Rand Capital Corp: Form 10-Q for the period ended Jun 30, 2026

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”). Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for any future periods.

FORWARD LOOKING STATEMENTS

Statements included in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q that do not relate to present or historical conditions are “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with the SEC. Forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions, including statements related to our investment strategies and our intention to co-invest with certain of our affiliates; the impact of our election as a RIC for U.S. federal tax purposes on the payment of corporate level U.S. federal income taxes by Rand; statements regarding our liquidity and financial resources; statements regarding any Capital Gains Fee that may be due to RCM upon a hypothetical liquidation of our portfolio and the amount of the Capital Gains Fee that may be payable to RCM for 2026; and statements regarding our compliance with the RIC requirements as of June 30, 2026; and statements regarding future dividend payments, and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions (including their negative counterparts or other various or comparable terminology) are intended to identify forward-looking statements. Among the important factors on which such statements are based are assumptions concerning the state of the United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of our portfolio companies could be traded, liquidity within the United States financial markets, and inflation. All forward-looking statements are subject to risks and uncertainties described under the caption “Risk Factors” contained in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of the 2025 10-K.

There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement speaks only as of the date when it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

Overview

We are an externally managed non-diversified investment company that lends to and invests in lower middle market companies. Our investment objective is to generate current income and when possible, complement this current income with capital appreciation. As a result, our investments are primarily in higher yielding debt instruments. Our investment activities are managed by our investment adviser, Rand Capital Management, LLC (“RCM”).

We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, we are required to comply with certain regulatory requirements specified in the 1940 Act.

In November 2019, Rand completed a stock sale transaction (the “Closing”) with East Asset Management (“East”). The transaction consisted of a $25 million investment in Rand by East, in the form of cash and contributed portfolio assets, in exchange for approximately 8.3 million shares of Rand common stock. Concurrent with the Closing, RCM, a registered investment adviser, was retained by Rand as its external investment adviser and administrator (the Closing and the retention of RCM as our investment adviser and administrator are collectively referred to herein as the “Transaction”). The term of the new investment advisory and management agreement (the “Investment Management Agreement”) with RCM was extended after approval of its renewal by our Board of Directors (the “Board”) in October 2025 and is currently scheduled to expire on December 31, 2026. In addition, the term of the administration agreement (the “Administration Agreement”) with RCM was extended after approval of its renewal by the Board in October 2025 and is currently scheduled to expire on December 31, 2026. The Investment Management Agreement and Administration Agreement can continue for successive annual periods after December 31, 2026 provided that such continuance is specifically approved at least annually by (i) (A) the affirmative vote of a majority of the Board or (B) the affirmative vote of a majority of our outstanding voting securities, and (ii) the affirmative vote of a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), of us, RCM or our respective affiliates.

On January 24, 2024, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our asset coverage requirement under the 1940 Act for senior securities was changed from 200% to 150%, effective January 24, 2025. We monitor our compliance with this coverage ratio on a regular basis. As of June 30, 2026, our asset coverage ratio for senior securities was 1,109%. For a discussion of the risks associated with our adoption of a modified asset coverage requirement of 150%, please see the discussion of risks under the caption “Risk Factors – Risks related to our Indebtedness” contained in Part I, Item 1A of the 2025 10-K. Notwithstanding the reduction of our asset coverage requirement under the 1940 Act from 200% to 150% effective January 24, 2025, under the terms of the Credit Agreement, we are required to maintain an Asset Coverage Ratio (defined in the Credit Agreement as the ratio of the fair market value of all of the Corporation’s assets to the sum of all of the Corporation’s obligations for borrowed money plus all capital lease obligations) of not less than 300%.

Pursuant to the terms of the Investment Management Agreement, Rand pays RCM a base management fee and may pay an incentive fee, comprised of two parts: (1) the “Income Based Fee” and (2) the “Capital Gains Fee”, if specified benchmarks are met.

We elected U.S. federal tax treatment as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain our qualification as a RIC, we must, among other things, meet certain source of income and asset diversification requirements. As of June 30, 2026, we believe we were in compliance with the RIC requirements. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our shareholders as dividends. In addition, as a RIC, we must distribute annually to our shareholders at least 90% of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Accordingly, our Board has regularly declared a quarterly cash dividend since our RIC election.

