Rand Capital(US:RAND)2021-03-08 13:00Fees and Compensation - The Base Management Fee is calculated at an annual rate of 1.50% of total assets, excluding cash or cash equivalents[44]. - The Incentive Fees consist of an Income Based Fee and a Capital Gains Fee, with the Income Based Fee calculated quarterly based on Pre-Incentive Fee Net Investment Income[45][46]. - The hurdle rate for the Income Based Fee is set at 1.75% per quarter (7% annualized), with no fee payable if this rate is not exceeded[49]. - The Capital Gains Fee is calculated at 20% of the positive difference between cumulative realized capital gains and cumulative realized capital losses at the end of each calendar year[56]. - The Income Based Fee is subject to a "catch-up" provision, allowing for additional fees if certain thresholds are exceeded[61]. - The Adviser has a "catch-up" provision allowing for a 20.00% Income Based Fee on Pre-Incentive Fee Net Investment Income exceeding 1.75% in any calendar quarter[63]. - The Adviser will be reimbursed for costs related to investment advisory services, including management fees and operational expenses[75]. Investment Management and Operations - The Investment Committee, responsible for investment decisions, increased from five to six members as of December 31, 2020, following a change in control[42]. - RCM employed a total of four employees as of December 31, 2020, managing the operations of the company[37]. - The Adviser is authorized to enter into sub-advisory agreements to assist in investment recommendations and structuring[40]. - The company reimburses RCM for overhead and other expenses incurred in managing its operations[37]. - The Administration Agreement, effective December 31, 2020, will remain in effect for two years and can be terminated with 60 days' notice[76]. Regulatory Compliance - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes significant operational limitations[78]. - At December 31, 2020, the company was in compliance with the 70% qualifying assets rule under the 1940 Act[82]. - The Adviser is responsible for maintaining financial records and preparing reports required by the SEC[74]. - Rand SBIC has complied with SBA requirements since its inception, maintaining at least 20% to 25% of total dollars invested in "smaller enterprises" as defined by the SBA[86]. - As of December 31, 2020, Rand SBIC had $11,000,000 in outstanding SBA debenture instruments, with a maximum cash investment of $4.8 million in any one portfolio company[95][91]. - To qualify as a RIC, Rand SBIC must meet source-of-income, asset-diversification, and minimum distribution requirements, which are critical for tax treatment[97]. - As of December 31, 2020, neither Rand nor Rand SBIC had unrealized net built-in gains, which could affect their tax status if realized within five years of qualifying as RICs[104]. - The Corporation is subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless specific distribution requirements are met[99]. Financial Performance - Total assets decreased from $64,791,449 in 2019 to $60,966,942 in 2020, a decline of approximately 6.4%[299]. - Total investment income increased to $3,102,919 in 2020, up 14% from $2,724,696 in 2019[302]. - Net investment income improved to $1,756,128 in 2020, compared to a loss of $85,697 in 2019[302]. - The company reported a net realized loss on investments of $5,983,279 in 2020, compared to a gain of $861,838 in 2019[302]. - Cash and cash equivalents decreased from $25,815,720 in 2019 to $20,365,415 in 2020, a reduction of approximately 21%[299]. - Total liabilities increased from $11,162,933 in 2019 to $14,862,112 in 2020, an increase of about 33%[299]. - The company declared dividends totaling $8,190,723 in 2020, marking a significant distribution to shareholders[304]. - The weighted average shares outstanding rose to 2,268,356 in 2020 from 836,893 in 2019, indicating a substantial increase in share issuance[302]. - The total stockholders' equity decreased from $53,628,516 in 2019 to $46,104,830 in 2020, a decline of approximately 14%[299]. Investment Portfolio - The investment portfolio consists of debt and equity securities in private companies, which are subject to valuation risk due to the lack of public market[295]. - As of December 31, 2020, there were no off-balance sheet arrangements or hedging investments reported[296]. - The maximum term for financing by SBICs is limited, and control over a small business can be exercised for up to seven years from the initial acquisition[89]. - The SBA prohibits SBICs from investing in certain businesses, including those with the majority of employees outside the U.S. or in passive/non-operating businesses[88]. - The total investment in Caitec Acquisition, Inc. amounts to $3,810,702, which is 8.3% of net assets[309]. - The investment in HDI Acquisition LLC is valued at $1,275,140, accounting for 2.8% of net assets[311]. - The investment in Rheonix, Inc. totals $702,732, representing 1.5% of net assets[311]. - The total fair value of investments as of December 31, 2019, was $17,125,591, including both control and affiliate investments[343]. Unrealized Gains and Losses - The net change in unrealized depreciation on investments was $4,970,917 in 2020, compared to a depreciation of $3,065,811 in 2019[302]. - The net unrealized depreciation of total investment securities is approximately $672,000, with $10.6 million of unrealized appreciation and ($11.3) million of unrealized depreciation[319]. - Total Affiliate Investments reached $17,026,091, with gross additions of $5,916,662 and gross reductions of $10,791,318, resulting in a net income of $1,172,010[343]. - The total realized losses for the year included a net loss of $5,983,279, with significant losses from Genicon, Inc. and BeetNpath, LLC[408]. - Unrealized gains for Level 3 investments totaled $6,508,501, primarily driven by gains from Genicon and Centivo Corporation[408]. Tax and Distributions - The Corporation intends to elect to be treated as a RIC for the 2020 tax year, which will exempt it from corporate-level federal income taxes on net ordinary income or capital gains distributed to stockholders[417]. - The tax character of distributions paid during the year ended December 31, 2020, included $24,806,704 in ordinary income and $2,412,046 in long-term capital gains, totaling $27,218,750[421]. - The Corporation's taxable income for 2020 was estimated at $3,512,380, which includes a net increase in net assets resulting from operations of $743,766[421]. - Income taxes refunded during the years ended December 31, 2020, 2019, and 2018 amounted to $121,277, $728,523, and $26,448, respectively[380].