Rand Capital Corporation 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended September 30, 2007
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period from to
Commission File Number: 001-08205
Rand Capital Corporation
(Exact Name of Registrant as specified in its Charter)
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New York |
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16-0961359 |
(State or Other Jurisdiction of Incorporation
or organization)
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(IRS Employer
Identification No.) |
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2200 Rand Building, Buffalo, NY
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14203 |
(Address of Principal executive offices)
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(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 is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 under the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated
filer þ
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 November 5, 2007 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
Consolidated Statements of Financial Position
As of September 30, 2007 and December 31, 2006
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September 30,
2007 |
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December 31, 2006 |
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(Unaudited) |
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ASSETS |
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Investments at fair value (identified cost: 9/30/07 -
$13,551,483; 12/31/06 - $14,033,789) |
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$ |
22,373,628 |
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$ |
23,649,814 |
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Cash and cash equivalents |
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4,131,507 |
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4,299,852 |
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Interest receivable (net of allowance $122,000) |
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592,255 |
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507,242 |
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Prepaid income taxes |
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207,130 |
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Other assets |
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1,042,143 |
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1,007,036 |
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Total assets |
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$ |
28,346,663 |
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$ |
29,463,944 |
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LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)
Liabilities: |
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Liabilities: |
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Debentures guaranteed by the SBA |
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$ |
8,100,000 |
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$ |
8,100,000 |
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Deferred income taxes |
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3,081,000 |
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3,808,000 |
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Income taxes payable |
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410,575 |
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Accounts payable and accrued expenses |
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107,726 |
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317,359 |
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Deferred revenue |
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20,970 |
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45,605 |
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Total liabilities |
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11,309,696 |
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12,681,539 |
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Stockholders equity (net assets): |
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Common stock, $.10 par shares authorized 10,000,000;
shares issued 5,763,034 |
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576,304 |
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576,304 |
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Capital in excess of par value |
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6,973,454 |
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6,973,454 |
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Accumulated net investment (loss) |
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(4,527,360 |
) |
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(6,253,128 |
) |
Undistributed net realized gain on investments |
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8,381,241 |
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9,763,366 |
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Net unrealized appreciation on investments |
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5,680,534 |
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5,769,615 |
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Treasury stock, at cost, 44,100 shares |
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(47,206 |
) |
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(47,206 |
) |
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Net assets (per share: 9/30/07-$2.98 , 12/31/2006-$2.93) |
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17,036,967 |
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16,782,405 |
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Total liabilities and stockholders equity (net assets) |
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$ |
28,346,663 |
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$ |
29,463,944 |
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See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
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Three months |
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Three months |
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Nine months |
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Nine months |
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ended |
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ended |
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ended |
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ended |
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September 30, |
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September 30, |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Investment income: |
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Interest from portfolio companies |
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$ |
140,766 |
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$ |
187,325 |
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$ |
474,962 |
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$ |
539,783 |
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Interest from other investments |
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41,563 |
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13,517 |
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133,853 |
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24,856 |
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Dividend and other investment income |
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177,281 |
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163,756 |
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586,291 |
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191,994 |
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Other income |
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5,993 |
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41,529 |
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26,637 |
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63,910 |
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365,603 |
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406,127 |
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1,221,743 |
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820,543 |
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Operating expenses: |
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Salaries |
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100,465 |
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95,162 |
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308,022 |
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287,070 |
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Employee benefits |
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21,338 |
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20,704 |
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86,727 |
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73,857 |
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Directors fees |
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10,750 |
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9,750 |
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67,250 |
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46,500 |
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Professional fees |
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52,383 |
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21,028 |
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149,645 |
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96,031 |
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Stockholders and office operating |
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23,902 |
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19,389 |
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98,056 |
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87,257 |
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Insurance |
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10,920 |
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10,920 |
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32,760 |
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32,760 |
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Corporate development |
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17,886 |
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12,188 |
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50,351 |
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40,863 |
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Other operating |
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2,343 |
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3,783 |
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7,884 |
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8,341 |
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239,987 |
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192,924 |
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800,695 |
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672,679 |
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Interest on SBA obligations |
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125,766 |
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127,137 |
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|
377,297 |
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346,635 |
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Total expenses |
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365,753 |
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320,061 |
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1,177,992 |
