Rand Capital(US:RAND)2023-03-10 13:00Management Fees and Incentives - The Base Management Fee is calculated at an annual rate of 1.50% of total assets, excluding cash or cash equivalents, and includes assets purchased with borrowed funds[44]. - The Incentive Fees consist of two parts: the Income Based Fee and the Capital Gains Fee[45]. - The Income Based Fee is calculated quarterly based on Pre-Incentive Fee Net Investment Income, with a hurdle rate of 1.75% per quarter (7% annualized)[49]. - If Pre-Incentive Fee Net Investment Income exceeds 2.1875% (8.75% annualized), the Adviser receives 20% of the amount exceeding this threshold[50]. - The Capital Gains Fee is calculated at the end of each calendar year, equal to 20% of the positive difference between cumulative realized capital gains and cumulative realized capital losses[56]. Investment Management and Operations - The Adviser is responsible for managing the investment portfolio and making decisions regarding asset acquisition and disposition[38]. - The Investment Committee, which includes five members, evaluates and approves investment opportunities[39]. - The Adviser may enter into sub-advisory agreements with other investment advisors to assist in investment decisions[37]. - The company does not have any employees; operations are managed by RCM, the investment adviser[35]. - The company reimburses RCM for overhead and other expenses incurred in performing its obligations under the Administration Agreement[36]. Financial Performance and Position - As of December 31, 2022, total investments at fair value amounted to $61,504,259, a decrease from $64,068,462 in 2021[316]. - Cash increased to $1,368,996 in 2022 from $833,875 in 2021, indicating improved liquidity[316]. - Total liabilities rose to $5,759,872 in 2022, compared to $4,899,438 in 2021, primarily due to an increase in the line of credit[316]. - Stockholders' equity decreased to $57,721,320 in 2022 from $60,745,416 in 2021, reflecting a decline in total distributable earnings[316]. - The company must distribute at least 90% of its investment company taxable income to maintain its RIC status, which is crucial for tax benefits[85]. Investment Income and Expenses - Total investment income for 2022 reached $5,765,181, a 41.5% increase from $4,076,303 in 2021[319]. - Net investment income for 2022 was $4,430,410, compared to a loss of $2,604,908 in 2021, marking a significant turnaround[321]. - Total expenses for 2022 were $1,119,229, a substantial decrease from $6,670,315 in 2021, primarily due to lower capital gains incentive fees[319]. - The company declared dividends totaling $2,142,247 in 2022, compared to $1,136,071 in 2021[321]. Investment Strategy and Portfolio Composition - The company has invested in various sectors, including software, manufacturing, and professional services, indicating a diversified investment strategy[326][328]. - The overall investment strategy emphasizes high-yield opportunities, with several investments offering interest rates of 12% or higher[326][328]. - The largest industry classification by percentage of total investments was Professional Services at 31.4%, followed by Manufacturing at 22.6% and Consumer Products at 16.2%[342]. Credit Facility and Financial Covenants - The Corporation entered into a senior secured revolving credit facility of up to $25 million on June 27, 2022, with a maturity date of June 27, 2027[440]. - The interest rate on borrowings under the Credit Facility is set at 3.50 percentage points above the greater of the applicable daily simple secured overnight financing rate (SOFR) or 0.25%[441]. - The Corporation must maintain a Tangible Net Worth of not less than $50 million as per the financial covenants of the Credit Agreement[442]. - The Asset Coverage Ratio must be maintained at not less than 3:1, measured quarterly[442]. - The Interest Coverage Ratio is required to be at least 2.5:1, also measured quarterly on a trailing twelve-month basis[442]. Taxation and Regulatory Compliance - At December 31, 2022, the company was in compliance with the 1940 Act, which restricts non-qualifying investments to no more than 30% of total asset value[83]. - The company is subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless timely distributions are made[86]. - The Corporation's taxable income for 2022 was $3,684,742, a significant increase from $746,766 in 2021[426]. Shareholder Returns and Dividends - The Corporation's Board of Directors declared cash dividends totaling $0.15 per share for the first three quarters and $0.20 and $0.18 per share for the fourth quarter of 2022[454]. - The company declared a cash dividend of $0.83 per share in 2022, compared to $0.44 per share in 2021[362]. - Rand Capital Corporation declared cash dividends of $0.10 per share for each quarter in 2021, totaling $0.40, and increased to $0.15 per share for the first three quarters in 2022, with a final dividend of $0.20 in Q4 2022, totaling $0.65 for the year[372][372].