Rand Capital(US:RAND)2024-03-05 12:31Management 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[45]. - The Incentive Fees consist of two parts: the Income Based Fee and the Capital Gains Fee, with the Income Based Fee calculated quarterly based on Pre-Incentive Fee Net Investment Income[46][47]. - The hurdle rate for the Income Based Fee is set at 1.75% per quarter, which annualizes to 7%[50]. - Pre-Incentive Fee Net Investment Income must exceed the hurdle rate for any Income Based Fee to be payable; if it does not, no fee is charged for that quarter[51]. - The Capital Gains Fee is calculated at the end of each calendar year and is equal to 20% of the positive difference between cumulative realized capital gains and cumulative realized capital losses[56]. - The Income Based Fee is subject to a "catch-up" provision, allowing for higher fees if Pre-Incentive Fee Net Investment Income exceeds certain thresholds[61]. - Accrued Unpaid Income Based Fees are deferred and only payable when cash is received for the related income[55]. Investment Management - The Investment Committee is responsible for managing the investment portfolio and consists of five members with significant experience in debt and equity investments[42]. - The Adviser is authorized to enter into sub-advisory agreements with other investment advisors to assist in managing investments[38]. - The Investment Committee evaluates potential investment opportunities through an initial informal review followed by detailed discussions in meetings[43]. - The Investment Management Agreement was renewed for a period of twelve months, commencing December 31, 2023, and ending December 31, 2024[68]. - The Adviser is tasked with maintaining financial records and preparing reports required by regulatory authorities, including the SEC[71]. Asset Coverage and Compliance - The asset coverage ratio as of December 31, 2023, was 474.2%, compared to 2,363.6% in 2022[79]. - The company anticipates a change in asset coverage requirements from 200% to 150%, effective January 24, 2025[78]. - As of December 31, 2023, the company was in compliance with the requirement that qualifying assets represent at least 70% of total assets[83]. - The company must distribute at least 90% of its investment company taxable income to maintain its status as a regulated investment company (RIC)[85]. - The company is subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless timely distributions are made[86]. - The asset coverage requirement for senior securities will change from 200% to 150% effective January 24, 2025, impacting distribution capabilities[102]. - The company must derive at least 90% of gross income from specific sources to maintain RIC status[93]. - The company is prohibited from making distributions while debt obligations are outstanding unless certain asset coverage tests are met[91]. - The company must maintain at least 70% of its total assets in qualifying assets to retain its status as a Business Development Company (BDC), failing which it may face regulatory consequences[116][120]. Financial Performance - Total assets increased to $81,021,982 in 2023 from $63,481,192 in 2022, representing a growth of approximately 27.7%[316]. - Total investment income rose to $7,338,163 in 2023, up 27.3% from $5,765,181 in 2022[319]. - Net investment income decreased to $2,967,733 in 2023, down 33.0% from $4,430,410 in 2022[319]. - Net realized gain on sales and dispositions of investments was $691,397 in 2023, compared to $705,493 in 2022, a slight decrease of 2.0%[319]. - Net change in unrealized appreciation on investments was $2,867,520 in 2023, recovering from a loss of $6,017,752 in 2022[322]. - Total liabilities increased significantly to $20,206,769 in 2023 from $5,759,872 in 2022, marking an increase of 250.0%[316]. - Stockholders' equity at the end of 2023 was $60,815,213, up from $57,721,320 in 2022, reflecting an increase of 3.6%[322]. - Basic and diluted net increase in net assets from operations per share was $2.53 in 2023, compared to a loss of $0.34 in 2022[320]. - The company declared dividends totaling $3,432,757 in 2023, an increase from $2,142,247 in 2022[322]. Investment Risks and Challenges - The company faces cybersecurity risks that could impair operations and negatively impact financial condition and operating results[127]. - Fluctuations in annual and quarterly results may occur due to various factors, including competition and economic conditions, making past results not indicative of future performance[128]. - The company has a limited number of portfolio companies, increasing risk if any of these companies default, which could significantly impact net asset value[130]. - Investments in small private companies may involve higher risks, including limited access to capital and potential for significant losses[134]. - Prepayments of debt investments by portfolio companies could adversely impact results of operations and reduce returns on equity[143]. - The company may have limited access to information about privately held companies, which could affect investment decisions and lead to potential losses[142]. - Unfavorable economic conditions could increase funding costs and limit access to capital markets, adversely affecting growth and earnings[126]. - If market interest rates continue to increase, the company's cost of capital under its Credit Facility is likely to also increase, potentially reducing net investment income[161]. - The company is subject to risks related to its minority shareholder status, which may limit its ability to influence portfolio companies' decisions[148]. - The company may not have the funds or ability to make follow-on investments in its portfolio companies, which could negatively impact those companies and the company's investments[149]. Portfolio Investments - The company holds 36,261 Series A Preferred shares of Caitec, with a total cost of $4,257,010 and a fair value of $3,957,010[327]. - The fair value of non-control/non-affiliate investments as of December 31, 2023, was $2,953,250 for ACV Auctions, representing 4.9% of net assets[327]. - Total investments as of December 31, 2023, amount to $57,648,332, with net realized gains of $2,574,829 and dividend/fee income of $5,358,947[341]. - The industry classification shows that Professional and Business Services account for 41.7% of total investments, followed by Manufacturing at 22.0% and Consumer Products at 13.0%[344]. - The company’s portfolio includes various types of investments, including convertible preferred shares and term notes, reflecting a diverse investment strategy[341]. - Total Control Investments accounted for 6.8% of net assets, totaling $4,148,960[337]. - The Corporation's investments are carried at fair value, with 91% classified as "Level 3" assets under ASC 820[337]. - Total net realized gains from investments amount to $420,499[339]. - The company reported a dividend income of $183,536 from its affiliate investments[339]. - The company has a diversified portfolio with significant investments in various sectors, including manufacturing and technology[352].