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1,019,314 |
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Investment (loss) gain before income taxes |
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(150 |
) |
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86,066 |
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43,751 |
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(198,771 |
) |
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Current income tax expense (benefit) |
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36,082 |
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(1,842 |
) |
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217,447 |
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8,158 |
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Deferred income tax expense (benefit) |
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377,982 |
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123,402 |
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(12,151 |
) |
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120,783 |
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Net investment (loss) |
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|
(414,214 |
) |
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(35,494 |
) |
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(161,545 |
) |
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(327,712 |
) |
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Realized and unrealized gain (loss) on investments: |
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Net gain on sales and dispositions |
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555,000 |
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292,633 |
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516,204 |
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519,527 |
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Unrealized appreciation (depreciation) on
investments: |
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Beginning of period |
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9,735,146 |
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487,020 |
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9,616,025 |
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(342,028 |
) |
End of period |
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8,822,146 |
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|
193,516 |
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8,822,146 |
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|
193,516 |
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Change in unrealized appreciation
(depreciation) before income taxes |
|
|
(913,000 |
) |
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(293,504 |
) |
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|
(793,879 |
) |
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535,544 |
|
Deferred income tax (benefit) expense |
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|
(421,115 |
) |
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(117,402 |
) |
|
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(377,529 |
) |
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214,217 |
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Net change in unrealized appreciation (depreciation) on
investments |
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(491,885 |
) |
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(176,102 |
) |
|
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(416,350 |
) |
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321,327 |
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Net realized and unrealized gain on investments |
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63,115 |
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|
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116,531 |
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99,854 |
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|
840,854 |
|
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|
Net (decrease) increase in
net assets from operations |
|
$ |
(351,099 |
) |
|
$ |
81,037 |
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$ |
(61,691 |
) |
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$ |
513,142 |
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Weighted average shares outstanding |
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|
5,718,934 |
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5,718,934 |
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|
5,718,934 |
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5,718,934 |
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|
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Basic and diluted net (decrease) increase in net assets
from operations per share |
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$ |
(0.06 |
) |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.09 |
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
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September 30, |
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September 30, |
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2007 |
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2006 |
|
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Cash flows from operating activities: |
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|
|
|
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|
|
|
|
|
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Net (decrease) increase in net assets from operations |
|
$ |
(61,691 |
) |
|
$ |
513,142 |
|
Adjustments to reconcile net (decrease) increase in net
assets to net cash used in operating activities: |
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|
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Depreciation and amortization |
|
|
25,487 |
|
|
|
20,603 |
|
Original issue discount accretion |
|
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(62,333 |
) |
|
|
|
|
Decrease in unrealized appreciation of investments |
|
|
793,879 |
|
|
|
(535,544 |
) |
Deferred tax benefit |
|
|
(389,547 |
) |
|
|
335,000 |
|
Net realized gain on portfolio investments |
|
|
(516,204 |
) |
|
|
(519,527 |
) |
Non-cash conversion of debenture interest |
|
|
(50,000 |
) |
|
|
(12,877 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in interest receivable |
|
|
(85,013 |
) |
|
|
(189,098 |
) |
Increase in prepaid income taxes |
|
|
(207,130 |
) |
|
|
|
|
(Increase) decrease in other assets |
|
|
(59,244 |
) |
|
|
61,985 |
|
(Decrease) in income taxes payable |
|
|
(410,575 |
) |
|
|
|
|
(Decrease) in accounts payable and accrued expenses |
|
|
(230,833 |
) |
|
|
(21,849 |
) |
(Decrease) in deferred revenue |
|
|
(24,635 |
) |
|
|
(69,123 |
) |
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|
Total adjustments |
|
|
(1,216,148 |
) |
|
|
(930,430 |
) |
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Net cash used in operating activities |
|
|
(1,277,839 |
) |
|
|
(417,288 |
) |
|
|
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Cash flows from investing activities: |
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|
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Investments originated |
|
|
(1,030,010 |
) |
|
|
(1,820,622 |
) |
Proceeds from sale of portfolio investments |
|
|
255,440 |
|
|
|
1,397,831 |
|
Proceeds from loan repayments |
|
|
1,885,414 |
|
|
|
773,927 |
|
Capital expenditures |
|
|
(1,350 |
) |
|
|
(12,256 |
) |
|
|
|
Net cash provided by investing activities |
|
|
1,109,494 |
|
|
|
338,880 |
|
|
|
|
|
|
|
|
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|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from SBA debenture |
|
|
|
|
|
|
900,000 |
|
Origination costs to SBA |
|
|
|
|
|
|
(19,125 |
) |
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
880,875 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(168,345 |
) |
|
|
802,467 |
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
4,299,852 |
|
|
|
1,209,839 |
|
|
|
|
End of period |
|
$ |
4,131,507 |
|
|
$ |
2,012,306 |
|
|
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Net Assets
For the Three Months and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
|
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|
|
|
|
|
|
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|
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Three months |
|
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Three months |
|
|
Nine months |
|
|
Nine months |
|
|
|
ended |
|
|
ended |
|
|
ended |
|
|
ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Net assets at beginning of period |
|
$ |
17,388,066 |
|
|
$ |
9,048,039 |
|
|
$ |
16,782,405 |
|
|
$ |
8,615,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect adjustment for
uncertain tax positions FIN 48 |
|
|
|
|
|
|
|
|
|
|
316,253 |
|
|
|
|
|
|
|
|
|
Net investment loss |
|
|
(414,214 |
) |
|
|
(35,494 |
) |
|
|
(161,545 |
) |
|
|
(327,712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments |
|
|
555,000 |
|
|
|
292,633 |
|
|
|
516,204 |
|
|
|
519,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation
(depreciation) of investments |
|
|
(491,885 |
) |
|
|
(176,102 |
) |
|
|
(416,350 |
) |
|
|
321,327 |
|
|
|
|
Net (decrease) increase in net assets
from operations |
|
|
(351,099 |
) |
|
|
81,037 |
|
|
|
(61,691 |
) |
|
|
513,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
17,036,967 |
|
|
$ |
9,129,076 |
|
|
$ |
17,036,967 |
|
|
$ |
9,129,076 |
|
|
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
(b) |
|
(c) |
|
|
|
|
|
(d) |
|
Per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
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|
Date |
|
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|
of |
Company and Business |
|
Type of Investment |
|
Acquired |
|
Equity |
|
Cost |
|
Value |
|
Rand |
Adampluseve, Inc. (g)
New York, NY. Luxury sports wear company
for men and women.
www.adampluseve.com
|
|
Warrants to
purchase 1,715
Series A
Convertible
Preferred shares.
|
|
7/14/06
|
|
|
3 |
% |
|
$ |
68,000 |
|
|
$ |
133,341 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allworx Corp. (g)
East Rochester, NY. Manufactures and distributes
a line of converged voice and data networking products for small
businesses (SMBs). www.alloworxcorp.com
|
|
943,396 shares
Series A Preferred.
Warrants to
purchase 311,320
common shares.
|
|
7/22/07
|
|
|
3 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APF Group, Inc. (g)(h)
Mount Vernon, NY. Manufacturer of
museum quality picture frames and framed
mirrors for museums, art galleries,
retail frame shops, upscale designers
and prominent collectors.
www.apfgroup.com
|
|
$584,328 Consolidated Senior
Subordinated note at 13.99% due June
30, 2011. Warrants to purchase
10.2941 shares of common stock.
|
|
7/8/04
|
|
|
6 |
% |
|
|
566,504 |
|
|
|
566,504 |
|
|
|
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh
water, ocean fishing and pleasure boats.
www.carolinaskiff.com
|
|
$985,000 Class A preferred
membership interest at 11%.
Redeemable January 31, 2010.
5% common membership interest.
|
|
1/30/04
|
|
|
5 |
% |
|
|
1,000,000 |
|
|
|
1,227,000 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Staffing (e)
Buffalo, NY. PEO providing human
resource administration for small
businesses.
www.contract-staffing.com
|
|
Preferred Stock Repurchase Agreement
through March 31, 2010 at 5%.
|
|
11/8/99
|
|
|
10 |
% |
|
|
141,400 |
|
|
|
141,400 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EmergingMed.com, Inc. (g)
New York, NY. Cancer clinical trial
matching and referral service.
www.emergingmed.com
|
|
$500,000 Senior subordinated note at
10% due December 19, 2010.
|
|
12/19/05
|
|
|
5 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gemcor II, LLC (e)(g)(h)
West Seneca, NY. Designs and sells
automatic riveting machines used in the
assembly of aircraft components.