Our Board declared the following dividends during the six months ended June 30, 2026:

We may co-invest, subject to the conditions included in the exemptive relief order we received from the SEC, with certain of our affiliates. See the disclosure under the caption “SEC Exemptive Order” below. We believe these types of co-investments are likely to afford us additional investment opportunities and provide an ability to achieve greater diversification in our investment portfolio.

SEC Exemptive Order

On November 14, 2025, Rand, RCM and certain of RCM’s affiliates were granted a new order for exemptive relief (the “Order”) by the SEC that superseded all prior co-investment exemptive relief orders issued to Rand and its affiliates by the SEC. The Order permits Rand to co-invest in portfolio companies with certain of RCM’s affiliates if such co-investments are done on the same terms and at the same time, as further detailed in the Order and without the need to obtain Board approval. The Order requires that a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Board make certain findings (1) in most instances when Rand co-invests with RCM’s affiliates in an issuer where RCM’s affiliates have an existing investment in the issuer, and (2) if Rand disposes of an investment acquired in a co-investment transaction unless the disposition is done on a pro rata basis. Pursuant to the Order, the Board oversees Rand’s participation in the co-investment program. As required by the Order, Rand has adopted policies and procedures reasonably designed to ensure compliance with the terms of the Order, and RCM’s and Rand’s Chief Compliance Officer will provide reporting to the Board regarding compliance with such policies and procedures.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (GAAP), which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. For a summary of all significant accounting policies, including critical accounting policies, see Note 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 1, Financial Statements, of this Form 10-Q.

The increasing complexity of the business environment and applicable authoritative accounting guidance requires us to monitor our accounting policies and procedures. We have two critical accounting policies that require the use of significant judgment. The following summary of critical accounting policies is intended to enhance a reader’s ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates.

Valuation of Investments

Our investments are carried at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.

Investments are valued at fair value as determined in good faith by RCM and approved by our Board. We generally invest in loan, debt, and equity instruments and there is no single standard for determining fair value of these investments. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio company while employing a consistent valuation process. Due to the inherent uncertainty of determining the fair value of portfolio investments, there may be material risks associated with this determination including that estimated fair values may differ from the values that would have been used had a readily available market value for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events. We analyze and value each investment quarterly and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that an underlying portfolio company has appreciated in value and, therefore, our equity securities in the underlying portfolio company have also appreciated in value. Additionally, we continue to assess any material risks associated with this fair value determination, including risks associated with material conflicts of interest.

Loan investments are defined as traditional loan financings typically with no equity features or required equity co-investment. Debt investments are defined as debt financings that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. Equity investments are direct investments into a portfolio company and may include preferred stock, common stock, warrants and limited liability company membership interests.

We utilize several approaches to determine the fair value of an investment. The main approaches are:

• Loan and debt securities are generally valued at cost when representative of the fair value of the investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. The valuation may also consider the carrying interest rate versus the related inherent portfolio risk of the investment. A loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.
• Equity securities may be valued using the:
• Cost approach - The cost approach uses estimates of the liquidation value of the portfolio company’s assets in relation to the cost of the respective security. This approach values the equity at the value remaining after the portfolio company pays off its debt and loan balances and its outstanding liabilities.
• Market approach - The market approach uses observable prices and other relevant information generated by similar market transactions. It may include both private and public M&A transactions where the traded price is a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or another relevant operating metric. It may also include the market value of comparable public companies that are trading in an active market, or the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, we adjust valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor.
• Income approach - The income approach employs valuation techniques to convert future benefits or costs, usually in the form of cash flows, into a present value amount. The measurement is based on value indicated by current market expectations about those future amounts.

ASC 820 classifies the inputs used to measure fair value into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, used in our valuation at the measurement date. Under the valuation policy, we value unrestricted publicly traded companies, categorized as Level 1 investments, at the closing price on the last trading day of the reporting period.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable and significant inputs to determining the fair value.

Financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Any changes in estimated fair value are recorded in the statement of operations.

At June 30, 2026 and December 31, 2025, all of our investments were Level 3 investments. There were no Level 1 or Level 2 investments at June 30, 2026 or December 31, 2025.

