Rand Capital Invests $2.0 Million During Third Quarter of 2016

BUFFALO, NY -- (Marketwired) -- 11/02/16 --

  • Added two new technology companies to portfolio
  • Provided follow-on capital to support growth of four existing portfolio companies
  • Strong cash position with $11.7 million at quarter end; building investment income remains priority
  • Net Asset Value per share was $5.20 at September 30

Rand Capital Corporation (NASDAQ: RAND) ("Rand"), a venture capital company whose focus is primarily to make equity investments in companies with emerging product, service or technology concepts, announced its results for the quarter ended September 30, 2016.

Allen F. ("Pete") Grum, President and Chief Executive Officer of Rand Capital, commented, "Our growth strategy is centered on building value in our portfolio. To that end, we made solid progress during the quarter by putting more of our cash to work. We expanded our portfolio with two new investments, both of which are technology-oriented companies located in Western New York. PostProcess Technologies provides automated and intelligent post-processing solutions for 3D printed parts. ACV Auctions offers a unique user application for the used-car dealer industry. We also provided additional capital to four portfolio companies that are successfully advancing their growth strategies."

He noted, "While we are always focused on long-term capital appreciation, our current investment priority is to fund debt instruments or dividend-paying companies to build investment income in support of our operating expenses. Approximately 60% of our third quarter investments were in the form of debt instruments."

Third Quarter Highlights

  • Reported $5.20 net asset value (NAV) per share at September 30, 2016, down $0.01 per share from September 30, 2015, due to unrealized depreciation on certain investments and lower net investment income
  • Invested $300,000 in PostProcess Technologies LLC and $163,000 in ACV Auctions, Inc. during the quarter, new additions to the Rand portfolio
  • Supported existing portfolio companies with approximately $1.5 million of capital during the quarter:
    • GENICON, Inc. $600,000
    • Intrinsiq Materials, Inc. $421,546
    • Tilson Technology Management, Inc. $400,000
    • SciAps, Inc. $100,000
  • In line with goal to grow investment income in the near term, year-to-date 2016 investments are expected to generate in excess of $400,000 in annualized interest income
  • Portfolio fair value of $27.6 million and cash of $11.7 million at the end of the 2016 third quarter

Dividend and other investment income was down approximately $455,000 in the third quarter of 2016, compared with the 2015 third quarter. Consistent with the second quarter comparison, the decline was primarily the result of the 2016 first quarter sale of Gemcor, a large dividend and interest generating asset. Additionally, operating expenses in the current quarter were up approximately $90,000 compared with last year's third quarter, primarily due to higher professional fees related to the evaluation of strategic options. Finally, net realized and unrealized losses were approximately $510,000 higher than those in last year's third quarter, resulting from the Company's review and adjustment to the market value of certain investments in its portfolio.

Selected portfolio highlights:

  • GENICON, Inc. (http://geniconendo.com/) is recognized as an emerging leader in the design, production and distribution of patented surgical instrumentation focused exclusively on laparoscopic, or minimally invasive, surgery. Value obtained through cutting edge design and focus "by surgeons, for surgeons" is believed to be what differentiates GENICON from others in the industry. Rand provided a $0.6 million term loan in the third quarter, supporting the company's product development and global growth initiatives. This is the fourth follow-on since the initial investment in April 2015, and brings Rand's total investment in GENICON to approximately $2.7 million at September 30, 2016.
  • Rhēonix, Inc. (http://rheonix.com/) develops fully automated microfluidic-based molecular assays. Rhēonix has developed the Encompass Optimum™ platform, a highly customizable technology believed to have unmatched versatility and affordability for use in research laboratories. The platform performs fully automated, complex molecular assays in an easy-to-use and economical format on the Rhēonix CARD® cartridge. Recent business advancements include expansion in food and beverage testing with the introduction of a unique workstation specific to the industry and also the launch of revolutionary technology for rapid detection of beer spoilers. As of September 30, 2016, Rhēonix was Rand's highest valued investment at approximately $2.9 million, consisting of common and preferred shares. Its initial investment was made in October 2009.
  • ACV Auctions, Inc. (https://www.acvauctions.com/), a new investment this quarter, is an advanced mobile platform that enables used car dealers to view, bid and purchase car inventory via online auctions. These auctions are conducted from franchise dealer lots and last just 20 minutes, saving dealers time and money. The company recently raised $5 million in venture funding, of which Rand invested $163,000 for preferred shares.