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 |
% |
|
|
680,254 |
|
|
|
680,254 |
|
|
|
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-TEC Natural Gas Systems
Buffalo, NY. Manufactures and
distributes systems that allow natural
gas to be used as an alternative fuel to
gases.
www.gas-tec.com
|
|
33.057% Class A membership interest.
8% cumulative dividend.
|
|
8/31/99
|
|
|
33 |
% |
|
|
400,000 |
|
|
|
198,000 |
|
|
|
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innov-X Systems, Inc. (g)
Woburn, MA. Manufactures portable x-ray
fluorescence (XRF) analyzers used in
metals/alloy analysis.
www.innovxsys.com
|
|
2,642 Series A Convertible Preferred
stock. Warrants for 21,596 common
shares.
|
|
9/27/04
|
|
|
9 |
% |
|
|
1,000,000 |
|
|
|
8,761,700 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kionix, Inc.
Ithaca, NY. Develops innovative MEMS
based technology applications.
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 |
|
|
|
1,221,568 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Monarch Machine Tool, Inc. (e)(g)(h)
Cortland, NY. Manufactures and services
vertical/horizontal machining centers.
www.monarchmt.com
|
|
$527,877 note at 12% due January 13,
2009. $300,000 note at 12% due
January 13, 2009. Warrants for
22.84 shares of common stock.
|
|
9/24/03
|
|
|
15 |
% |
|
|
565,270 |
|
|
|
565,270 |
|
|
|
.10 |
|
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007 (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
(c) |
|
|
|
|
|
(d) |
|
Per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
of |
Company and Business |
|
Type of Investment |
|
Acquired |
|
Equity |
|
Cost |
|
Value |
|
Rand |
Niagara Dispensing Technologies, Inc. (e)(g)
Tonawanda, NY. Beverage dispensing
technology development and products
manufacturer, specializing in beer
dispensing systems.
www.exactpour.com
|
|
$500,000 Senior Subordinated
note at 8% due March 7, 2011.
Adjustable warrant for 4% of
common stock. 200 shares
common stock. $250,000
Promissory Note at 14% due
July 10, 2008.
|
|
3/8/06
|
|
|
4 |
% |
|
|
790,010 |
|
|
|
790,010 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonic Products Group, Inc (OTC:PHPG.OB)
(i)
Northvale, NJ. Develops and manufactures
products for laser photonics industry.
www.inrad.com
|
|
100 shares convertible Series
B preferred stock, 10%
dividend.
(a) 26,000 shares common stock.
|
|
10/31/00
|
|
|
<1 |
% |
|
|
165,000 |
|
|
|
172,000 |
|
|
|
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAMSCO (e)(g)(h)
Albany, NY. Distributor of water, sanitary,
storm sewer and specialty construction
materials to the contractor, highway and
municipal construction markets.
www.ramsco.com
|
|
$300,000 Promissory Notes at
8% due October 20, 2010.
Warrants for 5.99% of common
stock.
|
|
11/19/02
|
|
|
6 |
% |
|
|
300,000 |
|
|
|
300,000 |
|
|
|
.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocket Broadband Networks, Inc. (g)
Rochester, NY. Communications service
provider of satellite TV, broadband
internet and VoIP digital phone targeting
multiple dwelling units.
www.rocketbroadband.com
|
|
285,829 Series A Preferred
shares. 247,998 Series A-1
Preferred shares. 996,441
Series B Preferred shares
|
|
12/20/05
|
|
|
11 |
% |
|
|
680,000 |
|
|
|
680,000 |
|
|
|
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerset Gas Transmission Company, LLC (e)
Columbus, OH. Natural gas transportation
company.
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 for broadband access providers.
www.synacor.com
|
|
200,000 shares of Series B
preferred stock. 78,186
Series A preferred shares.
80,126 Series C preferred
shares. Warrants for 299,146
common shares.
|
|
11/18/02
|
|
|
4 |
% |
|
|
999,478 |
|
|
|
3,818,000 |
|
|
|
.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Topps Meat Company LLC (e)(g)
Elizabeth, NJ. Producer and supplier of
premium branded frozen hamburgers and other
portion controlled meat products.
www.toppsmeat.com
|
|
Preferred A and Class A common
membership interest.
|
|
4/3/03
|
|
|
3 |
% |
|
|
595,000 |
|
|
|
0 |
|
|
|
.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra Scan Corporation
Amherst, NY. Biometrics application
developer of ultrasonic fingerprint
technology.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WineIsIt.com, Corp. (e)
Amherst, NY. Marketing company
specializing in customer loyalty programs
supporting the wine and spirit industry.
www.wineisit.com
|
|
$20,000 note at 12% due April
26, 2007.
(g) $500,000 Senior
Subordinated note at 10% due
December 17, 2009. $250,000
note at 10% due April 16,
2005. Warrants to purchase
100,000 shares Class B common
stock.
|
|
12/18/02
|
|
|
2 |
% |
|
|
821,918 |
|
|
|
100,000 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
Various
|
|
|
|
|
|
|
|
|
615,344 |
|
|
|
28,833 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio investments
|
|
|
|
|
|
|
|
$ |
13,551,483 |
|
|
$ |
22,373,628 |
|
|
$ |
3.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007 (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 September 30, 2007 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 its 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.
(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 September 30, 2007, the aggregate cost of investment securities
approximated $13.6 million. Net unrealized appreciation aggregated approximately $8.8 million, of
which $11.2 million related to appreciated investment securities and $2.4 million related to
depreciated investment securities
(g) Rand Capital SBIC, L.P. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal
repayment.
(i) Publicly owned company.
Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
Note 1. ORGANIZATION
Rand Capital Corporation (Rand or Corporation) was incorporated under the laws of the
state of New York on February 24, 1969. Commencing in 1971, Rand operated as a publicly traded,
closed-end, diversified management company that was registered under Section 8(b) of the Investment
Company Act of 1940 (the 1940 Act). On August 16, 2001, Rand filed an election to be treated as a
business development company (BDC) under the 1940 Act, which became effective on the date of
filing. A BDC is a specialized type of investment company that is primarily engaged in the business
of furnishing capital and managerial expertise to companies that do not have ready access to
capital through conventional finance channels. There was no impact on the corporate structure as a
result of the change to a BDC. Rand continues to operate as a publicly held venture capital
company, listed on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol
RAND.
