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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

 

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from _____ to _______

Commission File Number: 811-1825

 

Rand Capital Corporation
(Exact Name of Registrant as specified in its Charter)


 

New York
 (State or Other Jurisdiction of Incorporation
Or Organization)		 16-0961359
 (IRS Employer
Identification No.)
2200 Rand Building, Buffalo, NY 14203
 (Address of Principal executive offices)		 14203
 (Zip Code)
 

(716) 853-0802
(Registrant's 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 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: X No ___

Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (November 8, 2002): 5,751,834

 

RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q

PART I. - FINANCIAL INFORMATION

        Item 1. FINANCIAL STATEMENTS

  Condensed Consolidated Statements of Financial Position as of September 30, 2002 and December 31, 2001
  Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2002 and 2001
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001
  Condensed Consolidated Statements of Changes in Net Assets for the Three Months and Nine Months Ended September 30, 2002 and 2001
  Schedule of Portfolio Investments as of September 30, 2002
  Notes to Condensed Consolidated Financial Statement

        Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        Item 3. Quantitative and Qualitative Disclosures about Market Risk

        Item 4. Evaluation of Disclosure Controls and Procedures

 

PART II - OTHER INFORMATION

        Item 1. Legal Proceedings

        Item 2. Changes in Securities and Use of Proceeds

        Item 3. Defaults upon Senior Securities

        Item 4. Submission of Matters To a Vote of Security Holders

        Item 5. Other Information

        Item 6. Exhibits and Reports on Form 8-K

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

 

Condensed Consolidated Statements of Financial Position
As of September 30, 2002 and December 31, 2001
(Unaudited)
   September 30,
2002   		  December 31,
2001
ASSETS
Investments at fair value (identified cost:
     at 9/30/2002 - $4,275,453, at 12/31/2001 - $3,157,017)  $3,957,622      $4,010,891
Cash and cash equivalents    5,155,124      5,941,517  
Interest receivable (net of allowance of $13,167        
      at 9/30/2002 and 12/31/2001)    225,496      167,844  
Promissory notes receivable    121,550      150,605  
Income taxes receivable    20,764      -         
Deferred tax asset    133,000      -         
Other assets  
 39,132  
 
 11,636
 
TOTAL ASSETS  
 $9,652,688  
 
 $10,282,493
 

LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)

LIABILITIES:

Accounts payable and accrued expenses    $41,521      $33,679  
Income taxes payable    -            40,530  
Deferred tax liability
 -       
 
 150,000
 
                            Total liabilities
 41,521  
 
 224,209
  

STOCKHOLDERS' EQUITY (NET ASSETS)

Common stock, $.10 par - shares authorized 10,000,000; shares issued
5,763,034    576,304    576,304
Capital in excess of par value    6,973,454    6,973,454
Accumulated net investment (loss)    (4,071,086  

)

  (3,616,673

)
Undistributed net realized gain on investments    6,624,710    5,686,311
Net unrealized (depreciation) appreciation on investments    (486,320  

)

  438,888
Treasury stock at cost, 5,400 shares
 (5,895

)
        -        
  

Net assets (per share 9/30/2002-$1.67, 12/31/2001-$1.75)  

 9,611,167
 10,058,284
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  
 $9,652,688 
$10,282,493

See notes to the condensed consolidated financial statements.

 

Condensed Consolidated Statements of Operations
For The Three Months And Nine Months Ended September 30, 2002 and 2001
(Unaudited)

Three months ended
September 30, 2002

  

Three months ended
September 30, 2001

  

Nine months ended
September 30, 2002

  

Nine months ended
September 30, 2001

  
Investment income:        
Interest from portfolio companies

$ 23,913

  

$ 25,769

  

$ 83,419

  

$ 88,298

  

Interest from other investments

23,408

  

1,209

  

82,359

  

6,931

  
Other income

10,000

  

600

  

15,540

  

8,698

  

57,321

  

27,578

  

181,318

  

103,927

  
Expenses:        
Salaries

68,575

  

59,176

  

248,538

  

247,395

  
Employee benefits

13,814

  

12,054

  

62,698

  

53,248

  
Directors' fees

4,500

  

10,250

  

20,750

  

19,750

  
Professional fees

15,890

  

(2,100)

  

55,093

  

33,091

  
Shareholders and office

21,468

  

17,509

  

82,799

  

54,594

  
Insurance

11,250

  

6,750

  

33,750

  

20,250

  
Corporate development

10,795

  

4,627

  

31,121

  

15,552

  
Other operating expenses

6,021

  

53,464

  

16,737

  

