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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

 

¨ 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: 814-00235

Rand Capital Corporation

(Exact name of registrant as specified in its charter)

 

New York   16-0961359

(State or Other Jurisdiction of

Incorporation or organization)

  (IRS Employer Identification No.)
2200 Rand Building, Buffalo, NY   14203
(Address of Principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (716) 853-0802

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Exchange on Which Registered

Common Stock, $0.10 par value   NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act.    Yes  ¨        No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨        No  þ

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 of 1934 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  þ        No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨        No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

 

Large accelerated filer  ¨   Accelerated filer  ¨   Non-accelerated filer  þ    Smaller reporting company  ¨
  (Do not check if a smaller reporting company)   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨        No  þ

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant as of June 30, 2015 was approximately $22,348,173 based upon the closing price as reported on the NASDAQ Capital Market on such date.

As of March 4, 2016, there were 6,328,538 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Corporation’s definitive proxy statement for the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.


Table of Contents

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-K

 

PART I

  

Item 1.

  Business     1   

Item 1A.

  Risk Factors     5   

Item 1B.

  Unresolved Staff Comments     7   

Item 2.

  Properties     7   

Item 3.

  Legal Proceedings     7   

Item 4.

  Mine Safety Disclosures     7   

PART II

  

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     8   

Item 6.

  Selected Financial Data     10   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations     10   

Item 7A.

  Quantitative and Qualitative Disclosures about Market Risk     28   

Item 8.

  Financial Statements and Supplementary Data     29   

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     68   

Item 9A.

  Controls and Procedures     68   

Item 9B.

  Other Information     68   

PART III

  

Item 10.

  Directors, Executive Officers and Corporate Governance     68   

Item 11.

  Executive Compensation     69   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     69   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence     69   

Item 14.

  Principal Accountant Fees and Services     69   

PART IV

  

Item 15.

  Exhibits and Financial Statement Schedules     69   


Table of Contents

PART I

Item 1.    Business

Overview of Our Business

Rand Capital Corporation (“Rand”, “we”, “us” and “our”) was incorporated under the laws of New York in February 1969. Throughout our history, our principal business has been to make venture capital investments in early or expansion stage companies, typically in New York and its surrounding states. We are now seeking investments in a broader geographic area, in accordance with our strategic growth plan. We look for companies with strong leadership that are bringing to market new or unique products, technologies or services and have a high potential for growth. We invest in a mixture of debt and equity instruments, with a focus on equity investments to drive capital appreciation. The debt securities typically have an equity component in the form of warrants or options to acquire stock or the right to convert the debt securities into stock. Our wholly-owned subsidiary, Rand Capital SBIC, Inc. (Rand SBIC) has been our primary investment vehicle since its formation and we expect to continue this practice.

Our Investment Objectives and Strategy

Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to partially offset expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest.

Typically, our investment strategy is to partner with other investors and invest in small companies that either have a new product, service or technology they are trying to commercialize or are working to accelerate their rate of growth. We define small companies as businesses that may not yet be generating revenue up to companies with $20 million in revenue.

We have historically made initial investments of $500,000 to $1,000,000 directly in a company through equity or in debt or loan instruments and frequently provide follow-on investments during our investment tenure. We are now considering larger cumulative investments to drive our growth, within the U.S. Small Business Administration (“SBA”) regulations that limit our total investment in one company to $3.0 million. The debt instruments generally have a maturity of not more than five years and usually are convertible or have detachable equity warrants. Interest is either paid currently or deferred. We fund new investments and operating expenses through existing cash balances, proceeds from investment exits, and interest and principal payments from our portfolio companies.

Our Investment Process

Our primary business is making subordinated debt and equity investments in small and medium-sized companies that meet some or all of the following criteria:

1) a qualified and experienced management team;

2) a new or unique product or service; and

3) high potential for growth in revenue and cash flow;

Our management team identifies investment opportunities through a network of investment referral relationships. Investment proposals may come to us from other sources, including unsolicited proposals from companies and referrals from banks, lawyers, accountants and other members of the financial community. We believe that our reputation in the investment community and our experience provide a competitive advantage in originating qualified new investments.

In a typical private financing, our management team will review, analyze, and confirm, through due diligence, the business plan and operations of the potential portfolio company. Additionally, we will familiarize

 

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ourselves with the portfolio company’s industry and competition and may conduct reference checks with its customers and suppliers.

Following our initial investment, we may make follow-on investments in the portfolio company. Follow-on investments may be made to take advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio company, or provide an additional investment to allow a portfolio company to fully implement its business plans, develop a new line of business or recover from unexpected business problems. Follow-on investments in a portfolio company are evaluated individually and may be subject to regulatory restrictions.

Disposition of Investments

We may exit investments through the maturation of a debt security or when a liquidity event takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return. We generally expect to dispose of our equity securities through private sales of securities to other investors or through an outright sale or merger of the company. We anticipate our debt investments will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment.

Current Portfolio Companies

For a description of our current portfolio company investments, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Composition of the Investment Portfolio.”

Competition

We compete for investments with other venture capital firms, individual investors, business development companies, and investment funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks. We believe we are able to compete with these entities primarily on the basis of our referral network, management’s experience, our responsive, quick and efficient investment analysis and decision-making process, the investment terms we offer, and our willingness to make smaller investments.

For information concerning the competitive risks we face, see “Item 1A. Risk Factors.”

Employees

As of December 31, 2015, we had four employees, unchanged from 2014.

Organization and History

We completed our initial public offering in 1971 as an internally managed, closed-end, diversified, management investment company. We elected to be treated 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. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets” and provide managerial assistance to the portfolio companies in which we invest. See Item 1. Business — Regulation, Regulation as a Business Development Company.

We make the majority of our venture capital investments through Rand SBIC, which operates as a small business investment company (“SBIC”) and has been licensed by the SBA since 2002. Rand SBIC’s predecessor was organized as a Delaware limited partnership and was converted into a New York corporation in 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. In 2012, the SEC granted an Order of Exemption for Rand with respect to the operations of Rand SBIC and Rand SBIC then filed an election to be regulated as a BDC under the 1940 Act. Rand SBIC’s board of directors is comprised of the directors of Rand, a majority of whom are not “interested persons” of Rand or Rand SBIC.

 

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We operate as an internally managed investment company whereby our officers and employees conduct our business under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.

In this Annual Report on Form 10-K, or Annual Report, unless the context otherwise requires, “we”, the “Corporation”, “us”, and “our” refer to Rand Corporation and Rand Capital SBIC, Inc.

Our corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available free of charge on our website our annual and periodic reports, proxy statements and other information as soon as reasonably practicable after such material is filed with the Securities and Exchange Commission (“SEC”). Our shares are traded on the NASDAQ Capital Market under the ticker symbol “RAND”.

Regulation

The following discussion is a general summary of the material prohibitions and descriptions governing BDCs and SBA- licensed SBICs. It does not purport to be a complete description of all of the laws and regulations affecting BDCs and SBICs.

Regulation as a Business Development Company

We have elected to be regulated as a BDC under the 1940 Act. Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDCs. Among other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by a vote of the holders of a majority of its outstanding voting securities. BDCs are not required to maintain fundamental investment policies relating to diversification and concentration of investments within a single industry. More specifically, in order to qualify as a BDC, a company must:

(1) be a domestic company;

(2) have registered a class of its equity securities or have filed a registration statement with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”);

(3) operate for the purpose of investing in the securities of certain types of companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress. Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such companies are termed “eligible portfolio companies;”

(4) extend significant managerial assistance to such portfolio companies; and

(5) have a majority of “disinterested” directors (as defined in the 1940 Act).

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The 1940 Act prohibits business development companies from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies.

An eligible portfolio company is, generally, a private domestic operating company, or a public domestic operating company whose securities are not listed on a national securities exchange. In addition, any small business investment company that is licensed by the SBA and is a wholly owned subsidiary of a BDC is an eligible portfolio company.

 

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Qualifying assets include:

(1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities;

(2) securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies;

(3) securities received in exchange for or distributed on or with respect to any of the foregoing; and

(4) cash items, government securities and high-quality short-term debt.

The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets.

A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment. At December 31, 2015, we were in compliance with this rule.

Managerial Assistance to Portfolio Companies

In order to count portfolio securities as qualifying assets for the purpose of the 70% test discussed above, a BDC must either control the issuer of the securities or must offer to make available significant managerial assistance; except that, where the BDC purchases the securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.

Small Business Investment Company Regulations

SBA Lending Restrictions

SBICs are designed to stimulate the flow of private debt and/or equity capital to small businesses. The types and dollar amounts of the loans and other investments we may make are limited by the 1940 Act, the Small Business Act (the “SBA Act”) and SBA regulations. Rand SBIC uses funds borrowed from the SBA, that can be combined with our own capital, to provide loans to, and make equity investments in, businesses that meet the following criteria:

(a) have a tangible net worth not in excess of $18 million and average net income after U.S. federal income taxes for the preceding two completed fiscal years not in excess of $6 million, or

(b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which the businesses are primarily engaged.

In addition, at the end of each fiscal year, an SBIC must have at least 20% (in total dollars) invested in “smaller enterprises.” The SBA defines “smaller enterprises” as businesses that:

(a) do not have a net worth in excess of $6 million and have average net income after U.S. federal income taxes for the preceding two years no greater than $2 million, or

(b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which the concerns are primarily engaged.

 

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We have complied with this requirement since the inception of Rand SBIC.