In the valuation process, we value restricted securities, categorized as Level 3 investments, using information from these portfolio companies, and, when considered appropriate, third-party valuation inputs, which may include:

• Audited and unaudited statements of operations, balance sheets and operating budgets;
• Current and projected financial, operational and technological developments of the portfolio company;
• Current and projected ability of the portfolio company to service its debt obligations;
• The current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur;
• Pending debt or capital restructuring of the portfolio company;
• Current information regarding any offers to purchase the investment, or recent financing transactions;
• Current ability of the portfolio company to raise additional financing if needed;
• Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
• Internal circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio company;
• Qualitative assessment of key management;
• Contractual rights, obligations or restrictions associated with the investment; and
• Other factors deemed relevant to assess valuation.

The valuation may be reduced if a portfolio company’s performance and potential have deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be adjusted accordingly.

Equity Securities

Equity securities may include preferred stock, common stock, warrants and limited liability company membership interests.

The significant unobservable inputs used in the fair value measurement of our equity investments are EBITDA and revenue multiples, where applicable, the financial and operational performance of the business, and the debt and senior equity preferences that may exist in a deemed liquidation event. Standard industry multiples may be used when available; however, our portfolio companies are typically privately-held, lower middle market companies, and these industry standards may be adjusted to more closely match the specific financial and operational characteristics of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.

Another key factor used in valuing equity investments is a significant recent arms-length equity transaction entered into by the portfolio company with a sophisticated, non-strategic and unrelated new investor. The terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us, and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify.

When appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation of minority equity positions in small private and early-stage companies. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.

For investments made within the last year, we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing us to depart from this basis.

Loan and Debt Securities

The significant unobservable inputs used in the fair value measurement of our loan and debt securities are the financial and operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio company’s products or services. These inputs will likely provide an indicator as to the probability of principal recovery of the investment. Our loan and debt investments are often junior secured or unsecured securities. Fair value may also be determined based on other criteria where appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing us to depart from this basis.

Revenue Recognition

Interest income is recognized on the accrual basis except where the investment is in default or where receipt of such interest is otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate.

We hold debt securities in our investment portfolio that contain payment-in-kind (“PIK”) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. For investments with PIK interest, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. Loans that are on non-accrual status remain in such status until the borrower has demonstrated the ability and intent to pay contractual amounts due or such loans become current.

We may receive cash distributions from portfolio companies that are limited liability companies or corporations, and these distributions are classified as dividend income on our consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

We may hold preferred equity securities that contain cumulative dividend provisions. Cumulative dividends are recorded as dividend income, if declared and deemed collectible, and any dividends in arrears are recognized into income and added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred security is redeemed.

Financial Condition

Overview:

Net asset value per share (NAV) was $17.33 at June 30, 2026 and $17.57 at December 31, 2025.

Cash and cash equivalents approximated 0.8% of net assets at June 30, 2026, as compared to 8.1% of net assets at December 31, 2025.

During 2022, we entered into a $25 million senior secured revolving credit facility (the “Credit Facility”) with M&T Bank, as lender (the “Lender”), with the amount that we can borrow thereunder, at any given time, determined based upon a borrowing base formula. The Credit Facility has a 5-year term with a maturity date of June 27, 2027. Our borrowings under the Credit Facility bear interest at a variable rate per annum equal to 3.50 percentage points above the greater of (i) the applicable daily simple secured overnight financing rate (SOFR) or (ii) 0.25%. At June 30, 2026, there was $5,100,000 drawn on the Credit Facility and the applicable interest rate was 7.18%. See Note 6—Senior Secured Revolving Credit Facility to the Consolidated Financial Statements in Item 1, Financial Statements, of this Form 10-Q for additional information regarding the terms of our Credit Facility.

Composition of Our Investment Portfolio

Our financial condition is dependent on the success of our portfolio holdings. The following summarizes our investment portfolio at the dates indicated:

Our total investments at fair value, as determined by RCM and approved by our Board, approximated 110% of net assets at June 30, 2026 as compared to approximately 93% of net assets at December 31, 2025.