Formation of SBIC Subsidiary
In January 2002 Rand formed a wholly owned subsidiary, Rand Capital SBIC, L.P., (Rand SBIC)
for the purpose of operating it as a small business investment company. At the same time, Rand
organized another wholly owned subsidiary, Rand Capital Management, LLC (Rand Management), as a
Delaware limited liability company, to act as the general partner of Rand SBIC. Rand transferred
$5 million in cash to Rand SBIC to serve as 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 allows Rand 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 following discussion includes Rand, Rand SBIC and Rand Management (collectively, the
Corporation).
The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its approved debenture
leverage. The leverage commitment expires on September 30, 2008. This fee was 1% of the face
amount of the leverage reserved under the commitment and represents a partial prepayment of the
SBAs nonrefundable 3% leverage fee. As of September 30, 2007, Rand SBIC had drawn $8,100,000 in
leverage from the SBA.
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. Rand initially capitalized Rand SBIC with $5 million in
regulatory capital. Rand SBIC was approved to obtain SBA leverage at a 2:1 matching ratio,
resulting in a total capital pool eligible for investment of $15 million. The Corporation expects
to use Rand SBIC as its primary investment vehicle.
The Corporation formed Rand SBIC as a subsidiary for the purpose of causing it to be licensed
as a SBIC under the Small Business Investment Act of 1958 (the SBA Act) by the SBA, in order to
have access to various forms of leverage provided by the SBA to SBICs.
On May 28, 2002, 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 2(a)(3), 2(a)(19), 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 applications seek orders that would permit:
|
|
|
a BDC (Rand) to operate a BDC/small business investment company (Rand SBIC) as its
wholly owned subsidiary in limited partnership form; |
|
|
|
|
Rand, Rand Management and Rand SBIC to engage in certain 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; |
|
|
|
|
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 reports. |
Since the filing of its original Application for Exemption, Rand has had discussions with the
staff of the Division of Investment Management of the SEC concerning Rands application. The
principal substantive issue in these discussions has been the structure of Rand SBIC as a limited
partnership. Rand SBIC must meet the requirements of the SBA for licensed SBICs, and at the same
time Rand SBIC must meet the requirements of the SEC that apply to BDCs.
Rand formed Rand 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, and Rand
formed Rand SBIC 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 is Rand Management, a limited
liability company whose managers are the principal executive officers of Rand.
Under the rules and interpretations of the SEC applicable to BDCs, 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, and all of the
persons who serve on the board of directors must be natural persons and a majority of them must not
be interested persons of the BDC. Since the managers of Rand Management are the principal
executive officers of Rand, and since both Rand Management and Rand SBIC are wholly owned by Rand,
Rand believes that the Board of Directors of Rand is the functional equivalent of a board of
directors for both Rand Management and Rand SBIC. Nevertheless, the staff of the Division of
Investment Management of the SEC has expressed the view that if Rand SBIC is to be operated as a
limited partnership BDC in compliance with the 1940 Act, then the organizational documents of Rand
SBIC must specifically provide that it will have a board of directors consisting of natural
persons, a majority of whom are not interested persons.
In discussions between Rand and the SBA, the SBA has recently indicated that if Rand SBIC is
reorganized as a corporation whose directors are directors of Rand, it will continue to permit Rand
SBIC to be licensed as an SBIC. Accordingly, Rand is currently in discussions with the SEC and the
SBA concerning the reorganization of Rand SBIC as a wholly owned corporate subsidiary of Rand whose
board of directors will be comprised of directors of Rand, a majority of whom will not be
interested persons of Rand or Rand SBIC, and concerning the licensing of the new corporate
subsidiary as an SBIC. Based on the current status of these discussions, Rand does not expect that
either the reorganization process or the subsequent operations of Rand SBIC as a corporation will
result in any material change in the operations of Rand SBIC. Once the reorganization is
completed, Rand expects to
make an appropriate amendment to its Exemption Application to the SEC, and it believes that it
will receive exemptions necessary for its operation of Rand SBIC as a BDC.
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 September 30, 2007
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,
2006. Information contained in this filing should also be reviewed in conjunction with the
Corporations related filings with the SEC during the period of time 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, 2006 |
|
|
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Form 10-Q
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Quarterly Report on Form 10-Q for the quarters ended June 30, 2007, March
31, 2007 and September 30, 2006 |
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Form N-23C-1
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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 SEC are available through the Corporations website.
Principles of Consolidation - The consolidated financial statements include the accounts of
Rand, Rand SBIC and Rand Management, collectively, the Corporation. All intercompany accounts
and transactions have been eliminated in consolidation.
Investments - Investments are stated at fair value as determined in good faith by the Board of
Directors, as described in the Notes to Consolidated Schedule of Portfolio Investments. Certain
investment valuations have been determined by the Board of Directors in the absence of readily
ascertainable fair values. The estimated valuations 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.
Amounts reported as realized gains and losses are measured by the difference between the net
proceeds of sale or exchange and the cost basis of the investment without regard to unrealized
gains or losses reported in prior periods. The cost of securities that have, in the Board of
Directors judgment, become worthless, are written off and reported as realized losses.
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.
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 one OID for the period ending September 30, 2007 that was
fully accreted into income due to the fact that the underlying debt instrument was paid in full.
The OID accreted into income during the nine months ended September 30, 2007 was $62,333.
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 $20,987 for the nine months ended September 30, 2007, compared to $19,470 for the nine months
ended September 30, 2006.
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 during the nine months ended September
30, 2007 and 2006 amounted to $842,960 and $9,151, respectively. Interest paid during the nine
months ended September 30, 2007 and 2006 amounted to $468,184 and $392,080, respectively. During
the nine months ended September 30, 2007 and 2006, the Corporation converted $50,000 and $12,877,
respectively, of interest receivable into equity investments.
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 September 30, 2007 and December 31, 2006, 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 5% of the Corporations
outstanding stock on the open market through October 25, 2008. During the nine month periods ended
September 30, 2007 and 2006 the Corporation did not purchase any shares for the treasury.
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 September 30, 2007
and 2006, no stock options had been awarded under the Plan. Because Section 57(n) of the 1940 Act
prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any
option, warrant or right is outstanding under an executive compensation plan, no options will be
granted under the Plan while any profit sharing plan is in effect with respect to the Corporation.