The Rand SBIC subsidiary is subject to regulation and oversight by the SBA. Receipt of an SBIC license does not assure that Rand SBIC will receive future SBA guaranteed debenture funding, which is dependent upon it continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to Rand SBIC’s assets over our shareholders in the event we liquidate Rand SBIC or the SBA exercises its remedies under the SBA-guaranteed debentures issued by Rand SBIC upon an event of default.

Rand SBIC may invest directly in the equity of portfolio companies, but may not become a general partner of a non-incorporated entity or otherwise become jointly or severally liable for the general obligations of a non-incorporated entity. Rand SBIC may acquire options or warrants in portfolio companies, and the options or warrants may have redemption provisions, subject to certain restrictions. Pursuant to SBA regulations, the maximum cash which may be invested in any one portfolio company by Rand SBIC is currently $3.0 million.

SBA Leverage

The SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold to purchasers of the government guaranteed securities. The amount of funds that the SBA may lend to SBICs is determined by annual Congressional appropriations.

SBA debentures are issued with ten year maturities. Interest only is payable semi-annually until maturity. All of our outstanding SBA debentures may be prepaid without penalty. To reserve the approved SBA debenture leverage we paid an upfront 1% commitment fee to the SBA as a partial prepayment of the SBA’s nonrefundable 3% leverage fee. These fees are expensed over the life of the corresponding SBA debenture instruments.

At December 31, 2015, we had $8,000,000 in outstanding SBA debenture instruments.

Item 1A.    Risk Factors

Economic downturns or recessions may adversely affect our portfolio companies’ financial performance and therefore harm our operating results

The United States economy has periodically experienced periods of instability and recessions and the financial results of the small to medium-sized companies in which we invest could be negatively affected by this instability and suffer deterioration in their financial results. This deterioration may have a negative effect on our financial performance.

Investing in our shares may be inappropriate for an investor’s risk tolerance

Our venture capital investments, in accordance with our investment objective and principal strategies, result in a greater than average amount of risk and volatility and may result in loss of principal. Our investments in portfolio companies are highly speculative and aggressive and, therefore, an investment in our shares may not be suitable for investors for whom such risk is inappropriate. Neither our investments nor an investment in our shares constitutes a balanced investment program.

We are subject to risks created by the valuation of our portfolio investments

At December 31, 2015, 100% of our investments are in private securities that are not publicly traded. There is typically no public market for securities of the small privately held companies in which we invest. Investments are valued in accordance with our established valuation policy and are stated at fair value as determined in good faith by management and approved by our Board of Directors. In the absence of a readily ascertainable market value, the estimated value of our portfolio of securities may differ significantly, favorably or unfavorably, from the values that would be placed on the portfolio if a ready market for the securities existed. Any changes in estimated value are recorded in the consolidated statement of operations as “Net increase (decrease) in unrealized appreciation on investments.”

 

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The lack of liquidity in our investments may adversely affect our business

We invest, and will continue to invest, in portfolio companies that are not publicly traded, and whose securities are subject to restrictions on resale and will be less liquid than publicly traded securities. Most of our investments are or will be either equity securities or subordinated debt securities acquired directly from small, private companies. The illiquidity of most of our portfolio may adversely affect our ability to dispose of the securities at times when it may be advantageous for us to liquidate investments. In addition, we may not realize the full value of these private investments if we have to liquidate all or a part of our portfolio quickly.

Investing in private companies involves a high degree of risk

We typically invest a substantial portion of our assets in small and medium sized private companies. These private businesses may be thinly capitalized, unproven companies with risky technologies, may lack management depth, and may not have attained profitability. Because of the speculative nature and the lack of a public market for these investments, there is significantly greater risk of loss than is the case with securities traded on a public exchange. We expect that some of our venture capital investments will become worthless and that some will appear likely to become successful but will never realize their potential. We have been risk seeking rather than risk averse in our approach to venture capital and other investments.

Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing efforts of the portfolio companies may not be successful.

We typically are minority shareholders in companies

We typically invest as a minority shareholder in our portfolio companies. As a minority shareholder we are unable to require the company to seek or entertain liquidity events as a way to exit our investments. This may cause us to hold investments longer than planned or to seek a sale that may not reflect the full value of our investment.

We are subject to risks created by our regulated environment

We are regulated by the SBA and the SEC. Changes in the laws or regulations that govern SBICs and BDCs could significantly affect our business. Regulations and laws may be changed periodically, and the interpretations of the relevant regulations and laws are also subject to change. Any change in the regulations and laws governing our business could have a material impact on our financial condition and our results of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place conflicting demands on the manner in which we operate, and the resolution of those conflicts may restrict or otherwise adversely affect our operations.

We are subject to risks created by borrowing funds from the SBA

Our liabilities may include large amounts of debt instruments issued through the SBA which have fixed interest rates. Until and unless we are able to invest substantially all of the proceeds from debentures at annualized interest or other rates of return that substantially exceed annualized interest rates that Rand SBIC must pay the SBA, our operating results may be adversely affected which may, in turn, depress the market price of our common stock.

Competitive market for investment opportunities

We operate in a highly competitive market for investment opportunities. We face competition in our investing activities from many entities including other SBICs, private venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign investors. The competition is not limited to entities that operate in the same geographical area as we do. As a regulated BDC, we are required to disclose quarterly and annually the name and business description of our portfolio companies and the value of their portfolio securities. Most of our competitors are not subject to this disclosure requirement. This obligation to disclose this information could hinder our ability to invest in some portfolio companies. Additionally, other

 

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regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a private venture capital fund.

We are dependent upon key management personnel for future success

We are dependent on the skill, diligence, and the network of business contacts of our two senior officers, Allen F. Grum and Daniel P. Penberthy, for the selection, structuring, closing, monitoring and valuation of our investments. Our future success depends, to a significant extent, on the continued employment of these two officers and their departure could materially adversely affect our ability to implement our business strategy. We do not maintain key man life insurance on these officers.

We have a limited number of companies in our portfolio of investments, and may be subjected to greater risk if any of these companies default

Our portfolio investment values are concentrated in a small number of companies and as such, we may experience a significant loss in our net asset value if one or more of these companies perform poorly or go out of business. The unrealized or realized depreciation in the value of the securities of any one of these companies would negatively impact our net asset value.

Fluctuations of Quarterly Results

Our quarterly operating results could fluctuate significantly as a result of a number of factors. These factors include, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which portfolio companies encounter competition in their markets, and general economic conditions. As a result of these factors, results for any quarter cannot be relied upon as being indicative of performance in future quarters or for a full year.

Item 1B.    Unresolved Staff Comments

Not applicable.

Item 2.    Properties

We currently lease office space in Buffalo, New York for our corporate headquarters. We believe that these leased facilities are adequate to support our current staff and expected future needs.

Item 3.    Legal Proceedings

None.

Item 4.    Mine Safety Disclosures

Not applicable.

 

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Part II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock (“Common Stock”) is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “RAND.” The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share as reported by NASDAQ:

 

2015 Quarter ended:

   High      Low  

March 31

   $ 4.20       $ 3.83   

June 30

   $ 4.01       $ 3.73   

September 30

   $ 4.15       $ 3.77   

December 31

   $ 4.03       $ 3.58   

2014 Quarter ended:

   High      Low  

March 31

   $ 3.56       $ 3.00   

June 30

   $ 3.51       $ 3.11   

September 30

   $ 3.24       $ 2.99   

December 31

   $ 4.12       $ 3.04   

We have not paid any cash dividends in the two most recent fiscal years, and have no present intention of paying cash dividends in the upcoming fiscal year.

Issuer Purchases of Equity Securities

 

Period

   Total number
of shares
purchased(1)
     Average price paid
per share(2)
     Total number of shares
purchased as part of
publicly

announced plan(3)
     Maximum number of
shares that may yet
be purchased under
the share repurchase
plan(3)
 

10/1 – 10/31/2015

                             465,504   

11/1 – 11/30/2015

                             465,504   

12/1 – 12/31/2015

                             465,504   

 

(1) There were no shares repurchased during the fourth quarter of 2015.

 

(2) The average price paid per share is calculated on a settlement basis and includes commission.

 

(3) On October 22, 2015, the Board of Directors authorized the repurchase of up to 1,000,000 shares of Common Stock on the open market at prices no greater than the then current net asset value through October 22, 2016.

Shareholders of Record

On March 4, 2016 we had a total of 780 shareholders, which included 93 record holders of our Common Stock, and an estimated 687 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks.

 

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Corporation Performance Graph

The following graph shows a five-year comparison of cumulative total shareholder returns for our Common Stock, the NASDAQ Market Index, and our Peer Group, assuming a base index of $100 at the end of 2010. The cumulative total return for each annual period within the five years presented is measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend investment, and (B) the difference between share prices at the end and at the beginning of the measurement period by (2) the share price at the beginning of the measurement period.

Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

December 2015

 

LOGO

Comparison of cumulative total return of one or more companies, peer groups, industry indexes and/or broad markets

FISCAL YEAR ENDED

 

Company/Index/Market    2010      2011      2012      2013      2014      2015  

Rand Capital Corporation

   $ 100.00       $ 95.98       $ 72.45       $ 95.05       $ 126.63       $ 116.72   

NASDAQ Market Index

   $ 100.00       $ 99.17       $ 116.48       $ 163.21       $ 187.27       $ 200.31   

Peer Group Index

   $ 100.00       $ 79.20       $ 97.14       $ 131.08       $ 130.23       $ 69.25   

The Peer Group was comprised of the following companies:

Capital Southwest Corporation (NasdaqGS: CSWC)

First Hand Technology Value Fund, Inc. (NasdaqGS:SVVC)

GSV Capital Corp. (NasdaqCM:GSVC)

Harris & Harris Group, Inc. (NasdaqGM:TINY)

We selected the Peer Group because it is our belief that the four issuers in the group have investment objectives that are similar to ours, and among the publicly traded companies, they are relatively similar in size to us.