182,414

  

152,313

  

161,730

  

551,486

  

626,294

  
Organizational costs

13,919

                 -

130,029

                   -
Total expenses

166,232

161,730

681,515

626,294
Investment (loss) before income taxes

(108,911

 )

(134,152

 )

(500,197

)

(522,367

 )
Income tax (benefit) provision

(40,280

 )

2,580

  

(9,280

 )

15,987

  
Deferred income taxes

(248,147

 )

73,000

  

(36,503

 )

73,000

  
Net investment income (loss)

179,517

  

(209,732

 )

(454,413

 )

(611,354

 )
       
Realized and unrealized gain (loss) on investments:        
Net realized gain on sales and

 

 

 

 
dispositions

                -

  

660,332

  

938,399

  

661,025

 
Unrealized appreciation (depreciation) on investments:
Beginning of period

288,696

  

2,065,764

  

853,874

  

974,597

  
End of period

(317,831

 )

1,745,483

  

(317,831

 )

1,745,483

  
Change in unrealized (depreciation) appreciation before income taxes

(606,527

 )

(320,281

 )

(1,171,705

 )

770,886

  
Deferred income tax (benefit)

 

 

     
provision

(4,853

 )

                    -

  

(246,497

 )

148,239

  
Net (decrease) increase in unrealized appreciation

(601,674

 )

(320,281

 )

(925,208

 )

622,647

  
Net realized and unrealized (loss) gain on investments

(601,673

 )

340,051

  

13,191

  

1,283,672

  
Net (decrease) increase in net assets from operations

$(422,157

)

$ 130,319

  

$ (441,222

 )

$ 672,318

  
Weighted average shares outstanding

5,760,523

  

5,763,034

  

5,762,191

  

5,762,045

  
Basic and diluted net (decrease) increase in net assets from operations per share

$ (0.07

 )

$ 0.02

  

$ (0.08

 )

$ 0.12

  

See notes to the condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
 

Nine Months
Ended
September 30, 2002

  

Nine Months
Ended
September 30, 2001

  
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net (decrease) increase in net assets from operations  
$(441,222

)
 $672,318
 
Adjustments to reconcile net (decrease) increase in net
assets to net cash used in operating activities:		    
Depreciation and amortization   10,400     9,750  
Interest receivable allowance    -           36,372  
Change in unrealized appreciation of investments   925,208     (622,647

)
Change in deferred taxes   (36,503

)

  73,000  
Net realized (gain) on portfolio investments   (938,399

)

  (661,025

)
Non cash conversion of investments   (16,766

)

  -         
Changes in operating assets and liabilities:
(Increase) in interest receivable   (57,652 

)

  (50,885

)
(Increase) decrease in other assets   (24,649 

)

  10,609  
(Decrease) in accounts payable and other accrued liabilities  
(53,450 

)
 (2,782

)
Total adjustments  
(191,811  

)
 (1,207,608

)
Net cash (used in) operating activities  
(633,033

)
 (535,290

)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of portfolio investments   1,086,730     1,084,054  
  Proceeds from loan repayments   29,055     -         
  New portfolio investments   (1,250,000 

)

  (170,465

)
  Capital expenditures  
(13,250

)
 -       
 
  Net cash (used in) provided by investing activities  
(147,465

)
 913,589
  
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of stock  -           31,875  
  Purchase of Treasury Stock  
(5,895

)
 -       
 
  Net cash (used in) provided by financing activities
(5,895

)
 31,875
  
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS   (786,393 

)

  410,174  
CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD  
 5,941,517 
 
 304,152
  
CASH AND CASH EQUIVALENTS,
END OF PERIOD  
$5,155,124 
 
 $714,326
  

See notes to condensed consolidated financial statements.

 

Condensed Consolidated Statements of Changes In Net Assets
For The Three Months And Nine Months Ended September 30, 2002 and 2001
(Unaudited)

Three months ended September 30, 2002

  

Three months ended September 30, 2001

  

Nine months ended September 30, 2002

  

Nine months ended September 30, 2001

  
Net assets at beginning of period

$10,039,219

$8,959,570

$10,058,284

$8,385,697
Operations:
Net investment income (loss)

179,517

(209,732

 )

(454,413

 )

(611,354

 )
Net realized gain on investments

-

660,332

938,399

661,025
Net (decrease) increase in unrealized
              appreciation of investments

(601,674

 )

(320,281

 )

(925,208

 )

622,647

  
Other

(1)
Net (decrease) increase in net assets
               from operations


(422,157

 )


130,319

  


(441,222

 )


