Rand Capital(RAND) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements and Supplementary Data This section presents Rand Capital Corporation's unaudited consolidated financial statements and notes for H1 2021 and FY 2020 Consolidated Statements of Financial Position This statement details the company's assets, liabilities, and equity at specific points in time Consolidated Statements of Financial Position Summary | ASSETS | | :--- | :--- | | June 30, 2021 | December 31, 2020 | | Investments at fair value | $59,807,395 | $40,048,501 | | Cash and cash equivalents | $12,944,885 | $20,365,415 | | Total assets | $73,438,428 | $60,966,942 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | Total liabilities | $15,318,607 | $14,862,112 | | Total stockholders' equity (net assets) | $58,119,821 | $46,104,830 | | Total liabilities and stockholders' equity (net assets) | $73,438,428 | $60,966,942 | - Total assets increased by 20.5% to $73.4 million at June 30, 2021, from $61.0 million at December 31, 2020, primarily driven by a significant increase in investments at fair value[11][206] - Investments at fair value surged by 49.3% to $59.8 million at June 30, 2021, from $40.0 million at December 31, 2020[11][209] - Cash and cash equivalents decreased by 36.4% to $12.9 million at June 30, 2021, from $20.4 million at December 31, 2020[11] Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net income/loss over specific periods Consolidated Statements of Operations Summary | Metric | | :--- | :--- | | Three Months Ended June 30, 2021 | | Total investment income (USD) | $811,037 | | Total expenses (USD) | $1,619,958 | | Net investment (loss) income (USD) | ($810,887) | | Net realized gain on sales and dispositions of investments (USD) | $1,817,350 | | Net change in unrealized appreciation/depreciation on investments (USD) | $3,494,371 | | Net increase in net assets from operations (USD) | $4,500,834 | | Basic and diluted net increase in net assets from operations per share (USD) | $1.74 | | Three Months Ended June 30, 2020 | | Total investment income (USD) | $674,545 | | Total expenses (USD) | $475,806 | | Net investment income (USD) | $198,739 | | Net realized gain on sales and dispositions of investments (USD) | $18,595 | | Net change in unrealized appreciation/depreciation on investments (USD) | $206,237 | | Net increase in net assets from operations (USD) | $423,571 | | Basic and diluted net increase in net assets from operations per share (USD) | $0.20 | | Six Months Ended June 30, 2021 | | Total investment income (USD) | $1,827,429 | | Total expenses (USD) | $4,785,621 | | Net investment (loss) income (USD) | ($2,977,915) | | Net realized gain on sales and dispositions of investments (USD) | $2,128,105 | | Net change in unrealized appreciation/depreciation on investments (USD) | $13,381,403 | | Net increase in net assets from operations (USD) | $12,531,593 | | Basic and diluted net increase in net assets from operations per share (USD) | $4.85 | | Six Months Ended June 30, 2020 | | Total investment income (USD) | $1,310,371 | | Total expenses (USD) | $992,312 | | Net investment income (USD) | $737,160 | | Net realized gain on sales and dispositions of investments (USD) | $2,412,046 | | Net change in unrealized appreciation/depreciation on investments (USD) | ($2,295,498) | | Net increase in net assets from operations (USD) | $853,708 | | Basic and diluted net increase in net assets from operations per share (USD) | $0.44 | - Net increase in net assets from operations significantly rose to $12.5 million for the six months ended June 30, 2021, compared to $0.85 million for the same period in 2020, primarily due to a substantial increase in net change in unrealized appreciation on investments[14] - Net investment income shifted from a gain of $737,160 in H1 2020 to a loss of ($2,977,915) in H1 2021, largely driven by a significant increase in expenses, particularly capital gains incentive fees[13] Consolidated Statements of Changes in Net Assets This statement tracks changes in the company's net assets due to operations, dividends, and other transactions Consolidated Statements of Changes in Net Assets Summary | Metric | | :--- | :--- | | Six Months Ended June 30, 2021 | | Net assets at beginning of period (USD) | $46,104,830 | | Net increase in net assets from operations (USD) | $12,531,593 | | Declaration of dividend (USD) | ($516,602) | | Net assets at end of period (USD) | $58,119,821 | | Six Months Ended June 30, 2020 | | Net assets at beginning of period (USD) | $53,628,516 | | Net increase in net assets from operations (USD) | $853,708 | | Purchase of treasury shares (USD) | ($14,304) | | Declaration of dividend (USD) | ($4,756,606) | | Net assets at end of period (USD) | $49,711,314 | - Net assets increased by $12.0 million to $58.1 million at June 30, 2021, from $46.1 million at December 31, 2020, primarily due to the net increase in net assets from operations[16][206] Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary | Cash Flow Activity | | :--- | :--- | | Six Months Ended June 30, 2021 | | Net cash (used in) operating activities (USD) | ($3,469,812) | | Net cash used in financing activities (USD) | ($3,950,718) | | Net decrease in cash and cash equivalents (USD) | ($7,420,530) | | Cash and cash equivalents, end of period (USD) | $12,944,885 | | Six Months Ended June 30, 2020 | | Net cash provided by operating activities (USD) | $1,012,654 | | Net cash used in financing activities (USD) | ($4,770,910) | | Net decrease in cash and cash equivalents (USD) | ($3,758,256) | | Cash and cash equivalents, end of period (USD) | $22,057,464 | - Net cash used in operating activities was ($3.47) million for the six months ended June 30, 2021, a decrease from $1.01 million provided by operating activities in the prior year, mainly due to increased investments in portfolio companies and changes in unrealized appreciation[18] - Net cash used in financing activities decreased to ($3.95) million in H1 2021 from ($4.77) million in H1 2020, primarily due to lower dividend payments[18] Consolidated Schedule of Portfolio Investments (June 30, 2021) This schedule details the company's investment portfolio composition and fair values as of June 30, 2021 Portfolio Investments by Type (June 30, 2021) | Investment Type | Fair Value (June 30, 2021) (USD) | Percent of Net Assets (%) | | :--- | :--- | :--- | | Non-Control/Non-Affiliate Investments | $38,331,679 | 66.0% | | Affiliate Investments | $20,873,147 | 35.9% | | Control Investments | $602,569 | 1.0% | | Total Investments | $59,807,395 | 102.9% | Portfolio Investments by Industry (June 30, 2021) | Industry Classification | Percentage of Total Investments (at fair value) as of June 30, 2021 (%) | | :--- | :--- | | Software | 39.2% | | Professional Services | 14.8% | | Manufacturing | 14.8% | | Consumer Product | 11.7% | | BDC Investment Fund | 9.2% | | Automotive | 4.9% | | Healthcare | 4.6% | | Oil and Gas | 0.8% | | Total Investments | 100% | - Restricted securities represented 85% of the fair value of the investment portfolio at June 30, 2021, including $10.5 million (18% of portfolio) of restricted ACV Auctions, Inc. shares[30] - The top five portfolio company concentrations at June 30, 2021, were ACV Auctions, Inc. (24%), Open Exchange, Inc. (9%), Tilson Technology Management, Inc. (8%), ITA Acquisition, LLC (7%), and Caitec, Inc. (6%)[129] Consolidated Schedule of Portfolio Investments (December 31, 2020) This schedule details the company's investment portfolio composition and fair values as of December 31, 2020 Portfolio Investments by Type (December 31, 2020) | Investment Type | Fair Value (December 31, 2020) (USD) | Percent of Net Assets (%) | | :--- | :--- | :--- | | Non-Control/Non-Affiliate Investments | $26,157,302 | 56.8% | | Affiliate Investments | $13,891,199 | 30.1% | | Total Investments | $40,048,501 | 86.9% | Portfolio Investments by Industry (December 31, 2020) | Industry Classification | Percentage of Total Investments (at fair value) as of December 31, 2020 (%) | | :--- | :--- | | Software | 29.3% | | Manufacturing | 16.2% | | Professional Services | 14.6% | | Healthcare | 11.6% | | Consumer Product | 10.3% | | BDC Investment Funds | 8.2% | | Automotive | 7.3% | | Oil and Gas | 1.2% | | Contact Center | 1.2% | | Marketing | 0.1% | | Total Investments | 100% | - Restricted securities constituted 92% of the fair value of the investment portfolio at December 31, 2020[61] - The top five portfolio company concentrations at December 31, 2020, were ACV Auctions, Inc. (16%), Tilson Technology Management, Inc. (12%), Caitec, Inc. (10%), Filterworks Acquisition USA, LLC (7%), and Science and Medicine Group, Inc. (5%)[129] Notes to the Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, investments, and