Mr. Grum stated, "Several of our portfolio companies are maturing well and we believe could reach an exit stage over the next two to five years. These include Rhēonix, SciAps, Outmatch, SocialFlow, Microcision and Genicon. With successful exits and strong returns on our invested capital, we expect that net asset value can grow at, or above, the 10% compound annual growth rate that we achieved over the last five years."

As of September 30, 2016, Rand's portfolio consisted of 33 businesses. At the end of the third quarter, the portfolio was comprised of approximately 64% in equity investments and 36% in debt investments, compared with 82% in equity investments and 18% in debt investments at the same time last year.

Capital Allocation Emphasis and Growth Strategy

Rand's priority for allocating capital continues to be investment in its portfolio. The Board of Directors has also authorized a share repurchase program, under which the Company purchased approximately 6,550 shares during the third quarter of 2016. Approximately 459,000 shares remain authorized for repurchase under the program, which was recently extended by the Board through October 19, 2017. Rand will opportunistically use its capital to repurchase shares as a means of returning capital to shareholders.

Rand's growth strategy is to increase net asset value by capitalizing on maturing investments and leveraging those returns for further investment. Rand invests in companies at various stages of maturity with new or unique products or services that offer competitive advantages and compelling future potential.

Rand Capital (NASDAQ: RAND) provides investors the ability to participate in venture capital opportunities through an investment in the Company's stock. Rand is a Business Development Company (BDC), and its wholly-owned subsidiary is licensed by the U.S. Small Business Administration (SBA) as a Small Business Investment Company (SBIC). Rand focuses its equity investments in early or expansion stage companies and generally lends to more mature companies. Rand looks for strong leadership who is bringing to market new or unique products, technologies or services that have a high potential for growth. Additional information can be found at the Company's website where it regularly posts information: www.randcapital.com.

Safe Harbor Statement
This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future net asset value growth, investment returns and opportunities as well as Rand's plans for utilizing proceeds from sales of portfolio companies when and if received. These statements involve known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the portfolio companies' markets, competitor responses, and market acceptance of their products and services and other factors disclosed in the Corporation's periodic reports filed with the Securities and Exchange Commission. Consequently, such forward looking statements should be regarded as the Corporation's current plans, estimates and beliefs. The Corporation assumes no obligation to update the forward-looking information contained in this release.