Income Taxes Effective January 1, 2007, the Corporation adopted Financial Accounting
Standards Board (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.
The cumulative effect of adopting FIN 48 was to increase current taxes payable by $21,200 and
reduce deferred tax liabilities by $316,253. As of January 1, 2007 the balance of accumulated net
investment loss was decreased by $11,016, and the balance in net unrealized appreciation on
investments was increased by $327,269. Upon adoption, the liability for income taxes associated
with uncertain tax positions at January 1, 2007 was $21,200 which, if recognized, would impact the
Corporations effective tax rate. The Corporation does not expect that the amounts of unrecognized
tax positions will change significantly within the next 12 months. There has been no material
changes in liabilities recorded for uncertain tax positions since the initial adoption in the first
quarter of 2007.
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 January 1, 2007 and September 30, 2007.
The Corporation is currently open to audit under the statute of limitations by the Internal
Revenue Service for the years ending December 31, 2004 through 2006. The Corporations state income
tax returns are open to audit under the statute of limitations for the years ended December 31,
2004 through 2006.
The prepaid income taxes balance at September 30, 2007 represents 2007 estimated tax payments
that the Corporation estimates will be refundable based on its current 2007 taxable income.
Concentration
of Credit Risk At September 30, 2007 Innov-X Systems, Inc. and Synacor Inc.
represent 39% and 17%, respectively, of the fair value of the Corporations investment portfolio.
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.
Overview
The following discussion includes Rand Capital Corporation (Rand), Rand Capital SBIC, L.P.,
(Rand SBIC), and Rand Capital Management, LLC (Rand Management), (collectively the
Corporation), its financial position and results of operations.
Rand is incorporated under the laws of New York and is regulated under the 1940 Act as a
business development company (BDC). In addition, a wholly-owned subsidiary, Rand SBIC is
regulated as a Small Business Investment Company (SBIC) 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.
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 December 31, 2006 Form 10-K in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Financial Condition
Overview:
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Increase |
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% Increase |
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9/30/07 |
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12/31/06 |
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(Decrease) |
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(Decrease) |
Total assets |
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$ |
28,346,663 |
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$ |
29,463,944 |
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($ |
1,117,281 |
) |
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(3.8 |
%) |
Total liabilities |
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11,309,696 |
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12,681,539 |
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(1,371,843 |
) |
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(10.8 |
%) |
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Net assets |
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$ |
17,036,967 |
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$ |
16,782,405 |
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|
$ |
254,562 |
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|
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1.5 |
% |
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|
The Corporations financial condition is dependent on the success of its portfolio holdings.
It has invested a substantial portion of its assets in small to medium sized private companies. The
following summarizes the Corporations investment portfolio at the period-ends indicated.
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9/30/07 |
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12/31/06 |
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(Decrease) |
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% (Decrease) |
Investments, at cost |
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$ |
13,551,483 |
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$ |
14,033,789 |
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($ |
482,306 |
) |
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(3.4 |
%) |
Unrealized appreciation, net |
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8,822,146 |
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9,616,025 |
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(793,879 |
) |
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(8.3 |
%) |
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Investments at fair value |
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$ |
22,373,629 |
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$ |
23,649,814 |
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($ |
1,276,185 |
) |
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(5.4 |
%) |
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The change in investments, at cost, is comprised of the following:
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Amount |
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New Investments: |
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Allworx Corp. (Allworx) |
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$ |
500,000 |
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RAMSCO (Ramsco) |
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300,000 |
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Rocket Broadband Networks, Inc. (Rocket) |
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280,000 |
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Niagara Dispensing Technologies, Inc. (Niagara Dispensing) |
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250,010 |
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Total of investments made during the nine months
ended September 30, 2007 |
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$ |
1,330,010 |
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Other Changes to investments: |
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Adampluseve, Inc. (Adampluseve) warrant accretion |
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62,333 |
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Niagara Dispensing interest conversion |
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40,000 |
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Photonics interest conversion |
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|
10,000 |
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Total of new investments and changes to investments
during the nine months ended September 30, 2007 |
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$ |
1,442,343 |
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Sales/Investment Repayments |
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Ramsco |
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(819,428 |
) |
Adampluseve |
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(561,000 |
) |
UStec, Inc. (UStec) |
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(350,000 |
) |
New Monarch Machine Tool, Inc. (Monarch) |
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(127,393 |
) |
Gemcor II, LLC (Gemcor) |
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(42,679 |
) |
APF Group, Inc. (APF) |
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(19,984 |
) |
Takeform |
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(4,165 |
) |
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Total of sales and investment repayments
during the nine months ended September 30, 2007 |
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(1,924,649 |
) |
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Total change in investment balance, at cost
during the nine months ended September 30, 2007 |
|
($ |
482,306 |
) |
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|
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|
Net asset value (NAV) per share was $2.98/share at September 30, 2007 versus $2.93/share at
December 31, 2006.
The Corporations total investments at fair value, whose fair value have been estimated by the
Board of Directors, approximated 131% of net assets at September 30, 2007 and 141% of net assets at
December 31, 2006.
Cash and cash equivalents approximated 24% of net assets at September 30, 2007 compared to 26%
at December 31, 2006.
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 equity features
contained in our 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.
The sources and amounts of interest and dividend income will fluctuate from period to period based
on, among other things, the Corporations balances and composition in its portfolio investments
versus its idle cash balances. 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 can not be predicted with any certainty.
Comparison of the nine months ended September 30, 2007 to the nine months ended September 30, 2006
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September 30, |
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September 30, |
|
Increase |
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% Increase |
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2007 |
|
2006 |
|
(Decrease) |
|
(Decrease) |
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|
|
Interest from portfolio companies |
|
$ |
474,962 |
|
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$ |
539,783 |
|
|
|
($64,821 |
) |
|
|
(12.0 |
%) |
Interest from other investments |
|
|
133,853 |
|
|
|
24,856 |
|
|
|
108,997 |
|
|
|
438.5 |
% |
Dividend and other investment income |
|
|
586,291 |
|
|
|
191,994 |
|
|
|
394,297 |
|
|
|
205.4 |
% |
Other income |
|
|
26,637 |
|
|
|
63,910 |
|
|
|
(37,273 |
) |
|
|
(58.3 |
%) |
|
|
|
Total investment income |
|
$ |
1,221,743 |
|
|
$ |
820,543 |
|
|
$ |
401,200 |
|
|
|
48.9 |
% |
|
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|
Interest from portfolio companies The portfolio interest income decrease can be
attributed to the fact that four debenture instruments Concentrix Corporation (Concentrix), Innov-X
Systems, Inc.(Innov-X), UStec and Synacor Inc (Synacor) that contributed to portfolio interest
income for the nine months ended September 30, 2006 were either repaid or converted into equity
instruments during the last six months of 2006 and the first quarter of 2007, thereby reducing
portfolio interest income during the nine months ended September 30, 2007.