other financial information Note 1. ORGANIZATION This note describes Rand Capital Corporation's structure, BDC status, management, and tax election - Rand Capital Corporation operates as a Business Development Company (BDC) under the 1940 Act and has a wholly-owned Small Business Investment Company (SBIC) subsidiary, Rand SBIC, Inc[81][82] - In November 2019, Rand completed a stock sale transaction with East Asset Management, leading to external management by Rand Capital Management, LLC (RCM) as its investment adviser and administrator[83] - Rand intends to elect U.S. Federal tax treatment as a Regulated Investment Company (RIC) as of January 1, 2020, and paid a special dividend of $23.7 million ($1.62 per share) in May 2020 to distribute accumulated earnings and profits[85] - A 1-for-9 reverse stock split was effected in May 2020, reducing outstanding shares from approximately 23.8 million to 2.6 million[88][119] - The SEC granted exemptive relief in October 2020 and a new order in March 2021, allowing Rand to co-invest with affiliated funds managed by RCM and Callodine Group, LLC[89][201][202] Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting principles, including investment classification and valuation - Investments are classified into Control, Affiliate, and Non-Control/Non-Affiliate categories based on voting security ownership (Control: >25% or >50% board; Affiliate: 5-25%; Non-Control/Non-Affiliate: neither)[97] - Investments are valued at fair value, determined in good faith by RCM and approved by the Board of Directors, with unrestricted publicly traded securities valued at the average closing price for the last three trading days of the reporting period[98][99] - Interest income is recognized on an accrual basis, except for investments in default or doubtful collection, where it's recognized upon receipt. PIK interest is added to the principal balance[101][104] - Dividend income is recognized on an accrual basis when reasonably estimable, including cumulative dividends on preferred equity[105][106] - The Corporation intends to elect RIC status for tax purposes, which generally relieves it from corporate-level federal income taxes if at least 90% of taxable income is distributed[121] Top 5 Portfolio Company Concentrations | Top 5 Portfolio Company Concentrations | | :--- | :--- | | June 30, 2021 | | ACV Auctions, Inc. (ACV) | 24% | | Open Exchange, Inc. (Open Exchange) | 9% | | Tilson Technology Management, Inc. (Tilson) | 8% | | ITA Acquisition, LLC (ITA) | 7% | | Caitec, Inc. (Caitec) | 6% | | December 31, 2020 | | ACV Auctions, Inc. (ACV) | 16% | | Tilson Technology Management, Inc. (Tilson) | 12% | | Caitec, Inc. (Caitec) | 10% | | Filterworks Acquisition USA, LLC (Filterworks) | 7% | | Science and Medicine Group, Inc. (SMG Group) | 5% | Note 3. INVESTMENTS This note details investment valuation methodologies, fair value measurements, and changes in Level 3 assets - The Corporation uses asset, market, and income approaches to determine fair value, with significant unobservable inputs for Level 3 investments including EBITDA and revenue multiples, liquidation seniority, and transaction pricing[132][141][145] Fair Value Measurement Levels | Fair Value Measurement Level | | :--- | :--- | | June 30, 2021 | | Level 1 (Quoted prices in active markets) | 15% | | Level 2 (Observable inputs other than quoted prices) | 18% | | Level 3 (Significant unobservable inputs) | 67% | | December 31, 2020 | | Level 1 | 8% | | Level 3 | 92% | | Level 2 | 0% | Level 3 Investments by Valuation Approach (June 30, 2021) | Investment Type | EBITDA Multiple (X) | Liquidation Seniority | Revenue Multiple (X) | Transaction Pricing | Totals | | :--- | :--- | :--- | :--- | :--- | :--- | | Non-Control/Non-Affiliate Equity | $— | $500,000 | $1,026,219 | $7,638,112 | $9,164,331 | | Non-Control/Non-Affiliate Loan and Debt | $3,588,901 | $2,385,913 | $— | $3,586,152 | $9,560,966 | | Affiliate Equity | $2,062,500 | $22,841 | $1,274,015 | $5,888,348 | $9,247,704 | | Affiliate Loan and Debt | $2,373,519 | $— | $— | $9,251,924 | $11,625,443 | | Control Equity | $— | $— | $— | $157,654 | $157,654 | | Control Debt | $— | $— | $— | $444,915 | $444,915 | | Total Level 3 Investments | $8,024,920 | $2,908,754 | $2,300,234 | $26,967,105 | $40,201,013 | | Range | 5-6X | | 1X | 2X-4X | Not Applicable | | Weighted Average | 5.5X | | 1X | 2.9X | Not Applicable | - For the six months ended June 30, 2021, Level 3 assets saw a net increase of $3,448,849, with significant unrealized gains from Open Exchange, Inc. and ACV Auctions, Inc., and substantial new investments in ITA Acquisition, LLC and Seybert's Billiards Corporation[149] Note 4. OTHER ASSETS This note provides a breakdown and changes in other assets, including receivables and prepaid expenses Other Assets Summary | Other Assets | | :--- | :--- | | June 30, 2021 | December 31, 2020 | | Dividend receivable (USD) | $96,060 | $65,700 | | Prepaid expenses (USD) | $50,737 | $8,400 | | Escrow receivable (USD) | $35,766 | $— | | Total other assets (USD) | $182,563 | $74,100 | - Total other assets increased by 146.4% to $182,563 at June 30, 2021, from $74,100 at December 31, 2020, primarily due to increases in dividend receivable, prepaid expenses, and the addition of an escrow receivable[152] Note 5. COMMITMENTS AND CONTINGENCIES This note confirms the absence of significant commitments or contingencies for the reporting periods - The Corporation had no commitments or contingencies at June 30, 2021, or December 31, 2020[153] Note 6. SBA DEBENTURES This note details the company's outstanding SBA debentures, interest rates, maturities, and available leverage SBA Debentures Summary | SBA Debentures | | :--- | :--- | | June 30, 2021 | December 31, 2020 | | Debentures guaranteed by the SBA (USD) | $11,000,000 | $11,000,000 | | Less unamortized issue costs (USD) | ($156,575) | ($175,413) | | Debentures guaranteed by the SBA, net (USD) | $10,843,425 | $10,824,587 | - Outstanding SBA debentures remained at $11.0 million at June 30, 2021, with a weighted average interest rate of 3.45% (including SBA annual fee)[112][156] - The debentures mature between 2022 and 2029, with $3.0 million maturing in 2022 and $3.0 million in 2029[158] - The Corporation had $3.0 million in additional leverage available from the SBA at June 30, 2021[157] Note 7. CHANGES IN STOCKHOLDERS' EQUITY (NET ASSETS) This note explains the changes in stockholders' equity, including operations, dividends, and treasury share transactions Stockholders' Equity (Net Assets) Summary | Stockholders' Equity (Net Assets) | | :--- | :--- | | Six Months Ended June 30, 2021 | | Net assets at beginning of period (USD) | $46,104,830 | | Net increase in net assets from operations (USD) | $12,531,593 | | Payment of Dividend (USD) | ($516,602) | | Net assets at end of period (USD) | $58,119,821 | | Six Months Ended June 30, 2020 | | Net assets at beginning of period (USD) | $53,628,516 | | Net increase in net assets from operations (USD) | $853,708 | | Payment of Dividend (USD) | ($4,756,606) | | Purchase of treasury shares (USD) | ($14,304) | | Net assets at end of period (USD) | $49,711,314 | - Total distributable earnings increased significantly from a deficit of ($4.62) million at January 1, 2021, to a positive $7.40 million at June 30, 2021, driven by the net increase in net assets from operations[159] Note 8. RELATED PARTY TRANSACTIONS This note describes compensation arrangements with Rand Capital Management, including base and incentive fees - Rand pays RCM a Base Management Fee of 1.50% annually of total assets (excluding cash/cash equivalents) and an Incentive Fee with two parts: Income Based Fee and Capital Gains Fee[162][164] Base Management Fee Details | Base Management Fee | | :--- | :--- | | Period | Amount (USD) | | Three months ended June 30, 2021 | $212,907 | | Six months ended June 30, 2021 | $388,516 | | Three months ended June 30, 2020 | $141,386 | | Six months ended June 30, 2020 | $281,763 | - The Income Based Fee is calculated quarterly based on Pre-Incentive Fee Net Investment Income, subject to a 1.75% hurdle rate and an Incentive Fee Cap based on Cumulative Net Return[165][166] - The Capital Gains Fee is determined annually, calculated as 20.0% of cumulative aggregate realized capital gains less cumulative aggregate realized capital losses and aggregate unrealized capital depreciation[172] - As of June 30, 2021, a GAAP-required capital gains incentive fee accrual of $3,660,000 was recorded, reflecting net portfolio appreciation, though actual payment is contingent on realized gains[175][176] - A new Investment Management Agreement and Administration Agreement were approved by shareholders and entered into on December 31, 2020, following