672,317

  
Purchase of Treasury stock

(5,895

 )

-

(5,895

 )

-
Net proceeds of private offering

-

-

-

31,875
Net assets at end of period

$9,611,167

$9,089,889

$9,611,167

$9,089,889

See notes to condensed consolidated financial statements

Schedule Of Portfolio Investments as of September 30, 2002 (unaudited)
      (b)    (c)      (d)
      Date          Fair
Company and Business    Type of Investment    Acquired    Equity    Cost    Value
ADIC (NASDAQ:ADIC)* ^    Common stock - 9,500 shares    5/11/01    <1%    $21,627    $45,600
Redmond, WA. Manufactures data storage
systems and storage management software.
www.adic.com.
 
Contract Staffing    Series A 8% Cumulative    11/8/99    10%    100,000    100,000
Buffalo, NY. PEO providing human resource    preferred stock - 10,000 shares
administration for small businesses.
www.contract-staffing.com
 
DataView, LLC    5% Membership interest    10/1/98    5%    310,357    155,179
Mt. Kisco, NY. Designs, develops and markets
browser based software for investment professionals.
www.marketgauge.com
 
G-TEC Natural Gas Systems    41.67% Class A Membership    8/31/99    42%    300,000    300,000
Buffalo, NY. Manufactures and distributes    interest. 8% cumulative dividend
systems that allow natural gas to be used
as an alternative fuel to gases.
www.gas-tec.com
 
INRAD, Inc. (OTC: INRD.OB) *    Series B Preferred Stock -    10/31/00    2%    115,000    102,100
Northvale, NJ. Develops and manufactures    100 shares. 10% dividend.
products for laser photonics industry.    Common stock - 6,000 shares
www.inrad.com
 
∆Kionix, Inc.    Series A Preferred Stock,    5/17/02    <1%    750,000    750,000
Ithaca, NY. Develops innovative MEMS    882,352 shares.
based technology applications.
www.kionix.com
 
MINRAD, Inc.    608,193 Common shares.    8/4/97    5%    919,422    508,500
Buffalo, NY. Developer of laser guided medical    56,020 Preferred Series A shares.
devices. www.minrad.com    13,767 Preferred Series B
   Stock Option - 10,000 shares
   common
Somerset Gas Transmission Company, LLC    Convertible Promissory Note    7/10/02    <1%    500,000    583,333
Buffalo, NY. Natural gas transportation company.    $500,000 at 10%. due on demand
   after September 30, 2002.
   .40 Units
Ultra - Scan Corporation    504,596 Common shares,    12/11/92    4%    509,353    842,247
Amherst, NY. Biometrics application    142,276 warrants for Common
developer of ultrasonic fingerprint technology.    shares.
www.ultra-scan.com
 
UStec, Inc. (e)    Promissory Note at 12%    12/17/98    <1%    100,500    150,000
Victor, NY. Markets digital wiring systems    due January 2003
for new home construction.    50,000 Common Shares.
www.ustecnet.com  
 		  36,259 Warrants for Common Shares
Vanguard Modular Building Systems    Preferred Units - 2,673 Units with    12/16/99    <1%    270,000    270,000
Philadelphia, PA. Leases and sells high-end    warrants, 14% interest rate.
modular space solutions.
www.vanguardmodular.com
 
Other Investments    Other    Various    -  
 379,194  
 150,663
(Includes: American Tactile, Appro,          
  BioWorks, Inc., Clearview Cable          
  And MemberWare          
  Total portfolio investments        $4,275,453   $3,957,622

See notes to condensed consolidated financial statements.

Notes to Schedule of Portfolio Investments
(a)   Unrestricted securities (indicated by ^) 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, 2002 restricted securities represented 99% of the value of the investment portfolio.
 
(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 Corporation's 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. The symbol "<1%" indicates that the Corporation holds equity interest of less than one percent.
 
(d)   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-owned 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 if such securities were 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.

*Publicly-owned Company

∆ Rand Capital SBIC, L.P. Investment

See notes to condensed consolidated financial statements.

 

Rand Capital Corporation
Notes to the Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)

1.    BASIS OF PRESENTATION

In Management's opinion, the accompanying condensed 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 accounting principles generally accepted in the United States of America, 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 nine months ended September 30, 2002 are not necessarily indicative of the results for the full year.

These statements should be read in conjunction with the financial statements and the notes included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. Information contained in this filing should also be reviewed in conjunction with Rand Capital Corporation's related filings with the Securities and Exchange Commission ("SEC") during the period of time covered by this filing. These 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, 2001
  Form 10 Q&n