Our investment objective is to generate current income and when possible, complement this current income with capital appreciation. As a result, we are focused on investing in higher yielding debt instruments and related equity investments in privately held, lower middle market companies with a committed and experienced management team in a broad variety of industries.

The change in investments during the six months ended June 30, 2026, at cost, is comprised of the following:

42

Results of Operations

Comparison of the three months ended June 30, 2026 to the three months ended June 30, 2025:

Investment Income

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The total investment income during the three months ended June 30, 2026 was received from 16 portfolio companies. For the three months ended June 30, 2025, total investment income was received from 14 portfolio companies.

Interest from portfolio companies – Interest from portfolio companies was approximately 23% lower during the three months ended June 30, 2026 versus the same period in 2025 due to several interest-yielding investments being placed on non-accrual status during the last year. Debt instruments in Autotality, FSS, ITA Acquisition, LLC (ITA), MRES, and Swanson were placed on non-accrual status.

We hold debt securities in our investment portfolio that contain payment-in-kind (“PIK”) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Interest can also be shifted from current cash payment to PIK as part of a loan modification. For the three months ended June 30, 2026 and 2025, 8.3% and 37.4%, respectively, of our total investment income was attributable to non-cash PIK interest income.

Interest from other investments - The decrease in interest from other investments is primarily due to lower average cash balances during the three months ended June 30, 2026 versus the same period in 2025.

Dividend and other investment income - Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLC’s profits. These portfolio companies may also elect to make additional discretionary distributions or dividends. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions. During the three months ended June 30, 2026, we recognized $141,206 in dividend income from EFINEA and $11,307 in dividend income from Carolina Skiff LLC (Carolina Skiff). No dividend income was recognized during the three months ended June 30, 2025.

Fee income - Fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of financings, income associated with portfolio company monitoring fees, and other miscellaneous fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized fees are carried on the balance sheet under the line item “Deferred revenue.”

The income associated with the amortization of financing fees was $63,152 and $51,179 for the three months ended June 30, 2026 and 2025, respectively. During the three months ended June 30, 2026, we recognized a loan modification fee of $5,000 from our debt investment in GoNoodle. No similar fees were received during the three months ended June 30, 2025.

Expenses

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The increase in total expenses during the three months ended June 30, 2026 versus the same period in 2025 was primarily due to a $1,490,000 increase in the capital gains incentive fee expense and a $47,059 increase in interest expense.

The capital gains incentive fee expense during the three months ended June 30, 2026 is due to the calculation of the capital gains fee as required by GAAP. We are required under GAAP to accrue capital gains incentive fees on the basis of net realized capital gains and losses and net unrealized gains and losses. Our capital gains incentive fee accrual reflects the capital gains incentive fees that would be payable to RCM if our entire investment portfolio was liquidated at its fair value as of the balance sheet date, even though RCM is not entitled to this capital gains incentive fee under the Investment Management Agreement with respect to unrealized gains unless and until such gains are realized. At June 30, 2026, no fee would be due based on net portfolio depreciation, and accordingly no capital gains incentive fee expense was recognized during the three months ended June 30, 2026. For the three months ended June 30, 2025, the capital gains incentive fee benefit was ($1,490,000), which represented a reversal of a previously accrued capital gains incentive fee based on the calculation as required by GAAP.

The increase in interest expense resulted from higher average outstanding debt balances during the three months ended June 30, 2026 versus the same period in 2025 under the Credit Facility. Interest expense for the three months ended June 30, 2026 and 2025 was $72,476 and $25,417, respectively.

Net Investment Income

The excess of investment income over total expenses, including income taxes, represents net investment income. The net investment income for the three months ended June 30, 2026 and 2025 was $709,661 and $2,478,234, respectively.

Realized Gain on Investments

During the three months ended June 30, 2026, we sold our warrant investment in Applied Image and recognized a realized gain of $958,948.

Change in Unrealized (Depreciation) Appreciation of Investments

The change in net unrealized (depreciation) appreciation, before income taxes, for the three months ended June 30, 2026, was comprised of the following:

In accordance with the Corporation’s valuation policy, we increased the value of our investments in Verta, EFINEA, Open Exchange, BlackJet, 4 Seasons, and Caitec during the three months ended June 30, 2026 after a financial analysis of each of the portfolio companies indicated continued improved performance.