This decrease is offset by the recognition of the Adampluseve Original Issue Discount (OID)
income. This portfolio company, Adampluseve, paid off its debenture instrument early and therefore
the remaining $62,333 in unamortized OID was accreted into income during the nine months ended
September 30, 2007. OID is created when the Corporation invests in a debenture instrument that has
a warrant attached to the instrument. This requires an allocation of a portion of the investment
cost to the warrant and reduces the debt instrument by an equal amount in the form of a note
discount or OID. The note is then reported net of the discount and the discount is accreted into
income over the life of the debenture instrument.
In addition, after reviewing the portfolio companies performance and the circumstances
surrounding the investments, the Corporation has ceased accruing interest income on the following
investment instruments:
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Investment |
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Year that Interest |
Company |
|
Interest Rate |
|
Cost |
|
Accrual Ceased |
|
Contract Staffing |
|
|
5 |
% |
|
$ |
141,400 |
|
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|
2006 |
|
G-Tec |
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8 |
% |
|
|
400,000 |
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2004 |
|
UStec |
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5 |
% |
|
|
100,000 |
|
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2006 |
|
WineIsIt.com |
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10 |
% |
|
|
821,918 |
|
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|
2005 |
|
Interest from other investments The increase in interest income is primarily due to
higher yields on idle cash balances and the fact that the cash balance was $2,119,201 higher at
September 30, 2007 than at September 30, 2006.
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. Dividend income for the nine months ended September 30, 2007 consisted of
distributions from Gemcor II, LLC (Gemcor) for $494,807, Carolina Skiff LLC (Carolina Skiff) for
$39,069, Somerset Gas Transmission Company, LLC (Somerset) for $36,789, Topps Meat Company LLC
(Topps) for $14,944 and Vanguard Modular Building Systems (Vanguard) for $682. Dividend income for
the nine months ended September 30, 2006 consisted of distributions from Topps for $22,752, Gemcor
for $159,087, Carolina Skiff for $8,981 and Vanguard for $1,174.
Other income Other income consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of 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.
Other income decreased due to the fact that the Corporation only charged two portfolio
companies closing fees in 2006 and the first nine months of 2007. The annualized financing fee
income based on the existing portfolio will be approximately $30,000 in 2007 and less than $10,000
annually thereafter.
Operating Expenses
Comparison of the nine months ended September 30, 2007 to the nine months ended September 30, 2006
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September 30, 2007 |
|
September 30, 2006 |
|
Increase |
|
% Increase |
Total Expenses |
|
$ |
1,177,992 |
|
|
$ |
1,019,314 |
|
|
$ |
158,678 |
|
|
|
16 |
% |
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 increase in operating expenses during the nine months ended September 30, 2007 can be
attributed to the 56% or $53,614 increase in professional fees. This line item is comprised of
audit and
legal fees. The audit and tax expense increased 22% or $11,564 from September 30, 2006 to
September 30, 2007. The legal fees expense were $85,824 and $43,774 for the nine months ended
September 30, 2007 and 2006, respectively. This $42,050, or 96%, increase in legal fees can be
attributed to the proposed restructuring of the corporate structure to comply with certain SBA
regulations that were discussed in Note 1 Organization. The Corporation expects legal fees to
continue to increase until the reorganization is finalized in either the fourth quarter of 2007 or
the first quarter of 2008.
Interest expense also increased 9% or $30,662 in the current nine month period ending
September 30, 2007. The Corporation has borrowed $8,100,000 from the SBA as of September 30, 2007
at an average borrowing rate, including surcharges, of approximately 5.9%. The Corporation expects
that interest costs will continue to increase in 2007 and beyond as it continues to draw down SBA
leverage up to the maximum approved leverage of $10 million. The Corporation may draw the
remaining SBA leverage of $1,900,000 in 2008. This interest is paid on a semi-annual basis.
In addition, director fee expense increased 45% or $20,750 from $46,500 for the nine months
ended September 30, 2006 to $67,250 for the nine months ended September 30, 2007. This increase is
attributable to the increased directors annual retainer and meeting fees.
Net Realized Gains and Losses on Investments
During the nine months ended September 30, 2007, the Corporation recognized a net realized
gain of $516,204, comprised of a gain on the sale of Ramsco warrants for $555,000, a loss on UStec
of ($39,236) and a minor gain of $440 on a public security. UStec satisfied its $350,000 debenture
instrument obligation by a payment in the amount of $310,764 which gave rise to the realized loss.
During the nine months ended September 30, 2006, the Corporation recognized a net realized
gain of $600,527 on its sale of 448,341 shares of Minrad. The average sales price of Minrad was
$2.75/share and the basis of the stock was $1.36/share. In addition, the Corporation sold its
interest in Vanguard during the nine months ended September 30, 2006 and recognized an ($81,000)
loss on the disposition.
Net Change in Unrealized Appreciation (Depreciation) of Investments
The Corporation recorded a net decrease in unrealized appreciation on investments of
$(793,879) during the nine months ended September 30, 2007, as compared to an increase of $535,544
during the nine months ended September 30, 2006. The decrease of $(793,879) in unrealized
appreciation on investments is due to the following valuation changes made by the Corporation:
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|
|
September 30, |
|
|
|
2007 |
|
Topps Meat Company LLC (Topps) valuation change |
|
|
($927,000 |
) |
Adampluseve warrants |
|
|
65,341 |
|
Reclass UStec to realized loss |
|
|
39,000 |
|
Photonics valuation to market |
|
|
28,780 |
|
|
|
|
|
Total change in net unrealized appreciation
during the nine months ended September 30, 2007 |
|
|
($793,879 |
) |
|
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|
|
The Topps investment was revalued to zero during the third quarter when the plant that
produces its frozen meat products was forced to recall its frozen hamburgers products. Topps
announced on October 5, 2007 that because of the economic impact of the recall it closed its
Elizabeth, NJ plant. The Corporation will reevaluate its investment in Topps at December 31, 2007
to determine if it should convert Topps to a realized loss.