a change of control in RCM[177][179] Note 9. FINANCIAL HIGHLIGHTS This note presents key financial performance metrics, including NAV, total return, and expense ratios Financial Highlights Summary | Financial Highlight | | :--- | :--- | | Six Months Ended June 30, 2021 | | Net asset value, end of period (USD) | $22.51 | | Basic and diluted net increase in net assets from operations per share (USD) | $4.85 | | Total return based on market price (%) | (4.83%) | | Total shareholder return (includes dividends paid) (%) | 3.86% | | Total return based on net asset value (%) | 26.06% | | Ratio of operating expenses before income taxes to average net assets (%) | 9.18% | | Debt/Equity ratio (%) | 18.7% | | Portfolio turnover (%) | 22.6% | | Net assets, end of period (USD) | $58,119,821 | | Six Months Ended June 30, 2020 | | Net asset value, end of period (USD) | $25.49 | | Basic and diluted net increase in net assets from operations per share (USD) | $0.44 | | Total return based on market price (%) | (54.5%) | | Total shareholder return (includes dividends paid) (%) | (45.4%) | | Total return based on net asset value (%) | (7.3%) | | Ratio of operating expenses before income taxes to average net assets (%) | 1.92% | | Debt/Equity ratio (%) | 21.7% | | Portfolio turnover (%) | 10.7% | | Net assets, end of period (USD) | $49,711,314 | - Net asset value per share increased to $22.51 at June 30, 2021, from $17.86 at December 31, 2020[206] - Total return based on net asset value was 26.06% for the six months ended June 30, 2021, a significant improvement from (7.3%) in the prior year[184] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Rand Capital Corporation's financial condition, operational results, and investment strategy for H1 2021 Overview This section outlines Rand Capital Corporation's investment strategy, BDC status, and COVID-19 response - Rand Capital Corporation is an externally managed investment company focused on lending to and investing in lower middle market companies, aiming for current income and capital appreciation[189] - The company operates as a BDC and primarily invests through its SBIC subsidiary, Rand SBIC, Inc., and now also directly through the parent company following a $25 million investment by East Asset Management in November 2019[190][191] - Rand intends to elect RIC tax treatment as of January 1, 2020, requiring distribution of at least 90% of taxable income to shareholders, leading to regular quarterly cash dividends[194][198][199] - The company received SEC exemptive relief to co-invest with affiliated funds managed by RCM and Callodine Group, LLC, aiming for additional investment opportunities and diversification[200][201][202] - RCM actively monitors portfolio companies for liquidity and operational status in response to the COVID-19 pandemic[203] Financial Condition This section analyzes Rand Capital Corporation's assets, liabilities, net assets, and NAV per share Financial Condition Summary | Metric | June 30, 2021 | December 31, 2020 | Increase (USD) | % Increase (%) | | :--- | :--- | :--- | :--- | :--- | | Total assets (USD) | $73,438,428 | $60,966,942 | $12,471,486 | 20.5% | | Total liabilities (USD) | $15,318,607 | $14,862,112 | $456,495 | 3.1% | | Net assets (USD) | $58,119,821 | $46,104,830 | $12,014,991 | 26.1% | - Net asset value per share increased to $22.51 at June 30, 2021, from $17.86 at December 31, 2020[206] - Cash and cash equivalents represented approximately 22% of net assets at June 30, 2021, down from 44% at December 31, 2020[207] Composition of Our Investment Portfolio This section details the changes in the investment portfolio's fair value, cost, and unrealized appreciation Investment Portfolio Composition Summary | Investment Metric | June 30, 2021 | December 31, 2020 | Increase (USD) | % Increase (%) | | :--- | :--- | :--- | :--- | :--- | | Investments, at cost (USD) | $47,096,853 | $40,720,313 | $6,376,540 | 15.7% | | Unrealized appreciation (depreciation), net (USD) | $12,710,542 | ($671,812) | $13,382,354 | NA | | Investments, at fair value (USD) | $59,807,395 | $40,048,501 | $19,758,894 | 49.3% | - Total investments at fair value increased by 49.3% to $59.8 million at June 30, 2021, representing 103% of net assets, up from 87% at December 31, 2020[209] - The investment strategy has shifted towards higher yielding debt investments and public equity in other