During the three months ended June 30, 2026, the valuation of our investment in Swanson decreased as the company has ceased operations.

The change in net unrealized (depreciation) appreciation, before income taxes, for the three months ended June 30, 2025, was comprised of the following:

In accordance with the Corporation’s valuation policy, we increased the value of our investments in EFINEA, First Coast Mulch, and Mobile IV Nurses after a financial analysis of each of the portfolio companies indicating continued improved performance.

During the three months ended June 30, 2025, the valuation of our investments in Carolina Skiff, FSS, Lumious, and MRES were decreased after a review of their operations and financial condition.

The valuation of our investment in Tilson was reduced to zero after it filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, District of Delaware.

All of the valuation adjustments resulted from a determination of fair value in good faith by RCM, which was subsequently approved by our Board, using the guidance set forth by ASC 820 and our established valuation policy.

Net Increase (Decrease) in Net Assets from Operations

We account for our operations under GAAP for investment companies. The principal measure of our financial performance is “Net increase (decrease) in net assets from operations” on our consolidated statements of operations. The net increase (decrease) in net assets from operations for the three months ended June 30, 2026 and 2025 was $1,366,278 and ($7,736,154), respectively.

Comparison of the six months ended June 30, 2026 to the six months ended June 30, 2025:

Investment Income

The total investment income during the six months ended June 30, 2026 was received from 18 portfolio companies. For the six months ended June 30, 2025, total investment income was received from 17 portfolio companies.

Interest from portfolio companies – Interest from portfolio companies was approximately 26% lower during the six months ended June 30, 2026 versus the same period in 2025 due to several interest-yielding investments being placed on non-accrual status during the last year. Debt instruments in Autotality, FSS, ITA, MRES, and Swanson were placed on non-accrual status.

We hold debt securities in our investment portfolio that contain payment-in-kind (“PIK”) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Interest can also be shifted from current cash payment to PIK as part of a loan modification. For the six months ended June 30, 2026 and 2025, 13.7% and 33.9%, respectively, of our total investment income was attributable to non-cash PIK interest income.

Interest from other investments - The decrease in interest from other investments is primarily due to lower average cash balances during the six months ended June 30, 2026 versus the same period in 2025.

Dividend and other investment income - Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLC’s profits. These portfolio companies may also elect to make additional discretionary distributions and dividends. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions. During the six months ended June 30, 2026, we recognized $141,206 in dividend income from EFINEA and $11,307 in dividend income from Carolina Skiff. During the six months ended June 30, 2025, we recognized $13,125 in dividend income from Tilson.

Fee income - Fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of financings, income from portfolio company board attendance fees, income associated with portfolio company monitoring fees, and other miscellaneous fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized fees are carried on the balance sheet under the line item “Deferred revenue.”

The income associated with the amortization of financing fees was $106,441 and $138,956 for the six months ended June 30, 2026 and 2025, respectively. During the six months ended June 30, 2026, we recognized a loan modification fee of $5,000 from our debt investment in GoNoodle. During the six months ended June 30, 2025, we recognized a prepayment fee of $167,187 from our debt investment in Mattison Avenue Holdings LLC (Mattison), a loan monitoring fee of $20,000 from our debt investment in Pressure Pro, Inc. (Pressure Pro), a prepayment fee of $17,266 from our debt investment in Pressure Pro, and a loan modification fee of $15,000 from our investment in MRES.

Expenses

The increase in total expenses during the six months ended June 30, 2026 versus the same period in 2025 was primarily due to a $1,565,000 increase in the capital gains incentive fee expense. The increase was partially offset by a $119,673 decrease in the income based incentive fee expense and a $75,009 decrease in base management fee expense.

The capital gains incentive fee expense during the six months ended June 30, 2026 is due to the calculation of the capital gains fee as required by GAAP. We are required under GAAP to accrue capital gains incentive fees on the basis of net realized capital gains and losses and net unrealized gains and losses. Our capital gains incentive fee accrual reflects the capital gains incentive fees that would be payable to RCM if our entire investment portfolio was liquidated at its fair value as of the balance sheet date, even though RCM is not entitled to this capital gains incentive fee under the Investment Management Agreement with respect to unrealized gains unless and until such gains are realized. At June 30, 2026, no fee would be due based on net portfolio depreciation, and accordingly no capital gains incentive fee expense was recognized during the six months ended June 30, 2026. For the six months ended June 30, 2025, the capital gains incentive fee benefit was ($1,565,000), which represented a reversal of a previously accrued capital gains incentive fee based on the calculation as required by GAAP.