The performance graph information provided above will not be deemed to be “soliciting material” or “filed” with the SEC or subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act, unless in the future we specifically request that the information be treated as soliciting material or specifically incorporate it by reference into any filing under the Securities Act or the Exchange Act.

 

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Item 6.    Selected Financial Data

The following table provides selected consolidated financial data for the periods indicated. You should read the selected financial data set forth below in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and with the consolidated financial statements and related notes appearing within Item 8 this Annual Report.

Balance Sheet Data as of December 31:

 

     2015      2014      2013      2012      2011  

Total assets

   $ 44,761,687       $ 45,525,987       $ 39,750,370       $ 34,252,413       $ 31,331,957   

Total liabilities

   $ 10,908,027       $ 13,172,546       $ 11,681,038       $ 8,470,113       $ 6,932,836   

Net assets

   $ 33,853,660       $ 32,353,441       $ 28,069,332       $ 25,782,300       $ 24,399,121   

Net asset value per outstanding share

   $ 5.35       $ 5.11       $ 4.38       $ 3.90       $ 3.58   

Shares of common stock outstanding

     6,328,538         6,328,538         6,411,918         6,610,236         6,818,934   
              

Operating Data for the years ended December 31:

 

     2015      2014      2013      2012      2011  

Investment income

   $ 2,824,337       $ 2,584,475       $ 2,451,036       $ 2,604,621       $ 1,292,352   

Total expenses

   $ 1,817,279       $ 2,499,297       $ 2,359,252       $ 1,795,600       $ 1,661,674   

Net investment gain (loss), net of tax

   $ 842,902       $ 21,835       $ 154,478       $ 686,061       $ (81,738

Net realized (loss) gain on sales and dispositions of investments, net of tax

   ($ 27,973    $ 4,767,484       $ 4,374,354       $ 831,139       $ (1,515,885

Net increase (decrease) in unrealized appreciation on investments, net of tax

   $ 685,290       $ (247,838    $ (1,655,475    $ 422,567       $ 2,945,926   

Net increase (decrease) in net assets from operations

   $ 1,500,219       $ 4,541,481       $ 2,873,357       $ 1,939,767       $ 1,348,303   

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 within Item 8 of this Annual Report.

FORWARD LOOKING STATEMENTS

Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report 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 Securities and Exchange Commission. 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 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,”

 

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“intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions 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 forward-looking statements are also subject to the risks and uncertainties described under the caption “Risk Factors” contained in Part I, Item 1A. of this Annual Report.

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. New factors emerge from time to time that may cause our business not to develop as we expect, and we cannot predict all of them.

Overview

We are an internally managed venture capital investment company that lends to and invests in small and medium-sized companies primarily in connection with loans or investments made concurrently by other investors. We have elected to be treated 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. We make the majority of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (“Rand SBIC”), which operates as a small business investment company (“SBIC”) and has been licensed by the U.S. Small Business Administration (“SBA”) since 2002. We anticipate that most, if not all, of our investments made in the next year will be originated through Rand SBIC.

Our investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest.

We look for certain criteria in the companies in which we might invest. These criteria are:

1) a qualified and experienced management team;

2) a new or unique product or service; and

3) high potential for growth in revenue and cash flow;

We have historically made initial investments of $500,000 to $1,000,000 directly in a company through equity or in debt or loan instruments and frequently provided follow-on investments during our investment tenure. We are now considering larger cumulative investments to drive our growth, keeping within the SBA regulations that limit our total investment in one company to $3.0 million. The debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants. Interest may be paid currently or deferred, based on the investment structure negotiated.

Our management team identifies investment opportunities through a network of investment referral relationships. Investment proposals may, however, come to us from other sources, including unsolicited proposals from companies and referrals from banks, lawyers, accountants and other members of the financial community. We believe that our reputation in the investment community and experience provide a competitive advantage in originating qualified new investments.

In a typical private financing, our management team will review, analyze, and evaluate, through due diligence, the business plan and operations of the potential portfolio company. Additionally, we will familiarize ourselves with the portfolio company’s industry and competition and may conduct reference checks with their customers and suppliers.

 

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Following an initial investment, we may make follow-on investments in the portfolio company. Follow-on investments may be made to take advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio company, or provide an additional investment to allow a portfolio company to fully implement its business plans, develop a new line of business or recover from unexpected business problems. Follow-on investments in a portfolio company are evaluated individually and may be subject to regulatory restrictions. Pursuant to SBA regulations, the maximum cash which may be invested in one portfolio company by Rand SBIC is currently $3.0 million.

We may exit investments through the maturation of a debt security or when a liquidity event takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return. We generally expect to dispose of our equity securities through private sales of securities to other investors or through an outright sale of the company or a merger. We anticipate our debt investments will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment. We fund new investments and operating expenses through existing cash balances, investment returns, and interest and principal payments from our portfolio companies.

2015 Portfolio and Investment Activity

We believe the change in net asset value over time is the leading valuation metric for monitoring our performance. Changes from quarter to quarter, and at any point in time, may vary because of specific activity related to an investment, but the overall growth trend demonstrates the effectiveness of our investment efforts.

 

   

Net asset value of our portfolio increased to a record $5.35 per share, or $33.9 million, at December 31, 2015, up $0.24 per share, or 5%, over net asset value of $5.11 per share, or $32.4 million, at the end of the prior year.

 

   

The value of Rand’s investments was $36.8 million, which reflected $9.4 million in net pre-tax unrealized appreciation.

 

   

At year end, the estimated value of securities held in 31 businesses was $36.8 million.

 

   

Approximately 85% of the portfolio was equity investments with the remainder being debt and loan investments.

 

   

The portfolio generated approximately $2.8 million in interest, fee, dividend and other income, a record level.

 

   

During 2015, we made $7.0 million in new investments in 16 businesses including follow-on investments in existing portfolio companies. We added four new portfolio companies during the year.

 

   

Subsequent to year end, we announced the pending sale of our largest portfolio company, Gemcor II, LLC (Gemcor). We expect to receive gross cash proceeds of approximately $14 million upon completion of the sale, anticipated in the first quarter of 2016. The proceeds will be available for investment, as well as for general corporate purposes. Our investment in Gemcor generated approximately $1.8 million in interest and dividend revenue during 2015. As a result of the anticipated closing of the Gemcor sale, interest and dividend revenue will decrease in 2016.

Outlook

At the end of 2015, we had $5.8 million in cash for future investments. We believe the combination of cash on hand, anticipated proceeds from the Gemcor sale, and prospective investment income provide sufficient capital for us to continue to add new investments to our portfolio while reinvesting in existing portfolio companies that demonstrate continued growth potential. Both short and long-term trends provide us confidence in our ability to grow Rand.

 

   

We expect that well run U.S. businesses will require capital to grow and should be able to compete effectively given the low cost of capital, strong business and consumer spending, and eager reception of new technologies and service concepts.

 

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We have sufficient cash to invest in new opportunities and to repurchase shares. At year end, we had authorization to repurchase an additional 465,504 shares of our Common Stock under the current program.

 

   

Given our increased scale we are able to invest larger amounts in companies, which will provide an opportunity to accelerate our rate of growth.

 

   

We continue to manage risk by investing with other investors, when possible.

 

   

We are actively involved with the governance and management of our portfolio companies which enables us to support their operating and marketing efforts to facilitate their growth.

 

   

As our portfolio continues to expand, we are able to better leverage our infrastructure.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, or 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 1 to the consolidated financial statements in Item 8 of this Annual Report.

The increasing complexity of the business environment and applicable authoritative accounting guidance require us to closely 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

Investments are valued at fair value as determined in good faith by management and submitted to the Board of Directors for approval. We invest in loan instruments, debt instruments, 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 investment and employing a consistent valuation process. 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 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, its equity security has also appreciated in value. These estimated fair values may differ from the values that would have been used had a ready market for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events.

Our investments are carried at fair value in accordance with 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.

Loan investments are defined as traditional loan financings with no equity features. 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. A financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the company.

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

 

   

Loan and debt securities are valued at cost when it is representative of the fair value of an investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value.

The loan and debt securities may also be valued at an amount other than the price the security would command in order to provide a yield to maturity equivalent to the current yield of similar debt securities. 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.

 

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Equity securities may be valued using the “market approach” or “income approach.” The market approach uses observable prices and other relevant information generated by similar market transactions. It may include 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. The income approach employs a cash flow and discounting methodology to value an investment.

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.

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 as “Net increase (decrease) in unrealized appreciation on investments.”

Under our valuation policy, we value unrestricted publicly traded companies at the average closing bid price for the last three trading days of the quarter.

In the valuation process, we value private securities, categorized as Level 3 investments, using financial information from these portfolio companies, which may include:

 

   

Financial information obtained from each portfolio company, including 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 fund-raising 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 occurrences 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 by our management.

This information is used to determine the financial condition, performance, and valuation of the portfolio companies. The valuation may be reduced if a portfolio company’s performance and/or potential have deteriorated. If the factors which led to a reduction in valuation are overcome, the valuation may be readjusted.

 

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Equity Securities

Equity securities in which we invest 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 senior equity preferences which may exist in a liquidation event. Standard industry multiples may be used when available; however, our portfolio companies are typically small and in the early stages of development and these industry standards may have to be adjusted to more closely match the specific financial and operational performance 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 to the unobservable inputs, such as variances in financial performance from expectations, may result in a significantly higher or lower fair value measurement.