The Corporation recognized appreciation on its remaining equity investment in Adampluseve
which participated in a round of financing in January 2007 that enabled it to pay off the
Corporations debenture instrument prior to the maturity date. The Corporation still holds warrants
in Adampluseve, the value of which was adjusted based on the pricing of this recent round of
financing.
Photonics is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the
end of each quarter.
Synacor, Inc. filed an S-1 registration statement on August 2, 2007 with the SEC and also
filed two amendments to the S-1 registration statement in October 2007. An S-1 is a registration
document that a company files with the SEC regarding the proposed sale of its securities to the
public. No valuation change occurred in the third quarter of 2007 with respect to the Synacor
investment.
The Corporation recorded a net increase in unrealized appreciation on investments of $535,544
during the nine months ended September 30, 2006. The increase was due to the following valuation
changes made by the Corporation:
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|
|
September 30, |
|
|
|
2006 |
|
Minrad valuation to market |
|
$ |
829,717 |
|
Increase Carolina Skiff valuation |
|
|
189,000 |
|
Vanguard Sale |
|
|
135,000 |
|
Photonics valuation to market |
|
|
(7,920 |
) |
Decrease Wineisit valuation |
|
|
(176,918 |
) |
Minrad Stock Sales |
|
|
(433,335 |
) |
|
|
|
|
Total change in net unrealized appreciation
during the nine months ended September 30, 2006 |
|
$ |
535,544 |
|
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|
|
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The Corporation recognized appreciation on its equity investment in Carolina Skiff based on
the improving financial condition of this portfolio company since the Corporations first
investments. Per the Corporations valuation policy, a portfolio company can be valued based on a
very conservative financial measure if the portfolio company has been self-financing and has had
positive cash flow from operations for at least the past two fiscal years. These portfolio
companies were valued on a multiple of earnings before interest, tax, depreciation and amortization
(EBITDA).
The Corporation held 229,640 shares of Minrad stock at September 30, 2006. These shares were
valued at the average closing price for the last three days of the period ending September 30,
2006.
For the period ending September 30, 2006 Photonics, which was a publicly traded stock (NASDAQ
symbol: PHPG.OB), was marked to market at the end of the quarter.
The Wineisit investment was revalued during the nine month period ended September 30, 2006
after a review by management which identified that the Wineisit business model had deteriorated
since the time of the original funding, as compared to their original plan. Wineisit remains in
operation and has developed a new business strategy.
All of these value adjustments are consistent with the Corporations established valuation
policy.
Net (Decrease) Increase in Net Assets from Operations
The Corporation accounts for its operations under GAAP for investment companies. The principal
measure of its financial performance is net (decrease) increase in net assets from operations on
its
consolidated statements of operations. For the nine months ended September 30, 2007, the net
decrease in net assets from operations was ($61,691) as compared to a net increase in net assets
from operations of $513,142 for the same nine month period in 2006. The decrease for the period
ending September 30, 2007 is attributed to the decrease of ($793,879) in unrealized appreciation in
the current year. The net investment (loss) was ($161,545) and ($327,712) for the periods ending
September 30, 2007 and 2006, respectively. This represents a $166,167 increase in net investment
income during the current nine month period which is due to improved investment income from the
Corporations portfolio investments.
Liquidity and Capital Resources
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. The equity features of our investment portfolio are structured to realize capital
appreciation over the long-term and may not necessarily generate current income in the form of
dividends or interest.
As of September 30, 2007, the Corporations total liquidity, consisting of cash and cash
equivalents, totaled $4,131,507.
As of September 30, 2007 the Corporation had paid $100,000 to the SBA to reserve its approved
$10,000,000 leverage. This leverage commitment expires on September 30, 2008. The Corporation has
drawn down $8,100,000 of this leverage as of September 30, 2007. These SBA borrowings will have
balloon maturities beginning in 2014. Management expects that it will not be necessary to draw
down the SBA leverage for the remainder of 2007, and that the large cash balance will be adequate
to fund new investments and operating activities. The Corporation may draw the remaining
$1,900,000 in outstanding SBA leverage during fiscal year 2008, prior to the expiration of the
commitment, to fund operations and new investments.
Management believes that the cash and cash equivalents at September 30, 2007, coupled with the
additional SBIC leverage draw downs and interest and dividend payments on its portfolio
investments, will provide the Corporation with the liquidity necessary to fund operations and new
investments over the next twelve months. The Corporation expects its cash flow related to its
investing activities will continue to fluctuate based on its success in originating investments and
its ability to realize gains on liquidation of investments.
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
is 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
Statement of Operations as Net change in unrealized appreciation (depreciation).
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 September 30, 2007 the Corporation did not have any off-balance sheet investments or
hedging investments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of
our principal executive officer and principal financial officer, has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive
officer and principal financial officer have concluded that as of that date, our disclosure
controls and procedures were designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in applicable SEC rules and forms and were effective.
Changes in Internal Control Over Financial Reporting. There have been no significant
changes in our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 that occurred during the last fiscal
quarter that materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
On June 8, 2007 Rand and Rand SBIC were named as defendants, together with Summer Street
Capital Funds (lead investor), Onondaga Venture Capital Fund, Inc. and the directors of 331
Holdings, Inc. (UStec), in a complaint filed in State of New York Supreme Court, County of Monroe.
The complaint requests damages of $10,000,000 or such greater or lesser sum as shall be equal to
all of the plaintiffs damages to be proven on the trial of this action. The damages arise out of
an alleged breach of a letter agreement entered into by Rand, Rand SBIC and other shareholders of
the portfolio company in connection with the transfer of certain patents to the plaintiffs. Rand
and Rand SBIC and the other defendants have filed a timely answer to the complaint and believe the
suit is without merit and intend to vigorously defend the matter.