The income based incentive fee is calculated quarterly in accordance with the Investment Management Agreement. There was no income based incentive fee accrual during the six months ended June 30, 2026. The income based incentive fee accrued during the six months ended June 30, 2025 was $119,673, and was a result of Pre-Incentive Fee Net Investment Income being above the applicable hurdle rate during the applicable quarter, as set forth and described in the Investment Management Agreement. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during such calendar quarter, minus our operating expenses for such calendar quarter (including the Base Management Fee, expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding any portion of the Incentive Fee). Pre-Incentive Fee Net Investment Income includes any accretion of original issue discount, market discount, payment-in-kind interest, payment-in-kind dividends or other types of deferred or accrued income, including in connection with zero coupon securities, that we have recognized in accordance with GAAP, but have not yet received in cash (collectively, “Accrued Unpaid Income”). Pre-Incentive Fee Net

Investment Income does not include any realized capital gains, realized and unrealized capital losses or unrealized capital appreciation or depreciation.

The base management fee payable to RCM under the Investment Management Agreement is calculated based upon total assets less cash, and, as investments are exited or repaid or the fair value of our investments decline, the base management fee payable to RCM will decrease accordingly. The base management fee expense for the six months ended June 30, 2026 and 2025 was $394,848 and $469,857, respectively.

Net Investment Income

The excess of investment income over total expenses, including income taxes, represents net investment income. The net investment income for the six months ended June 30, 2026 and 2025 was $1,254,688 and $3,696,349, respectively.

Realized Gain on Investments

During the six months ended June 30, 2026, we sold our equity and warrant investments in Seybert’s and recognized a realized gain of $1,072,459. In addition, during the six months ended June 30, 2026, we recognized a realized gain of $958,948 from the sale of our warrant investment in Applied Image. We also recognized a realized gain of $3,112 from additional proceeds received from the sale of our preferred equity investment in Carolina Skiff.

During the six months ended June 30, 2025, we sold our warrant investment in Pressure Pro and recognized a realized gain of $870,000. In addition, during the six months ended June 30, 2025, we recognized a gain of $55,357 from additional proceeds received from Microcision LLC (Microcision), an investment we exited in 2022. We also recognized a realized loss of ($25) on GoNoodle when the Series C warrant expired without exercise.

Change in Unrealized (Depreciation) Appreciation of Investments

The change in net unrealized (depreciation) appreciation, before income taxes, for the six months ended June 30, 2026, was comprised of the following:

We exited our investment in Seybert’s during the six months ended June 30, 2026.

In accordance with the Corporation’s valuation policy, we increased the value of our investments in Verta, All About People, EFINEA, Open Exchange, Bauer, 4 Seasons, and Caitec after a financial analysis of each of the portfolio companies indicating continued improved performance.

During the six months ended June 30, 2026, the valuation of our investments in MRES and Autotality were decreased after a review of their operations and financial condition. The valuation of our investment in Swanson decreased as the company has ceased operations.

The change in net unrealized appreciation (depreciation), before income taxes, for the six months ended June 30, 2025, was comprised of the following:

We sold our warrant investment in Pressure Pro during the six months ended June 30, 2025.

In accordance with the Corporation’s valuation policy, we increased the value of our investments in EFINEA, First Coast Mulch, Mobile IV Nurses, and Seybert’s after a financial analysis of each of the portfolio companies indicating continued improved performance.

During the six months ended June 30, 2025, the valuation of our investments in Carolina Skiff, FSS, ITA, Lumious, and MRES were decreased after a review of their operations and financial condition.

The valuation of our investment in Tilson was reduced to zero after it filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, District of Delaware.

All of the valuation adjustments resulted from a determination of fair value in good faith by RCM, which was subsequently approved by our Board, using the guidance set forth by ASC 820 and our established valuation policy.