Another key factor used in valuing equity investments is recent arms-length equity transactions with a sophisticated unrelated new investor(s) in the portfolio company. The terms of these equity transactions may not be identical to the equity transactions between us and the portfolio company, 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, we use the Black-Scholes pricing model 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 increases or decreases in any of these unobservable inputs would result in a significantly higher or lower fair value measurement.

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

Loans 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 of 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 debt investments are often junior secured or unsecured debt 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 market value inputs are identified causing us to depart from this basis.

Revenue Recognition

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

Rand SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting Requirements for Small Business Investment Companies.” Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or the loan is in default more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of any accrued interest.

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 periodically 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.

 

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We may receive distributions from portfolio companies that are limited liability companies or corporations. These distributions are classified as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated.

We hold preferred equity securities that may contain cumulative dividend provisions. Cumulative dividends are recorded as dividend income, and any dividends in arrears are 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 equity is redeemed.

Financial Condition

Overview:

 

     12/31/15      12/31/14      (Decrease)
Increase
     % (Decrease)
Increase
 

Total assets

   $ 44,761,687       $ 45,525,987       ($ 764,300      (1.7 %) 

Total liabilities

     10,908,027         13,172,546         (2,264,519      (17.2 %) 
  

 

 

    

 

 

    

 

 

    

Net assets

   $ 33,853,660       $ 32,353,441       $ 1,500,219         4.6
  

 

 

    

 

 

    

 

 

    

Net asset value was $5.35 per share at December 31, 2015 versus $5.11 per share at December 31, 2014.

The outstanding SBA debentures at December 31, 2015 are $8,000,000, which will mature from 2022 through 2025.

Cash approximated 17% of net assets at December 31, 2015 compared to 41% at December 31, 2014.

Composition of the Investment Portfolio

Our financial condition is dependent on the success of our portfolio holdings. We have invested substantially all of our assets in small to medium-sized companies. The following summarizes our investment portfolio at the year-ends indicated.

 

     12/31/15      12/31/14      Increase      % Increase  

Investments, at cost

   $ 27,410,742       $ 22,213,476       $ 5,197,266         23.4

Unrealized appreciation, net

     9,421,658         8,091,900         1,329,758         16.4
  

 

 

    

 

 

    

 

 

    

Investments, at fair value

   $ 36,832,400       $ 30,305,376       $ 6,527,024         21.5
  

 

 

    

 

 

    

 

 

    

Number of Portfolio Companies

     31         29         

Our total investments at fair value, as estimated by management and approved by the Board of Directors, approximated 109% of net assets at December 31, 2015 and 94% of net assets at December 31, 2014.

 

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The change in investments, at cost, during the year ended December 31, 2015, is comprised of the following:

 

     Cost  Increase
(Decrease)
 

New investments:

  

GoNoodle, Inc. (GoNoodle) (formerly HealthTeacher, Inc.)

   $ 1,000,025   

Genicon, Inc. (Genicon)

     1,000,000   

SciAps, Inc. (SciAps)

     749,999   

Rheonix, Inc. (Rheonix)

     680,475   

Tilson Technology Management, Inc. (Tilson)

     600,000   

Outmatch (formerly Chequed Holdings LLC)

     500,000   

City Dining Cards, Inc. (City Dining)

     500,000   

SocialFlow, Inc. (Social Flow)

     500,000   

OnCore Golf Technology, Inc. (Oncore Golf)

     325,000   

GiveGab, Inc. (Give Gab)

     212,833   

Knowledge Vision Systems Inc. (Knowledge Vision)

     200,001   

BeetNPath, LLC (BeetNPath)

     200,000   

Mezmeriz, Inc. (Mezmeriz)

     151,477   

Statisfy, Inc. (Statisfy) (formerly CrashMob, Inc.)

     150,000   

Teleservices Solutions Holdings, LLC (Teleservices)

     104,198   

Intrinsiq Materials, Inc. (Intrinsiq)

     95,000   
  

 

 

 

Total of new investments

     6,969,008   

Other changes to investments:

  

Teleservices dividend conversion

     131,200   

First Wave Products Group, LLC (First Wave) interest conversion and OID amortization

     31,353   

Rheonix interest conversion

     22,257   

Outmatch interest conversion

     12,274   

Mercantile Adjustment Bureau, LLC (Mercantile) OID amortization

     9,997   

BeetNPath interest conversion

     9,000   

GoNoodle interest conversion

     8,974   

SciAps interest conversion

     4,711   
  

 

 

 

Total of other changes to investments

     229,766   

Investments repaid, sold or liquidated:

  

Gemcor II, LLC (Gemcor) repayment

     (205,828

CrowdBouncer, Inc. (Crowdbouncer) realized loss

     (300,000

Synacor, Inc. (Synacor) shares sold

     (385,680

Carolina Skiff LLC (Carolina Skiff) repayment

     (1,110,000
  

 

 

 

Total investments repaid, sold or liquidated

     (2,001,508
  

 

 

 

Net change in investments, at cost

   $ 5,197,266   
  

 

 

 

 

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Our top five portfolio companies represented 50% of total assets at December 31, 2015:

 

Company

  

Industry

   Fair Value at
December 31, 2015
     % of Total Assets
at December 31,
2015
 

Gemcor

   Manufacturing — Aerospace Machinery    $ 13,816,972         31

Rheonix

   Health Care — Testing Devices    $ 2,938,731         7

Outmatch

   Software    $ 2,145,496         5

Social Flow, Inc.

   Software    $ 2,071,300         4

Microcision

   Manufacturing — Medical Products    $ 1,891,964         4

Our top five portfolio companies represented 38% of total assets at December 31, 2014:

 

Company

  

Industry

   Fair Value at
December 31, 2014
     % of Total Assets
at December 31,
2014
 

Gemcor

   Manufacturing — Aerospace Machinery    $ 9,922,800         22

Rheonix

   Health Care — Testing Devices    $ 2,235,999         5

Microcision

   Manufacturing — Medical Products    $ 1,891,965         4

Carolina Skiff

   Consumer Products — Boats    $ 1,710,000         4

Chequed.com, Inc.

   Software    $ 1,633,222         3

Below is the geographic breakdown of our investments at fair value as of December 31, 2015 and 2014:

 

Geographic Region

   % of Net Asset  Value
at December 31,
2015
    % of Net Asset  Value
at December 31,
2014
 

USA – East

     107     89

USA – South

     2     5
  

 

 

   

 

 

 
     109     94
  

 

 

   

 

 

 

As of December 31, 2015 and 2014, the investment portfolio consisted of the following investments:

 

     Cost      Percentage of
Total  Portfolio
    Fair Value      Percentage of
Total  Portfolio
 

December 31, 2015:

          

Subordinated Debt and Promissory Notes

   $ 5,526,636         20   $ 4,648,604         13

Convertible Debt

     845,000         3        845,000         2   

Equity and Membership Interests

     20,290,424         74        30,709,739         83   

Equity Warrants

     748,682         3        629,057         2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 27,410,742         100   $ 36,832,400         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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     Cost      Percentage of
Total  Portfolio
    Fair Value      Percentage of
Total  Portfolio
 

December 31, 2014:

          

Subordinated Debt and Promissory Notes

   $ 4,807,140         22   $ 4,807,140         16

Convertible Debt

     1,200,000         6        1,200,000         4   

Equity and Membership Interests

     16,086,711         72        24,178,611         80   

Equity Warrants

     119,625                119,625           
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 22,213,476         100   $ 30,305,376         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Results of Operations

Investment Income

Our investment objective is to achieve long-term capital appreciation on our equity investments while investing in a mixture of loan, debenture and equity instruments, which may provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term.

Comparison of the years ended December 31, 2015 and 2014

Investment income increased 9%, or $239,862, from $2,584,475 for the year ended December 31, 2014 to $2,824,337 for the year ended December 31, 2015. The net increase was primarily attributable to an increase in dividend income.

 

     December 31,
2015
     December 31,
2014
     (Decrease)
Increase
     % (Decrease)
Increase
 

Interest from portfolio companies

   $ 691,109       $ 789,548       ($ 98,439      (13 %) 

Interest from other investments

     22,048         14,288         7,760         54

Dividend and other investment income

     2,081,847         1,750,439         331,408         19

Fee income

     29,333         30,200         (867      (3 %) 
  

 

 

    

 

 

    

 

 

    

Total investment income

   $ 2,824,337       $ 2,584,475       $ 239,862         9
  

 

 

    

 

 

    

 

 

    

Interest from portfolio companies — Our portfolio interest income decreased during 2015 due to the decrease in principal balances on loan and debt investments in Gemcor, II, LLC (Gemcor) and Carolina Skiff, LLC (Carolina Skiff), respectively.

After reviewing their performance and the circumstances surrounding our investments, we ceased accruing interest income on First Wave Products Group, LLC (First Wave), Intrinsiq Materials, Inc. (Intrinsiq), and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance during 2015.

Interest from other investments — The increase in interest from other investments was primarily due to higher average cash balances during the year ended December 31, 2015 versus the year ended December 31, 2014.

