of the following additions:
Fluctuations of Quarterly Results
The Corporations quarterly operating results could fluctuate as a result of a number of
factors. These factors include, among others, variations in and the timing of the recognition of
realized and unrealized gains or losses, the degree to which portfolio companies encounter
competition in their markets and general economic conditions. As a result of these factors, results
for any one quarter should not be relied upon as being indicative of performance in future quarters
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
24
Item 6. Exhibits
The following exhibits are filed with this report or are incorporated herein by
reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934.
|
|
|
|
|
|
(3 |
)(i) |
|
Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997. |
(3
|
)(ii) |
|
By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997. |
|
(4 |
) |
|
Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997. |
|
(10.1 |
) |
|
Employee Stock Option Plan incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.* |
|
(10.3 |
) |
|
Agreement of Limited Partnership for Rand Capital SBIC, L.P.
incorporated by reference to Exhibit 10.3 to the Corporations Form 10-K
filed for the year ended December 31, 2001. |
|
(10.4 |
) |
|
Certificate of Formation of Rand Capital SBIC, L.P. incorporated by
reference to Exhibit 10.4 to the Corporations Form10-K filed for the year
ended December 31, 2001 |
|
(10.5 |
) |
|
Limited Liability Corporation Agreement of Rand Capital Management, LLC
incorporated by reference to Exhibit 10.5 to the Corporations Form
10-K Report filed for the year ended December 31, 2001. |
|
(10.6 |
) |
|
Certificate of Formation of Rand Capital Management, LLC incorporated
by reference to Exhibit 10.6 to the Corporations Form 10-K Report filed
for the year ended December 31, 2001. |
|
(10.7 |
) |
|
Certificate of Incorporation of Rand Merger Corporation as filed by the
NY Department of State on 12/18/08 incorporated by reference to
Exhibit 1(a) to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09. |
|
(10.8 |
) |
|
By-laws of Rand Capital SBIC, Inc. incorporated by reference to
Exhibit 2 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09. |
|
(10.9 |
) |
|
Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital
Management, LLC into Rand Merger Corporation, as filed by the NY
Department of State on 12/18/08 incorporated by reference to Exhibit
1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
SBIC, Inc. filed with the SEC on 2/6/09. |
|
(10.10 |
) |
|
Rand Capital Corporation Amended and Restated Profit Sharing Plan
applicable to Rand Capital SBIC, Inc. incorporated by reference to
Exhibit 7 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.* |
|
(31.1 |
) |
|
Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith |
|
(31.2 |
) |
|
Certification of Chief Financial Officer Pursuant to Rules
13a-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 furnished herewith |
|
(32.2 |
) |
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Rand Capital SBIC, Inc. furnished herewith |
|
|
|
* |
|
Management contract or compensatory plan. |
25
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 12, 2009
|
|
|
|
|
|
RAND CAPITAL CORPORATION
|
|
|
By: |
/s/ Allen F. Grum
|
|
|
|
Allen F. Grum, President |
|
|
|
|
|
|
By: |
/s/ Daniel P. Penberthy
|
|
|
|
Daniel P. Penberthy, Treasurer |
|
|
|
|
|
|
RAND CAPITAL SBIC, INC.
|
|
|
By: |
/s/ Allen F. Grum
|
|
|
|
Allen F. Grum, President |
|
|
|
|
|
|
By: |
/s/ Daniel P. Penberthy
|
|
|
|
Daniel P. Penberthy, Treasurer |
|
|
|
|
|
26
Exhibit Index
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
|
(31.1 |
) |
|
Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934, as amended, filed herewith |
|
(31.2 |
) |
|
Certification of Chief Financial Officer Pursuant to Rules 13a-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 furnished herewith |
|
(32.2 |
) |
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Rand
Capital SBIC, Inc. furnished herewith |
27