Net Increase (Decrease) in Net Assets from Operations

We account for our operations under GAAP for investment companies. The principal measure of our financial performance is “Net increase (decrease) in net assets from operations” on our consolidated statements of operations. The net increase (decrease) in net assets from operations for the six months ended June 30, 2026 and 2025 was $998,809 and ($6,894,707), respectively.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet anticipated cash requirements, fund new and follow-on portfolio investments, pay distributions to our shareholders and respond to other general business demands. As of June 30, 2026, our total liquidity consisted of approximately $430,000 in cash and approximately $12,400,000 of unused availability on our Credit Facility.

During 2022, we entered into a $25 million Credit Facility. The amount we can borrow, at any given time, under the Credit Facility is tied to a borrowing base, which is measured as (i) 75% of the aggregate sum of the fair market values of the publicly traded equity securities we hold (other than shares of ACV Auctions, if any) plus (ii) the least of (a) 75% of the fair market value of the shares of ACV Auctions we hold, if any, (b) $6.25 million and (c) 25% of the aggregate borrowing base availability for the Credit Facility at any date of determination plus (iii) 50% of the aggregate sum of the fair market values of eligible private loans we hold that meet specified criteria plus (iv) the lesser of (a) 50% of the aggregate sum of the fair market values of unsecured private loans we hold that meet specified criteria and (b) $1.25 million minus (v) such reserves as the Lender may establish from time to time in its sole discretion. The Credit Facility has a maturity date of June 27, 2027. The outstanding balance drawn on the Credit Facility at June 30, 2026 was $5,100,000. Under the borrowing base formula described above, the unused line of credit balance for the Credit Facility was approximately $12,400,000 at June 30, 2026.

Our borrowings under the Credit Facility bear interest at a variable rate determined as a rate per annum equal to 3.50 percentage points above the greater of (i) the applicable daily simple secured overnight financing rate (SOFR) or (ii) 0.25%. At June 30, 2026, our applicable interest rate was 7.18%.

The Credit Agreement contains representations and warranties and affirmative, negative and financial covenants usual and customary for agreements of this type, including among others covenants that prohibit, subject to certain specified exceptions, our ability to merge or consolidate with other companies, sell any material part of our assets, incur other indebtedness, incur liens on our assets, make investments or loans to third parties other than permitted investments and permitted loans, and declare any distribution or dividend other than certain permitted distributions. The Credit Agreement includes the following financial covenants: (i) a tangible net worth covenant that requires us to maintain a Tangible Net Worth (defined in the Credit Agreement as our aggregate assets, excluding intangible assets, less all of our liabilities) of not less than $50.0 million, which is measured quarterly at the end of each fiscal quarter, (ii) an asset coverage ratio covenant that requires us to maintain an Asset Coverage Ratio (defined in the Credit Agreement as the ratio of the fair market value of all of our assets to the sum of all of our obligations for borrowed money plus all capital lease obligations) of not less than 3:1, which is measured quarterly at the end of each fiscal quarter and (iii) an interest coverage ratio covenant that requires us to maintain an Interest Coverage Ratio (defined in the Credit Agreement as the ratio of Cash Flow (as defined in the Credit Agreement) to Interest Expense (as defined in the Credit Agreement)) of not less than 2.5:1, which is measured quarterly on a trailing twelve-months basis. We were in compliance with these covenants at June 30, 2026. See Note 6—Senior Secured Revolving Credit Facility to the Consolidated Financial Statements in Item 1, Financial Statements, of this Form 10-Q for additional information regarding the terms of our Credit Facility.

For the six months ended June 30, 2026, we experienced a net decrease in cash of approximately $3,779,000, which is a net effect of approximately $7,157,000 of net cash used in our operating activities and approximately $3,378,000 of net cash provided by our financing activities.

The $7,157,000 of net cash used in our operating activities during the six months ended June 30, 2026 resulted primarily from approximately $12,028,000 used to fund new or follow-on portfolio company investments, approximately $360,000 in non-cash interest income, and an approximately $237,000 net increase in operating assets. This was partially offset by net investment income of approximately $1,255,000, approximately $4,029,000 received from the sales of equity investments and repayments of debt investments, and an approximately $89,000 net increase in operating liabilities.