Dividend and other investment income — Dividend income is comprised of 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. Dividend

 

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income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions. The dividend distributions for the respective years were:

 

     December 31,
2015
     December 31,
2014
 

Gemcor, II, LLC (Gemcor)

   $ 1,735,934       $ 1,508,822   

Teleservices Solutions Holdings, LLC (Teleservices)

     183,680         98,952   

Carolina Skiff LLC (Carolina Skiff)

     116,052         54,089   

New Monarch Machine Tool, LLC (Monarch)

     27,409         45,682   

Tilson Technology Management, Inc. (Tilson)

     14,417           

SOMS Technologies, LLC (SOMS)

     4,355           

Advantage 24/7 LLC (Advantage)

             37,695   

NDT Acquisition LLC (NDT)

             2,668   

Somerset Gas Transmission Company, LLC (Somerset)

             2,531   
  

 

 

    

 

 

 

Total dividend and other investment income

   $ 2,081,847       $ 1,750,439   
  

 

 

    

 

 

 

Fee income — Fee income consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of Rand SBIC financings and income from portfolio company board attendance 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 amortization of financing fees was $18,333 and $16,200 for the years ended December 31, 2015 and 2014, respectively. The financing fee income based on the existing portfolio is expected to be approximately $10,000 in 2016, $8,000 in 2017 and $4,000 in each of 2018 and 2019.

Fees paid for board service at the portfolio companies were $11,000 and $14,000 for the years ended December 31, 2015 and 2014, respectively.

Comparison of the years ended December 31, 2014 and 2013

Investment income increased 5%, or $133,439, from $2,451,036 for the year ended December 31, 2013 to $2,584,475 for the year ended December 31, 2014. The net increase was primarily attributable to an increase in dividend income.

 

     December 31,
2014
     December 31,
2013
     (Decrease)
Increase
     % (Decrease)
Increase
 

Interest from portfolio companies

   $ 789,548       $ 793,071       ($ 3,523      0

Interest from other investments

     14,288         10,932         3,356         31

Dividend and other investment income

     1,750,439         1,623,633         126,806         8

Fee income

     30,200         23,400         6,800         29
  

 

 

    

 

 

    

 

 

    

Total investment income

   $ 2,584,475       $ 2,451,036       $ 133,439         5
  

 

 

    

 

 

    

 

 

    

Interest from portfolio companies — Our portfolio interest income decreased slightly during 2014 due to the decrease in principal balances on loan and debt investments in Gemcor II, LLC and Carolina Skiff, LLC, respectively. This decrease was partially offset because we originated over $1.8 million in new debt instruments during the previous 18 months with interest rates ranging from 6% to 13%. After reviewing the portfolio company’s performance and the circumstances surrounding the investment, we ceased accruing interest income on Mezmeriz during 2014.

Interest from other investments — The minor increase in interest from other investments was primarily due to higher average cash balances during the year ended December 31, 2014 versus the year ended December 31, 2013. The cash balances at December 31, 2014 and 2013 were $13,230,717 and $9,764,810, respectively.

 

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Dividend and other investment income — Dividend income is comprised of distributions from limited liability companies (LLCs) in which we have invested. Our investment agreements with certain LLCs require the 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 distribute additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and the timing of the distributions. The dividend distributions for the respective years were:

 

     December 31,
2014
     December 31,
2013
 

Gemcor, II, LLC (Gemcor)

   $ 1,508,822       $ 1,481,675   

Teleservices Solutions Holdings, LLC (Teleservices)

     98,952           

Carolina Skiff LLC (Carolina Skiff)

     54,089         56,239   

New Monarch Machine Tool, LLC (Monarch)

     45,682         68,522   

Advantage 24/7 LLC (Advantage)

     37,695           

NDT Acquisition LLC (NDT)

     2,668         527   

Somerset Gas Transmission Company, LLC (Somerset)

     2,531         16,670   
  

 

 

    

 

 

 

Total dividend and other investment income

   $ 1,750,439       $ 1,623,633   
  

 

 

    

 

 

 

Fee income — Fee income consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of Rand SBIC financings and income associated with portfolio company board attendance 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 “Deferred revenue.”

The amortization of financing fees was $16,200 and $7,400 for the years ended December 31, 2014 and 2013, respectively. The financing fee income based on the existing portfolio is expected to be approximately $14,000 in 2015, $6,000 in 2016 and $4,000 in 2017.

Fees paid for board service at the portfolio companies were $14,000 and $16,000 for the years ended December 31, 2014 and 2013, respectively.

Expenses

Comparison of the years ended December 31, 2015 and 2014

 

     December 31,
2015
     December 31,
2014
     Decrease      % Decrease  

Total expenses

   $ 1,817,279       $ 2,499,297       ($ 682,018      (27 %) 

Operating expenses predominately consist of compensation expense and related benefits, interest expense on outstanding SBA borrowings, and general and administrative expenses including shareholder and office expenses and professional fees.

The 27%, or $682,018, decrease in operating expenses for the year ended December 31, 2015 as compared to the same period in 2014 is due, in part, to the fact that bonus and profit sharing expense decreased approximately $814,000. During the year ended December 31, 2015 we accrued $122,500 in bonus expense. There was no profit sharing expense during the year ended December 31, 2015. During the year ended December 31, 2014, we accrued $899,500 in profit sharing obligations and $91,490 in bonus expense. This decrease was partially offset by an increase in interest and shareholder expense. Interest expense on our SBA borrowings increased due to higher outstanding debt balances during 2015 versus 2014. Shareholder expense increased because we have increased our strategic analysis and communication to shareholders and potential investors.

 

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Comparison of the years ended December 31, 2014 and 2013

 

     December 31,
2014
     December 31,
2013
     Increase      % Increase  

Total expenses

   $ 2,499,297       $ 2,359,252       $ 140,045         6

Operating expenses predominately consist of compensation expense and related benefits, interest expense on outstanding SBA borrowings, and general and administrative expenses including shareholder and office expenses and professional fees.

The 6%, or $140,045, increase in operating expenses for the year ended December 31, 2014 as compared to the same period in 2013 is due, in part, to the fact that the we had a bad debt recovery of $64,654 during the year ended December 31, 2013, whereas we incurred a bad debt expense of $6,311 for the year ended December 31, 2014. In addition, the SBA borrowings increased from $7,000,000 at December 31, 2013 to $8,000,000 at December 31, 2014, causing a 41%, or $77,868, increase in SBA interest expense for the year ended December 31, 2014 as compared to the year ended December 31, 2013. During the year ended December 31, 2014 we accrued $899,500 in profit sharing obligations and $91,490 in bonus expense. For the year ended December 31, 2013 we accrued $887,244 in profit sharing obligations and $80,000 in bonus expense.

Net Realized Gains and Losses on Investments

Comparison of the years ended December 31, 2015 and 2014

 

     December 31,
2015
     December 31,
2014
     Decrease      % Decrease  

Net realized (loss) gain on sales and dispositions, before income taxes

   ($ 42,469    $ 7,237,937       ($ 7,280,406      (101 %) 

During the year ended December 31, 2015, we recognized a net realized gain, before income taxes, of $262,925 on the sale of 301,582 shares of Synacor, Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol “SYNC”. As of December 31, 2015, we do not own any shares of Synacor.

We recognized a realized loss of $5,394 on an adjustment to the BinOptics Corporation (Binoptics) escrow receivable. At December 31, 2015 the Binoptics escrow receivable is $1,504,854. The escrow holdback is recorded in “Other Assets” on the accompanying consolidated statement of financial position. The escrow is scheduled to be released during 2016, subject to potential claims.

We realized a loss of $300,000 on our investment in CrowdBouncer, Inc. during the year ended December 31, 2015 when the company ceased operations during the year.

For the year ended December 31, 2014, we recognized a realized gain on Binoptics of $8,333,344 which included $1,510,248 that was held in escrow at December 31, 2014.

QuaDPharma, LLC (Quadpharma) was purchased by Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.) during 2014 and we received $923,634 in net proceeds for our debt and equity securities. The realized gain from the sale of $160,634 included $14,737 that was held in escrow and received during 2014. As part of the sale, we also received 11,574 common shares of Athenex that had a fair value at the time of receipt of $254,628.

During the year ended December 31, 2014, we recognized a net realized loss of $9,792 on the sale of 127,061 shares of Synacor. Synacor trades on the NASDAQ Global Market under the symbol “SYNC”. At December 31, 2014, we owned 301,582 shares of Synacor.

In addition, during the year ended December 31, 2014, we recognized a realized loss of $778,253 on Emerging Med. It was sold during January 2014 and we did not receive any proceeds from the sale. This investment had been valued at $0 at December 31, 2013. We also recognized a realized loss of $472,664 on an adjustment to the Liazon Corporation escrow receivable and a gain of $4,668 on an adjustment to the Ultra-Scan escrow receivable.

 

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Comparison of the years ended December 31, 2014 and 2013

 

     December 31,
2014
     December 31,
2013
     Increase      % Increase  

Net realized gain on sales and dispositions, before income taxes

   $ 7,237,937       $ 7,034,180       $ 203,757         3

Binoptics was sold to a strategic acquirer during the fourth quarter of 2014 and we received approximately $10.1 million in net proceeds for our equity securities. The realized gain from the sale was $8,333,344 and included $1,510,248 that was held in escrow at December 31, 2014.

We sold our investment in QuaDPharma to Athenex during 2014 and received $923,634 in net cash proceeds for the debt and equity securities and recognized a realized gain of $160,634. As part of the sale, we received 11,574 common shares of Athenex that had a fair value of $254,628 at December 31, 2014 and resulted in an unrealized gain of $111,343.

During the year ended December 31, 2014, we recognized a net realized loss of $9,792 on the sale of 127,061 shares of Synacor. Synacor trades on the NASDAQ Global Market under the symbol “SYNC”. At December 31, 2014, we owned 301,582 shares of Synacor.