Rand Capital Corporation and Subsidiary
Consolidated Statements of Financial Position
    September 30,        
    2016     December 31,  
    (Unaudited)     2015  
  Investments at fair value:                
    Control investments (cost of $99,500 and $1,141,472, respectively)   $ 99,500     $ 13,916,472  
    Affiliate investments (cost of $18,239,623 and $17,663,217, respectively)     13,688,814       14,662,219  
    Non-Control/Non-affiliate investments (cost of $13,936,867 and $8,606,053, respectively).     13,789,967       8,253,709  
  Total investments, at fair value (cost of $32,275,990 and $27,410,742, respectively     27,578,281       36,832,400  
  Cash     11,708,164       5,844,795  
  Interest receivable (net of allowance: $122,000 at 9/30/16 and 12/31/15)     312,523       215,224  
  Deferred tax asset     1,087,252       -  
  Prepaid income taxes     -       65,228  
  Other assets     2,607,195       1,604,413  
      Total assets   $ 43,293,415     $ 44,562,060  
  Debentures guaranteed by the SBA (net of debt issuance costs)   $ 7,820,923     $ 7,800,373  
  Income tax payable     826,983       -  
  Deferred tax liability     -       2,361,186  
  Profit sharing and bonus payable     1,593,659       282,000  
  Accounts payable and accrued expenses     153,233       238,911  
  Deferred revenue     53,483       25,930  
      Total liabilities     10,448,281       10,708,400  
  Stockholders' equity (net assets):                
  Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034;                
  shares outstanding of 6,321,988 as of 9/30/16 and 6,328,538 as of 12/31/15     686,304       686,304  
  Capital in excess of par value     10,581,789       10,581,789  
  Accumulated net investment loss     (1,375,832 )     (24,580 )
  Undistributed net realized gain on investments     27,515,011       18,262,401  
  Net unrealized (depreciation) appreciation on investments     (3,093,033 )     5,795,237  
  Treasury stock, at cost; 541,046 shares as of 9/30/16 and 534,496 as of 12/31/15     (1,469,105 )     (1,447,491 )
      Total stockholders' equity (net assets) (per share 9/30/16: $5.20, 12/31/15: $5.35)     32,845,134       33,853,660  
      Total liabilities and stockholders' equity   $ 43,293,415     $ 44,562,060  
Rand Capital Corporation and Subsidiary
Consolidated Statements of Operations
    For the Quarter Ended
September 30,
    For the Nine Months Ended September 30,  
    2016     2015     2016     2015  
Investment income:                                
  Interest from portfolio companies:                                
  Control investments   $ -     $ 18,336     $ 11,828     $ 60,756  
  Affiliate investments     113,643       100,678       273,218       312,329  
  Non-Control/Non-Affiliate investments     110,395       61,312       240,027       176,534  
    Total interest from portfolio companies     224,038       180,326       525,073       549,619  
  Interest from other investments:                                
    Non-Control/Non-Affiliate investments     11,974       3,529       33,683       18,719  
      Total interest from other investments     11,974       3,529       33,683       18,719  
  Dividend and other investment income:                                
    Control investments     -       460,947       -       1,364,306  
    Affiliate investments     69,010       65,810       149,807       124,239  
    Non-Control/Non-Affiliate investments     3,011       -       3,011       -  
      Total dividend and other investment income     72,021       526,757       152,818       1,488,545  
  Fee income:                                
    Control investments     -       2,000       2,000       6,000  
    Affiliate investments     2,083       1,417       3,945       3,250  
    Non-Control/Non-Affiliate investments     5,770       4,250       13,004       12,417  
      Total fee income     7,853       7,667       18,949       21,667  
Total investment income     315,886       718,279       730,523       2,078,550  
Operating expenses:                                
  Salaries     155,437       149,555       466,312       448,665  
  Bonus and profit sharing     -       -       1,411,659       -  
  Employee benefits     38,730       27,745       164,952       87,546  
  Directors' fees     47,380       37,950       142,135       89,000  
  Professional fees     86,938       33,702       237,986       127,204  
  Stockholders and office operating     50,846       41,716       174,882       156,830  
  Insurance     8,358       8,400       25,876       25,954  
  Corporate development     17,794       16,982       49,319       48,363  
  Other operating     3,495       3,099       9,470       8,973  
        408,978       319,149       2,682,591       992,535  
  Interest on SBA obligations     77,570       77,569       232,709       229,460  
  Total operating expenses     486,548       396,718       2,915,300       1,221,995  
Net investment (loss) income before income taxes     (170,662 )     321,561       (2,184,777 )     856,555  
  Income tax (benefit) expense     (55,934 )     88,298       (833,525 )     262,285  
Net investment (loss) income     (114,728 )     233,263       (1,351,252 )     594,270  
Net realized gain on investments:                                
  Control investments     1,412,500       -       14,588,813       -  
  Non-Control/Non-Affiliate investments     -       -       168,140       262,925  
  Net realized gain before income taxes     1,412,500       -       14,756,953       262,925  
  Income tax expense     526,862       -       5,504,343       89,742  
  Net realized gain on investments     885,638       -       9,252,610       173,183  
Net change in unrealized depreciation or appreciation on investments:                                
  Control investments     (1,412,500 )     -       (12,775,000 )     -  
  Affiliate investments     (666,011 )     (250,000 )     (1,413,811 )     (443,436 )
  Non-Control/Non-Affiliate investments     -       321,300       69,444       193,572  
  Change in unrealized depreciation or appreciation before income taxes     (2,078,511 )     71,300       (14,119,367 )     (249,864 )
  Deferred income tax (benefit) expense     (736,301 )     18,066       (5,231,097 )     (91,552 )
  Net (decrease) increase in unrealized depreciation or appreciation on investments     (1,342,210 )     53,234       (8,888,270 )     (158,312 )
Net realized and unrealized (loss) gain on investments     (456,572 )     53,234       364,340       14,871  
Net (decrease) increase in net assets from operations   $ (571,300 )   $ 286,497     $ (986,912 )   $ 609,141  
Weighted average shares outstanding     6,325,299       6,328,538       6,327,074       6,328,538  
Basic and diluted net (decrease) increase in net assets from operations, per share   $ (0.09 )   $ 0.05     $ (0.16 )   $ 0.10  


Allen F. ("Pete") Grum
President and CEO
Phone: 716.853.0802
Email: pgrum@randcapital.com

Deborah K. Pawlowski / Karen L. Howard
Kei Advisors LLC
Phone: 716.843.3908 / 716.843.3942
Email: dpawlowski@keiadvisors.com / khoward@keiadvisors.com

Source: Rand Capital Corporation