Net cash provided by financing activities during the six months ended June 30, 2026 was approximately $3,378,000. This is comprised of $5,100,000 borrowed on the Credit Facility and approximately $1,722,000 in cash dividends paid to shareholders.

We anticipate that we will continue to fund our investment activities through cash generated through our ongoing operating activities and through borrowings under the $25 million Credit Facility. The Credit Facility is scheduled to mature on June 27, 2027, and our liquidity could be adversely impacted if we are unable to extend the maturity of the Credit Facility, obtain alternate financing, or repay the Credit Facility using cash generated through our operating activities. We anticipate that we will continue to exit investments. However, the timing of liquidation events with respect to our privately held investments is difficult to project.

We are subject to financial market risks primarily consisting of risks resulting from changes in interest rates and the valuation of our investment portfolio.

Interest Rate Risk

Changes in interest rates may affect our interest expense on the debt outstanding under our Credit Facility. Our debt borrowings under the Credit Facility bear interest at a variable rate determined as a rate per annum equal to 3.50 percentage points above the greater of (i) the applicable daily simple secured overnight financing rate (SOFR) and (ii) 0.25%. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. As of June 30, 2026, all of our debt investments that are not on non-accrual status had fixed interest rates and were not directly impacted by changes in market interest rates.

Based on our Consolidated Statement of Financial Position as of June 30, 2026, the following table shows the approximate annualized increase (decrease) in net investment income due to hypothetical base rate changes in interest rates under our Credit Facility, assuming no changes in our borrowings as of June 30, 2026. Because we often borrow money to make investments, our net investment income is dependent upon the difference between our borrowing rate and the rate we earn on the invested proceeds borrowed. In periods of rising interest rates, the rate we earn on our debt investments with fixed interest rates will remain the same, while the interest incurred on our borrowings under the Credit Facility will increase.

Although we believe that this analysis is indicative of our existing interest rate sensitivity under our Credit Facility at June 30, 2026, it does not adjust for changes in the credit quality, size and composition of our investment portfolio, and other business developments, including increased borrowings under our Credit Facility, that could affect our net investment income. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our borrowed funds.

Valuation Risk

We carry our investments at fair value in accordance with FASB Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures”, as determined in good faith by RCM and approved by our Board. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio company investment while employing a consistent valuation process. Due to the inherent uncertainty of determining the fair value of portfolio investments, there are material risks associated with this determination including that estimated fair values may differ from the values that would have been used had a readily available market value for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the value realized on these investments to be different than the valuations that are assigned. The types of factors that we may take into account in valuation of our investments include, as relevant, third party valuations, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly-traded securities, recent sales of or offers to buy comparable companies, and other relevant factors.

Disclosure Controls and Procedures. The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that this information is accumulated and communicated to management, including the Chief Executive Officer (the Corporation’s principal executive officer) and the Chief Financial Officer (the Corporation’s principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of June 30, 2026. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s controls and procedures were not effective as of June 30, 2026 as a result of material weakness in the controls related to the accounting for income taxes and related disclosures discussed in the 2025 10-K.

As previously disclosed under the caption “Controls and Procedures” contained in Part II, Item 9A of the 2025 10-K, management commenced the following remediation actions relating to this material weakness:

• Engaging a new third-party tax advisory firm with enhanced technical resources and review procedures.
• Implementing additional management review controls over the income tax provision, including documented review procedures.
• Enhancing internal documentation supporting the completeness and accuracy of data used in tax calculations.

The Chief Executive Officer and Chief Financial Officer believe these measures will remediate the identified material weakness; however, the material weakness will not be considered remediated until the enhanced controls have been implemented and have operated effectively for a sufficient period of time to enable management to conclude, through testing, that the controls are operating effectively.

Changes in Internal Control over Financial Reporting. Except for the material weakness and remediation efforts described above, there have been no changes in our internal control over financial reporting during the Corporation’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II.

OTHER INFORMATION

See the information provided under the heading “Risk Factors” in Part I, Item 1A of the 2025 10-K. There have been no material changes from the risk factors as previously disclosed in the 2025 10-K.