In addition, during the year ended December 31, 2014, we recognized a realized loss of $778,253 on Emerging Med. It was sold during January 2014 and we did not receive any proceeds from the sale. This investment had been valued at $0 at December 31, 2013. We also recognized a realized loss of $472,664 on an adjustment to the Liazon Corporation escrow receivable and a gain of $4,668 on an adjustment to the Ultra-Scan escrow receivable.

During 2013 we sold our investment in Liazon Corporation and recognized a realized gain of $6,256,482. In addition, during the year ended December 31, 2013, we recognized a net realized gain of $1,164,545 on the sale of 252,200 shares of Synacor, Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol “SYNC”. At December 31, 2013, we owned 428,643 shares of Synacor.

We also recognized a realized gain of $669,939 on the sale of our shares in Ultra-Scan to a strategic acquirer during the year ended December 31, 2013.

We realized a loss of $1,063,698 on our investment in Mid-America Brick during the year ended December 31, 2013 when the company announced in February 2013 that it had filed for bankruptcy. Due to the subordinated nature of our investment security no recovery was received.

Net Increase in Unrealized Appreciation of Investments

Comparison of the years ended December 31, 2015 and 2014

 

     December 31,
2015
     December 31,
2014
     Increase  

Change in net unrealized appreciation before income tax expense (benefit)

   $ 1,329,759       ($ 361,844    $ 1,691,603   

 

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The change in unrealized appreciation before income taxes for the year ended December 31, 2015 was comprised of the following:

 

     Valuation
Change  during
2015
 

Gemcor II, LLC (Gemcor)

   $ 4,100,000   

SocialFlow, Inc. (SocialFlow)

     321,300   

CrowdBouncer, Inc.(Crowdbouncer) reclass to a realized loss

     300,000   

Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)

     92,592   

OnCore Golf Technology, Inc. (Oncore)

     (187,500

GiveGab, Inc. (Givegab)

     (191,907

Synacor, Inc. (Synacor) reclass to a realized gain

     (220,320

Mercantile Adjustment Bureau, LLC (Mercantile)

     (247,625

KnowledgeVision Systems, Inc. (Knowledge Vision)

     (250,000

Teleservices Solutions Holdings, LLC (Teleservices)

     (250,000

Somerset Gas Transmission Company, LLC (Somerset)

     (286,748

SciAps, Inc. (Sciaps)

     (500,000

Intrinsiq Materials, Inc. (Intrinsiq)

     (600,002

First Wave Products Group, LLC (First Wave)

     (750,031
  

 

 

 

Total change in net unrealized appreciation of investments before income taxes during the year ended December 31, 2015

   $ 1,329,759   
  

 

 

 

On December 29, 2015 we entered into an asset purchase agreement under which we agreed to sell Gemcor. The required percentage of Gemcor shareholders ratified and approved the sale in January 2016. The transaction is anticipated to close in the first quarter of 2016, and remains subject to customary approvals and closing conditions. Based on our ownership of Gemcor, we expect to receive gross cash proceeds of approximately $14 million upon completion of the transaction. The final aggregate purchase price payable by the buyer remains subject to post-closing working capital adjustments. Additionally, we will incur the related profit sharing expense in the first quarter of 2016. We have valued our investment in Gemcor at December 31, 2015 based on an EBITDA multiple which approximates our anticipated sales proceeds.

In accordance with our valuation policy, we increased the value of our holdings in Athenex and Social Flow based on significant equity financings for each made during 2015 by sophisticated new non-strategic outside investors at a higher valuation for each than their prior financing round valuation.

The Crowdbouncer investment was written off after the company ceased doing business during 2015.

We sold our remaining shares of Synacor during the year ended December 31, 2015.

The Oncore, Givegab, Mercantile and Knowledge Vision investments were revalued after we reviewed each of the portfolio companies’ commercial progress against their business plans and their past financial performance. These reviews indicated a deterioration to their respective businesses had occurred. If the factors which led to these reductions in valuations are overcome, the valuations may be restored.

The Somerset investment was revalued during 2015 after a review of the company’s financial performance and the overall weakness in the oil and gas sector.

The First Wave, Intrinsiq, and Teleservices investments were revalued during 2015 after we reviewed each of the portfolio companies’ progress toward commercialization and broad based acceptance of their respective business technologies and services in their respective markets. We also considered in our review the past financial performance of the companies, their forecasted cash needs, and their fundraising plans for 2016 in determining that reductions in values were appropriate. The three portfolio companies remain in operation, and are developing new business strategies to achieve success in 2016. If the factors which led to the reductions in valuations are overcome, the valuations may be restored.

 

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Table of Contents

The valuation of Sciaps was decreased during the year ended December 31, 2015 to revalue our equity holdings based upon liquidation preferences of our securities and on the most recent equity round of financing.

The change in unrealized appreciation for the year ended December 31, 2014 was comprised of the following:

 

     Valuation
Change  during
2014
 

EmergingMed.com, Inc. (Emerging Med) reclass to a realized loss

   $ 778,253   

Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)

     111,343   

NDT Acquisitions, LLC (NDT)

     5,336   

Synacor, Inc. (Synacor)

     (208,503

CrowdBouncer, Inc.(Crowdbouncer)

     (300,000

Knoa Software, Inc. (Knoa)

     (356,900

Mezmeriz, Inc. (Mezmeriz)

     (391,373
  

 

 

 

Total change in net unrealized appreciation before income taxes during the year ended December 31, 2014

   ($ 361,844
  

 

 

 

The Emerging Med investment was written off during the year ended December 31, 2014, after the company was sold and we did not receive proceeds.

The Athenex shares were received as part of the sale of our investment in Quadpharma. The proceeds from this sale included cash and Athenex stock. The value of the stock was based on a 2014 equity financing by Athenex.

The NDT investment value was adjusted for royalties received.

Synacor, as a publicly traded stock, is marked to market at the end of each quarter. We valued our 301,582 shares of Synacor at a three-day average bid price of $2.01 as of December 31, 2014.

The Crowdbouncer and Mezmeriz investments were revalued during 2014 after we reviewed the portfolio companies and their financials and determined that both of the businesses had deteriorated since the time of our original funding. Both portfolio companies remained in operation at December 31, 2014 and were developing new business strategies.

The valuation of Knoa was decreased during the year ended December 31, 2014 to value our equity holdings at the most recent insider round of financing.

Comparison of the years ended December 31, 2014 and 2013

 

     December 31,
2014
     December 31,
2013
     Increase  

Change in net unrealized appreciation before income taxes

   ($ 361,844    ($ 2,833,984    $ 2,472,140   

 

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The change in unrealized appreciation for the year ended December 31, 2014 was comprised of the following:

 

     Valuation
Change  during
2014
 

EmergingMed.com, Inc. (Emerging Med) reclass to a realized loss

   $ 778,253   

Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)

     111,343   

NDT Acquisitions, LLC (NDT)

     5,336   

Synacor, Inc. (Synacor)

     (208,503

CrowdBouncer, Inc.(Crowdbouncer)

     (300,000

Knoa Software, Inc. (Knoa)

     (356,900

Mezmeriz, Inc. (Mezmeriz)

     (391,373
  

 

 

 

Total change in net unrealized appreciation before income taxes during the year ended December 31, 2014

   ($ 361,844
  

 

 

 

The Emerging Med investment was written off during the year ended December 31, 2014, after the company was sold and we did not receive proceeds.

The Athenex shares were received as part of the sale of our investment in Quadpharma. The proceeds from this sale included cash and Athenex stock. The value of the stock was based on a 2014 equity financing by Athenex.

The NDT investment value was adjusted for royalties received.

Synacor, as a publicly traded stock, is marked to market at the end of each quarter. We valued our 301,582 shares of Synacor at a three-day average bid price of $2.01 as of December 31, 2014.

The Crowdbouncer and Mezmeriz investments were revalued during 2014 after we reviewed the portfolio companies and their financials and determined that both of the businesses had deteriorated since the time of our original funding. Both portfolio companies remained in operation at December 31, 2014 and were developing new business strategies.

The valuation of Knoa was decreased during the year ended December 31, 2014 to value our equity holdings at the most recent insider round of financing.

The change in unrealized appreciation for the year ended December 31, 2013 was comprised of the following items:

 

     Valuation
Change during
2013
 

Mid America Brick & Structural Clay Products, LLC (Mid America Brick) reclass to a realized loss

   $ 1,063,698   

Carolina Skiff LLC (Carolina Skiff)

     350,000   

NDT

     19,178   

Emerging Med

     (440,707

Ultra-Scan Corporation (Ultra-Scan) reclass to realized gain

     (561,836

Liazon Corporation (Liazon) reclass to realized gain

     (975,133

Synacor

     (2,289,184
  

 

 

 

Total change in net unrealized appreciation before income taxes during the year ended December 31, 2013

   ($ 2,833,984
  

 

 

 

 

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The Mid America Brick investment was written off after the company filed for bankruptcy protection in the first quarter of 2013.

Carolina Skiff’s value was adjusted based on a financial analysis of the portfolio company indicating continued improved performance.

The NDT investment value was adjusted for royalties received.

The Emerging Med investment was written down based on a financial analysis of the company and to reflect anticipated liquidation proceeds.

During the year ended December 31, 2013, we recognized a realized gain in our investment in Liazon Corporation of $6,256,482 and a realized gain of $669,939 on the sale of our shares in Ultra-Scan.

Synacor, as a publicly traded stock, is marked to market at the end of each quarter. We valued our 428,643 shares of Synacor at a three-day average bid price of $2.46 at December 31, 2013.

All of these value adjustments resulted from a review by management using the guidance set forth by ASC 820 and our established valuation policy.