BDCs, aiming to generate current income and capital appreciation[210] Changes in Investments at Cost (H1 2021) | Change in Investments, at Cost (Six Months Ended June 30, 2021) | | :--- | :--- | | New investments (USD) | $11,273,836 | | Other changes to investments (OID amortization, interest conversion) (USD) | $216,089 | | Investments repaid, sold, liquidated or converted (USD) | ($5,113,385) | | Net change in investments, at cost (USD) | $6,376,540 | Results of Operations This section compares Rand Capital Corporation's investment income, expenses, and gains for Q2 and H1 2021 vs 2020 Comparison of Q2 2021 to Q2 2020 This section compares Rand Capital Corporation's Q2 2021 and Q2 2020 financial results, including income and expenses Investment Income Comparison (Q2 2021 vs Q2 2020) | Investment Income (Q2 YoY) | | :--- | :--- | | Metric | Q2 2021 | Q2 2020 | Change (USD) | % Change (%) | | Interest from portfolio companies (USD) | $642,206 | $570,686 | $71,520 | 12.5% | | Interest from other investments (USD) | $243 | $2,754 | ($2,511) | (91.2%) | | Dividend and other investment income (USD) | $137,047 | $94,438 | $42,609 | 45.1% | | Fee income (USD) | $31,541 | $6,667 | $24,874 | 373.1% | | Total investment income (USD) | $811,037 | $674,545 | $136,492 | 20.2% | - Total investment income increased by 20.2% to $811,037 in Q2 2021, driven by higher interest from portfolio companies (up 12.5%) due to new debt investments and a significant increase in fee income (up 373.1%)[213][215][217] Expenses Comparison (Q2 2021 vs Q2 2020) | Expenses (Q2 YoY) | | :--- | :--- | | Metric | Q2 2021 | Q2 2020 | Change (USD) | % Change (%) | | Total expenses (USD) | $1,619,958 | $475,806 | $1,144,152 | 240.5% | - Total expenses increased by 240.5% to $1,619,958 in Q2 2021, primarily due to a $1,060,000 increase in the GAAP-required capital gains incentive fee accrual and a $72,000 increase in the base management fee[219] - Net investment income shifted to a loss of ($810,887) in Q2 2021 from a gain of $198,739 in Q2 2020[222] Realized Gain on Investments Comparison (Q2 2021 vs Q2 2020) | Realized Gain on Investments (Q2 YoY) | | :--- | :--- | | Metric | Q2 2021 | Q2 2020 | Change (USD) | | Realized gain on investments before income taxes (USD) | $1,817,350 | $18,595 | $1,798,755 | - A significant realized gain of $1,817,350 was recognized in Q2 2021 from the sale of the investment in Givegab[223] Change in Unrealized Appreciation/Depreciation Comparison (Q2 2021 vs Q2 2020) | Change in Unrealized Appreciation/Depreciation (Q2 YoY) | | :--- | :--- | | Metric | Q2 2021 | Q2 2020 | Change (USD) | | Change in unrealized appreciation/depreciation before income taxes (USD) | $3,495,322 | $206,237 | $3,289,085 | - Unrealized appreciation increased significantly in Q2 2021, primarily due to a $4.9 million increase in Open Exchange's valuation and a $1.7 million decrease in ACV Auctions' valuation (post-IPO, due to restricted Class B stock discount)[225][226][228] Comparison of H1 2021 to H1 2020 This section compares Rand Capital Corporation's H1 2021 and H1 2020 financial results, including income and expenses Investment Income Comparison (H1 2021 vs H1 2020) | Investment Income (H1 YoY) | | :--- | :--- | | Metric | H1 2021 | H1 2020 | Change (USD) | % Change (%) | | Interest from portfolio companies (USD) | $1,352,968 | $1,106,387 | $246,581 | 22.3% | | Interest from other investments (USD) | $12,870 | $86,004 | ($73,134) | (85.0%) | | Dividend and other investment income (USD) | $383,716 | $107,563 | $276,153 | 256.7% | | Fee income (USD) | $77,875 | $10,417 | $67,458 | 647.6% | | Total investment income (USD) | $1,827,429 | $1,310,371 | $517,058 | 39.5% | - Total investment income increased by 39.5% to $1,827,429 in H1 2021, driven by a 22.3% increase in interest from portfolio companies due to new debt investments and a 256.7% increase in dividend income[232][234][236] Expenses Comparison (H1 2021 vs H1 2020) | Expenses (H1 YoY) | | :--- | :--- | | Metric | H1 2021 | H1 2020 | Change (USD) | % Change (%) | | Total expenses (USD) | $4,785,621 | $992,312 | $3,793,309 | 382.3% | - Total expenses increased by 382.3% to $4,785,621 in H1 2021, primarily due to a $3,660,000 increase in the GAAP-required capital gains incentive fee accrual and a $107,000 increase in the base management fee[238] - Net investment income shifted to a loss of ($2,977,915) in