Item 1A. Risk Factors
The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
There is typically no public market for securities of the small privately held companies in
which the Corporation invests. As a result, the valuations of the equity securities in the
Corporations portfolio are stated at fair value as determined by the good faith estimate of the
Corporations Board of Directors in accordance with the established SBA valuation policy. In the
absence of a readily ascertainable market value, the estimated value of the Corporations portfolio
of securities may differ significantly, favorably or unfavorably, from the values that would be
placed on the portfolio if a ready market for the equity securities existed. Any changes in
estimated net asset value are recorded in the statement of operations as Net change in unrealized
appreciation (depreciation).
The Corporations Portfolio Investments are Illiquid
Most of the investments of the Corporation are or will be either equity securities acquired
directly from small companies or below investment grade subordinated debt securities. The
Corporations portfolio of equity securities is, and will usually be, subject to restrictions on
resale or otherwise have no established trading market. The illiquidity of most of the
Corporations portfolio may adversely affect the ability of the Corporation to dispose of such
securities at times when it may be advantageous for the Corporation to liquidate such investments.
Investing in Private Companies involves a High Degree of Risk
The Corporation typically invests a substantial portion of its assets in small and medium
sized private companies. These private businesses may be thinly capitalized, unproven companies
with risky technologies, may lack management depth, and may have not attained profitability.
Because of the speculative nature and the lack of a public market for these investments, there is
significantly greater risk of loss than is the case with traditional investment securities. The
Corporation expects that some of its venture capital investments will be a complete loss or will be
unprofitable and that some will appear to be likely to become successful but never realize their
potential. The Corporation has been risk seeking rather than risk averse in its approach to venture
capital and other investments. Neither the Corporations investments nor an investment in the
Corporation is intended to constitute a balanced investment program.
Even if the Corporations portfolio companies are able to develop commercially viable
products, the market for new products and services is highly competitive and rapidly changing.
Commercial success is difficult to predict and the marketing efforts of the portfolio companies may
not be successful.
Investing in The Corporations Shares May be Inappropriate for the Investors Risk Tolerance
The Corporations investments, in accordance with its investment objective and principal
strategies, result in a far above average amount of risk and volatility and may well result in loss
of principal. The Corporations investments in portfolio companies are highly speculative and
aggressive and, therefore, an investment in its shares may not be suitable for investors for whom
such risk is inappropriate.
The Corporation is Subject to Risks Created by its Regulated Environment
The Corporation is regulated by the SBA and the SEC. Changes in the laws or regulations that
govern SBICs and BDCs could significantly affect the Corporations business. Regulations and laws
may be changed periodically, and the interpretations of the relevant regulations and laws are also
subject to change. Any change in the regulations and laws governing the Corporations business
could have a material impact on its financial condition or its results of operations.
The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
The Corporations Leverageable Capital may include large amounts of debt securities issued
through the SBA, and all of the debentures will have fixed interest rates. Until and unless the
Corporation is able to invest substantially all of the proceeds from debentures at annualized
interest or other rates of return that substantially exceed annualized interest rates that Rand
SBIC must pay the SBA, the Corporations operating results may be adversely affected which may, in
turn, depress the market price of the Corporations common stock.
The Corporation is Dependent Upon Key Management Personnel for Future Success
The Corporation is dependent for the selection, structuring, closing and monitoring of its
investments on the diligence and skill of its two senior officers, Allen F. Grum and Daniel P.
Penberthy. The future success of the Corporation depends to a significant extent on the continued
service and coordination of its senior officers. The departure of either of its senior officers
could materially adversely affect its ability to implement its business strategy. The Corporation
does not maintain key man life insurance on any of its officers or employees.
The Corporation Operates in a Competitive Market for Investment Opportunities
The Corporation faces competition in its investing activities from many entities including
other SBICs, private venture capital funds, investment affiliates of large companies, wealthy
individuals and other domestic or foreign investors. The competition is not limited to entities
that operate in the same geographical area as the Corporation. As a regulated BDC, the Corporation
is required to disclose quarterly and annually the name and business description of portfolio
companies and the value of its portfolio securities. Most of its competitors are not subject to
this disclosure requirement. The Corporations obligation to disclose this information could hinder
its ability to invest in certain portfolio companies. Additionally, other regulations, current and
future, may make the Corporation less attractive as a potential investor to a given portfolio
company than a private venture capital fund.
The Corporation may face litigation risks relating to investments that could have a material effect
on the operation of our business.
One action has been filed against the Corporation in connection with a former investment. See
Part II, Item 1. Legal Proceedings for a more detailed description of these proceedings. The
Corporation may be subject to other litigation or government investigations arising in connection
with our investments and operations. These proceedings may be time-consuming, expensive and
disruptive to normal business operations, and the outcome of any such proceeding is difficult to
predict. The defense of such lawsuits or investigations could result in significant expense and the
diversion of our managements time and attention from the operation of our business, which could
impede our ability to achieve our business objectives.
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
Item 6. Exhibits
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(a) |
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Exhibits |
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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. |
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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. |
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(3)(ii) |
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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. |
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(4) |
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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. |
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(10.1) |
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Employee Stock Option Plan incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.* |
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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. |
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Certificate of Limited Partnership of Rand Capital SBIC, L.P.
incorporated by reference to Exhibit 10.4 to the Corporations Form 10-K
filed for the year ended December 31, 2001. |
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(10.5) |
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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. |
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(10.6) |
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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. |
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(10.7) |
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N/A |
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(10.8) |
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Profit Sharing Plan incorporated by reference to Exhibit 10.8 to the
Corporations Form 10-K Report filed for the year ended December 31,
2002.* |
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Subsidiaries of the Corporation incorporated by
reference to Exhibit 21 to the Corporations Form 10-K Report filed for
the year ended December 31, 2001. |
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(31.1) |
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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 |
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(31.2) |
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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 |
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(32.1) |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Rand Capital Corporation filed herewith |
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(32.2) |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Rand Capital SBIC, L.P. filed herewith |
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* |
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Management contract or compensatory plan. |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 5, 2007
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RAND CAPITAL CORPORATION |
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By: |
/s/ Allen F. Grum |
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Allen F. Grum, President |
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/s/ Daniel P. Penberthy |
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Daniel P. Penberthy, Treasurer |
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RAND CAPITAL SBIC, L.P. |
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RAND CAPITAL MANAGEMENT LLC |
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General Partner |
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RAND CAPITAL CORPORATION |
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Member |
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By: |
/s/ Allen F. Grum |
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Allen F. Grum, President |
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Daniel P. Penberthy, Treasurer |
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