Net Increase 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 in net assets from operations” on our consolidated statements of operations. During the year ended December 31, 2015, the net increase in net assets from operations was $1,500,219 as compared with net increases of $4,541,481 in 2014 and $2,873,357 in 2013.

Liquidity and Capital Resources

Our principal objective is to achieve capital appreciation. Therefore, a significant portion of the investment portfolio is structured to maximize the potential for capital appreciation and may provide little or no current yield in the form of dividends or interest payments.

As of December 31, 2015, our total liquidity was $5,844,795 in cash.

Net cash used by operating activities has averaged approximately $1,413,300 over the last three years. The cash flow may fluctuate based on dividend income, realized gains and the associated income taxes paid.

Our net cash flow (used) provided by investing activities was ($5,007,343), $4,100,675 and $4,607,278 for fiscal years 2015, 2014 and 2013, respectively. We will generally use cash in investing activities as we build our portfolio utilizing our available cash and proceeds from liquidations of portfolio investments. We anticipate that we will continue to exit investments. However, the timing of liquidation events within the portfolio is difficult to project with any certainty. As of December 31, 2015, we did not have any outstanding commitments to borrow funds from the SBA. Starting in 2022 (See Footnote 5 in the Notes to the Consolidated Financial Statements) we will begin repaying our SBA debt which will require us to determine sources of future funding if liquidation of investments is not sufficient to fund operations and repay the SBA debt obligation.

The following table summarizes the SBA leverage at December 31, 2015 and December 31, 2014:

 

     12/31/15      12/31/14  

Outstanding SBA leverage

   $ 8,000,000       $ 8,000,000   

Outstanding SBA commitment

               

The following table summarizes the cash estimated to be received over the next five years from existing portfolio companies based on contractual obligations as of December 31, 2015. This table does not include any escrow receivable amounts. These payments represent scheduled principal and interest payments that are due

 

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under the terms of the investment securities we own in each portfolio company and are subject to change based on factors such as conversions and restructurings.

 

     Cash Receipts due by year  
     2016      2017      2018      2019      2020 and
beyond
 

Scheduled cash receipts from portfolio companies

   $ 1,032,000       $ 4,565,000       $ 406,000       $ 373,000       $ 80,000   

The preceding table only includes debt instruments and does not include any equity investments which may provide additional proceeds upon exit of the investment.

Subsequent to year end, we announced the pending sale of our largest portfolio company, Gemcor II, LLC. We expect to receive gross cash proceeds of approximately $14 million upon completion of the sale, anticipated in the first quarter of 2016. The proceeds will be available for investment, as well as for general corporate purposes.

We believe that the cash at December 31, 2015, anticipated proceeds from the Gemcor sale, and the scheduled interest payments on our portfolio investments, will be sufficient to meet our cash needs throughout 2016. We are also evaluating potential exits from portfolio companies to increase the amount of liquidity available for new investments, operating activities and future SBA debenture obligations.

Contractual Obligations

The following table shows our specified contractual obligations at December 31, 2015. We do not have any capital lease obligations or other long-term liabilities reflected on our statement of financial position.

 

     Payments due by period  
     Total      Less than
1  year
     1-3 years      3-5 years      More than
5  yrs
 

SBA debentures

   $ 8,000,000       $ 0       $ 0       $ 0       $ 8,000,000   

SBA interest expense

   $ 2,230,000       $ 284,000       $ 846,000       $ 564,000       $ 536,000   

Operating lease obligations (Rent of office space)

   $ 95,700       $ 18,540       $ 57,420       $ 19,740       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,325,700       $ 302,540       $ 903,420       $ 583,740       $ 8,536,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Our investment activities contain elements of risk. The portion of our investment portfolio consisting of equity and debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and debt securities in which we invest, the valuations of the equity interests in the portfolio are stated at “fair value” as determined in good faith by our management and approved by our Board of Directors. This is in accordance with our investment valuation policy. (The discussion of valuation policy contained in “Note 1- Summary of Significant Accounting Policies—Investments” in the consolidated financial statements contained in Item 8 of this report is incorporated herein by reference.) In the absence of readily ascertainable market values, the estimated value of the portfolio may differ significantly from the values that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated statement of operations as “Net increase (decrease) in unrealized appreciation on investments.”

At times, a portion of our portfolio may include marketable securities traded in the over-the-counter market. In addition, there may be a portion of the portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow markets to trade in an orderly fashion, we may not be able to realize the fair value of our marketable investments or other investments in a timely manner.

As of December 31, 2015, we did not have any off-balance sheet arrangements or hedging or similar derivative financial instrument investments.

 

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Item 8.    Financial Statements and Supplementary Data

The following consolidated financial statements and consolidated supplemental schedule of the Corporation and report of Independent Registered Public Accounting Firm thereon are set forth below:

 

Statements of Financial Position as of December 31, 2015 and 2014

     30   

Statements of Operations for the three years in the period ended December 31, 2015

     31   

Statements of Changes in Net Assets for the three years in the period ended December 31, 2015

     32   

Statements of Cash Flows for the three years in the period ended December 31, 2015

     33   

Schedule of Portfolio Investments as of December 31, 2015

     34   

Schedule of Portfolio Investments as of December 31, 2014

     42   

Financial Highlights Schedule for the five years in the period ended December 31, 2015

     49   

Notes to the Consolidated Financial Statements

     50   

Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Loss for the year ended December 31, 2015

     66   

Report of Independent Registered Public Accounting Firm

     67   

 

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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31,

 

     2015      2014  

ASSETS

     

Investments at fair value:

     

Control investments (cost of $1,141,472 and $1,347,300, respectively)

   $ 13,916,472       $ 10,022,300   

Affiliate investments (cost of $17,663,217 and $15,188,935, respectively)

     14,662,219         14,617,378   

Non-affiliate investments (cost of $8,606,053 and $5,677,241, respectively)

     8,253,709         5,665,698   
  

 

 

    

 

 

 

Total investments, at fair value (cost of $27,410,742 and $22,213,476, respectively)

     36,832,400         30,305,376   

Cash

     5,844,795         13,230,717   

Interest receivable (net of allowance: 2015: $122,000 and 2014 — $128,311)

     215,224         165,094   

Prepaid income taxes

     65,228           

Other assets

     1,804,040         1,824,800   
  

 

 

    

 

 

 

Total assets

   $ 44,761,687       $ 45,525,987   
  

 

 

    

 

 

 

Liabilities:

  

Debentures guaranteed by the SBA

   $ 8,000,000       $ 8,000,000   

Income tax payable

             2,065,795   

Deferred tax liability

     2,361,186         1,838,351   

Profit sharing and bonus payable

     282,000         953,490   

Accounts payable and accrued expenses

     238,911         290,646   

Deferred revenue

     25,930         24,264   
  

 

 

    

 

 

 

Total liabilities

     10,908,027         13,172,546   

Commitments and contingencies (See Note 9)

     

Stockholders’ equity (net assets):

     

Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,328,538 as of 12/31/15 and 12/31/14

     686,304         686,304   

Capital in excess of par value

     10,581,789         10,581,789   

Accumulated net investment (loss)

     (24,580      (867,482

Undistributed net realized gain on investments

     18,262,401         18,290,374   

Net unrealized appreciation on investments

     5,795,237         5,109,947   

Treasury stock, at cost; 534,496 shares as of 12/31/15 and 12/31/14

     (1,447,491      (1,447,491
  

 

 

    

 

 

 

Total stockholders’ equity (net assets) (per share 2015:
$5.35, 2014: $5.11)

     33,853,660         32,353,441   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 44,761,687       $ 45,525,987   
  

 

 

    

 

 

 

See accompanying notes

 

30


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Years Ended December 31, 2015, 2014 and 2013

 

     2015      2014      2013  

Investment income:

        

Interest from portfolio companies:

        

Control investments

   $ 77,077       $ 112,218       $ 154,695   

Affiliate investments

     388,135         481,649         491,339   

Non-Control/Non-Affiliate investments

     225,897         195,681         147,037   
  

 

 

    

 

 

    

 

 

 

Total interest from portfolio companies

     691,109         789,548         793,071   

Interest from other investments:

        

Non-Control/Non-Affiliate investments

     22,048         14,288         10,932   
  

 

 

    

 

 

    

 

 

 

Total interest from other investments

     22,048         14,288         10,932   

Dividend and other investment income:

        

Control investments

     1,735,934         1,549,185         1,482,202   

Affiliate investments

     345,913         198,723         124,761   

Non-Control/Non-Affiliate investments

             2,531         16,670   
  

 

 

    

 

 

    

 

 

 

Total dividend and other investment income

     2,081,847         1,750,439         1,623,633   
  

 

 

    

 

 

    

 

 

 

Fee income:

        

Control investments

     8,000         12,000         14,000   

Affiliate investments

     4,666         8,866         4,400   

Non-Control/Non-Affiliate investments

     16,667         9,334         5,000   
  

 

 

    

 

 

    

 

 

 

Total fee income

     29,333         30,200         23,400   
  

 

 

    

 

 

    

 

 

 

Total investment income

     2,824,337         2,584,475         2,451,036   
  

 

 

    

 

 

    

 

 

 

Operating expenses:

        

Salaries

     598,220         590,675         541,500   

Bonus and profit sharing

     122,500         936,344         967,244   

Employee benefits

     117,937         169,808         233,967   

Directors’ fees

     129,000         112,500         101,250   

Professional fees

     202,194         164,740         126,612   

Shareholders and office operating

     222,431         133,505         135,483   

Insurance

     32,086         35,709         34,304   

Corporate development

     62,553         64,490         80,338   

Other operating

     23,330         19,116         14,977   
  

 