H1 2021 from a gain of $737,160 in H1 2020[240] Realized Gain on Investments Comparison (H1 2021 vs H1 2020) | Realized Gain on Investments (H1 YoY) | | :--- | :--- | | Metric | H1 2021 | H1 2020 | Change (USD) | | Realized gain on investments before income taxes (USD) | $2,128,105 | $2,412,046 | ($283,941) | - Realized gains decreased slightly in H1 2021 to $2,128,105, including gains from the sale of Givegab ($1.8M), Apollo Investment Corporation ($175K), and ClearView Social, Inc. ($135K)[241] Change in Unrealized Appreciation/Depreciation Comparison (H1 2021 vs H1 2020) | Change in Unrealized Appreciation/Depreciation (H1 YoY) | | :--- | :--- | | Metric | H1 2021 | H1 2020 | Change (USD) | | Change in unrealized appreciation/depreciation before income taxes (USD) | $13,382,354 | ($522,086) | $13,904,440 | - Unrealized appreciation significantly increased to $13,382,354 in H1 2021, primarily driven by substantial appreciation in ACV Auctions ($7.6M) and Open Exchange ($4.9M)[244][245][246] Liquidity and Capital Resources This section discusses Rand Capital Corporation's cash position, available leverage, and future funding needs - At June 30, 2021, total liquidity included $12.9 million in cash and cash equivalents and an undrawn SBA leverage commitment of $3.0 million[251] - The company anticipates sufficient liquidity for the next year from current cash, SBA leverage, and scheduled interest payments, with a strategy to shift towards income-producing investments[253] - SBA debt obligations begin to mature in 2022, requiring identification of future funding sources if investment liquidations are insufficient[252] Quantitative and Qualitative Disclosures about Market Risk This section addresses market risk, investment valuation, and the absence of off-balance sheet arrangements - The investment portfolio, primarily consisting of equity and debt securities in private companies, is subject to significant valuation risk due to the absence of public markets[255] - Valuations are determined in good faith by RCM and approved by the Board, with changes recorded as 'Net change in unrealized depreciation on investments'[255] - The company did not have any off-balance sheet arrangements or hedging/derivative financial instrument investments as of June 30, 2021[256] Controls and Procedures This section confirms the effectiveness of disclosure controls and internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2021[257] - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[258] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that there are no legal proceedings to report for the period - There are no legal proceedings to report[260] Item 1A. Risk Factors This section refers readers to the 'Risk Factors' section in the company's Annual Report on Form 10-K - Refer to the 'Risk Factors' section in the Annual Report on Form 10-K for the year ended December 31, 2020, for detailed risk information[261] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activities and authorization, noting no repurchases in Q2 2021 Share Repurchase Program Activity | Period | Total number of shares purchased | Average price paid per share (USD) | Maximum dollar amount of shares that may yet be purchased (USD) | | :--- | :--- | :--- | :--- | | 4/1/2021 – 4/30/2021 | — | — | $1,500,000 | | 5/1/2021 – 5/31/2021 | — | — | $1,500,000 | | 6/1/2021 – 6/30/2021 | — | — | $1,500,000 | | Total | — | — | | - No shares of common stock were repurchased in open market transactions during the second quarter of 2021[263] - A new share repurchase plan was approved on April 22, 2021, authorizing the repurchase of up to $1,500,000 of common stock at prices no greater than the current net asset value, valid until April 22, 2022[265] Item 3. Defaults upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[266] Item 4. Mine Safety Disclosures This item is not applicable to Rand Capital Corporation - This item is not applicable[266] Item 5. Other Information This section indicates that there is no other information to report - There is no other information to report[267] Item 6. Exhibits This section lists all exhibits filed with the report, including organizational documents and certifications - Exhibits include the Certificate of Incorporation, By-laws, Specimen certificate of common stock, and Certifications of Principal Executive and Financial Officers[269]