 

    

 

 

    

 

 

 
     1,510,251         2,226,887         2,235,675   

Interest on SBA obligations

     307,028         266,099         188,231   

Bad debt expense (recovery)

             6,311         (64,654
  

 

 

    

 

 

    

 

 

 

Total expenses

     1,817,279         2,499,297         2,359,252   
  

 

 

    

 

 

    

 

 

 

Investment gain before income taxes

     1,007,058         85,178         91,784   

Income tax expense (benefit)

     164,156         63,343         (62,694
  

 

 

    

 

 

    

 

 

 

Net investment gain

     842,902         21,835         154,478   
  

 

 

    

 

 

    

 

 

 

Net realized (loss) gain on sales and dispositions of investments:

        

Affiliate investments

     (300,000      (617,619      (1,063,698

Non-Control/Non-Affiliate investments

     257,531         7,855,556         8,097,878   
  

 

 

    

 

 

    

 

 

 

Net realized (loss) gain on sales and dispositions, before income tax (benefit) expense

     (42,469      7,237,937         7,034,180   

Income tax (benefit) expense

     (14,496      2,470,453         2,659,826   
  

 

 

    

 

 

    

 

 

 

Net realized (loss) gain on sales and disposition of investments

     (27,973      4,767,484         4,374,354   

Net increase (decrease) in unrealized appreciation on investments:

        

Control investments

     4,100,000         5,336         19,178   

Affiliate investments

     (2,429,440      (270,020      972,991   

Non-Control/Non-Affiliate investments

     (340,801      (97,160      (3,826,153
  

 

 

    

 

 

    

 

 

 

Change in unrealized appreciation before income tax expense (benefit)

     1,329,759         (361,844      (2,833,984

Deferred income tax expense (benefit)

     644,469         (114,006      (1,178,509
  

 

 

    

 

 

    

 

 

 

Net increase (decrease) in unrealized appreciation on investments

     685,290         (247,838      (1,655,475
  

 

 

    

 

 

    

 

 

 

Net realized and unrealized gain on investments

     657,317         4,519,646         2,718,879   
  

 

 

    

 

 

    

 

 

 

Net increase in net assets from operations

   $ 1,500,219       $ 4,541,481       $ 2,873,357   
  

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding

     6,328,538         6,391,175         6,513,385   

Basic and diluted net increase in net assets from operations per share

   $ 0.24       $ 0.71       $ 0.44   

See accompanying notes

 

31


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

For The Years Ended December 31, 2015, 2014 and 2013

 

     2015      2014      2013  

Net assets at beginning of period

   $ 32,353,441       $ 28,069,332       $ 25,782,300   

Net investment gain

     842,902         21,835         154,478   

Net realized (loss) gain on sales and dispositions of investments

     (27,973      4,767,484         4,374,354   

Net increase (decrease) in unrealized appreciation on investments

     685,290         (247,838      (1,655,475
  

 

 

    

 

 

    

 

 

 

Net increase in net assets from operations

     1,500,219         4,541,481         2,873,357   

Purchase of treasury stock

             (257,372      (586,325
  

 

 

    

 

 

    

 

 

 

Total increase in net assets

     1,500,219         4,284,109         2,287,032   
  

 

 

    

 

 

    

 

 

 

Net assets at end of period

   $ 33,853,660       $ 32,353,441       $ 28,069,332   
  

 

 

    

 

 

    

 

 

 

Accumulated net investment (loss)

   ($ 24,580    ($ 867,482    ($ 889,317
  

 

 

    

 

 

    

 

 

 

See accompanying notes.

 

32


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 2015, 2014 and 2013

 

     2015      2014      2013  

Cash flows from operating activities:

        

Net increase in net assets from operations

   $ 1,500,219       $ 4,541,481       $ 2,873,357   

Adjustments to reconcile net increase in net assets to net cash (used in) operating activities:

        

Depreciation and amortization

     33,051         28,175         38,758   

Original issue discount accretion

     (17,339      (15,492      (15,492

Change in interest receivable allowance

     (6,311      6,311         (74,795

(Increase) decrease in unrealized appreciation on investments

     (1,329,759      361,844         2,833,984   

Deferred tax expense (benefit)

     522,835         (368,457      (739,806

Net realized loss (gain) on portfolio investments

     42,469         (7,237,937      (7,034,180

Non-cash conversion of debenture interest

     (212,426      (211,127      (310,322

Changes in operating assets and liabilities:

        

(Increase) decrease in interest receivable

     (43,819      (113,312      49,727   

(Increase) decrease in other assets

     (14,917      795,404         19,882   

Increase in prepaid income taxes

     (65,228                

(Decrease) increase in income taxes payable

     (2,065,795      842,368         1,195,732   

(Decrease) increase in profit sharing and bonus payable

     (671,490      66,246         537,244   

(Decrease) increase in accounts payable and accrued liabilities

     (51,735      (46,450      125,155   

Increase (decrease) in deferred revenue

     1,666         (2,200      (7,400
  

 

 

    

 

 

    

 

 

 

Total adjustments

     (3,878,798      (5,894,627      (3,381,513
  

 

 

    

 

 

    

 

 

 

Net cash (used in) operating activities

     (2,378,579      (1,353,146      (508,156

Cash flows from investing activities:

        

Investments originated

     (6,969,008      (6,091,152      (4,866,273

Proceeds from sale of portfolio investments

     648,605         9,234,323         9,023,539   

Proceeds from loan repayments

     1,315,829         968,803         457,559   

Capital expenditures

     (2,769      (11,299      (7,547
  

 

 

    

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     (5,007,343      4,100,675         4,607,278   

Cash flows from financing activities:

        

Repayment of SBA debentures

                     (900,000

Proceeds from SBA debentures

             1,000,000         3,000,000   

Origination costs to SBA

             (24,250      (72,750

Purchase of treasury shares

             (257,372      (586,325
  

 

 

    

 

 

    

 

 

 

Net cash provided by financing activities

             718,378         1,440,925   
  

 

 

    

 

 

    

 

 

 

Net (decrease) increase in cash

     (7,385,922      3,465,907         5,540,047   
  

 

 

    

 

 

    

 

 

 

Cash:

        

Beginning of year

     13,230,717         9,764,810         4,224,763   
  

 

 

    

 

 

    

 

 

 

End of year

   $ 5,844,795       $ 13,230,717       $ 9,764,810   
  

 

 

    

 

 

    

 

 

 

See accompanying notes

 

33


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015

 

(a)

Company, Geographic Location, Business
Description, (Industry)

and Website

 

Type of Investment

  (b)
Date
Acquired
    (c)
Equity
    Cost     (d)(f)
Fair
Value
    Percent
of Net
Assets
 

Non-Control/Non-Affiliate Investments  — 24.4% of net assets:(j)

           

Athenex, Inc.(e)(g)

(Formerly Kinex Pharmaceuticals, Inc.)

Buffalo, NY. Specialty pharmaceutical and

drug development. (Health Care)

www.athenex.com

  46,296 common shares.     9/8/14        <1   $ 143,285      $ 347,220        1.0

City Dining Cards, Inc. (Loupe)(e)(g)

Buffalo, NY. Customer loyalty technology company that helps businesses attract and retain customers. (Software)

www.citydiningcards.com

  9,525.25 Series B preferred shares.     9/1/15        4     500,000        500,000        1.5

Empire Genomics, LLC(e)(g)

Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)

www.empiregenomics.com

 

$600,000 senior secured convertible term note at 10% due April 1, 2017.

(i) Interest receivable $92,833.

    6/13/14               600,000        600,000        1.8

GoNoodle, Inc.(g)

(Formerly HealthTeacher, Inc.)

Nashville, TN. Student engagement

education software providing core aligned

physical activity breaks. (Software)

www.gonoodle.com

 

$1,000,000 secured note at 12% due January 31, 2020, (1% Payment in Kind (PIK)).

Warrant for 47,324 Series C Preferred shares.

    2/6/15        <1    

 

 

1,008,974

 

25

  

 

  

   

 

 

1,008,974

 

25

  

 

  

    3.0
       

 

 

   

 

 

   
  Total GoNoodle         1,008,999        1,008,999     
       

 

 

   

 

 

   

Mercantile Adjustment Bureau, LLC(g)

Williamsville, NY. Full service accounts receivable management and collections company.

(Contact Center)

www.mercantilesolutions.com

 

$1,099,039 subordinated secured note at 13% (3% for the calendar year 2015) due October 30, 2017.

(e) $150,000 subordinated debenture at 8% due June 30, 2018.

Warrant for 3.29% membership interests. Option for 1.5% membership interests.

(i) Interest receivable $93,455.

    10/22/12        4  

 

 

 

 

 

 

1,080,694

150,000

 

97,625

 

  

  

 

  

 

 

 

 

 

 

 

1,080,694

0

 

0

 

  

  

 

  

    3.2
       

 

 

   

 

 

   
  Total Mercantile         1,328,319        1,080,694     
       

 

 

   

 

 

   

Outmatch(e)(g)

(Formerly Chequed Holdings, LLC)

Saratoga Springs, NY. Web based predictive

employee selection and reference checking.

(Software) www.outmatch.com

 

2,264,995 Class P1 Units.

109,788 Class C1 Units.

    11/18/10        4    

 

2,140,007

5,489

  

  

   

 

2,140,007

5,489

  

  

    6.3
       

 

 

   

 

 

   
  Total Outmatch         2,145,496        2,145,496     
       

 

 

   

 

 

   

SocialFlow, Inc.(e)(g)

New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)

www.socialflow.com

 

1,049,538 Series B preferred shares.

1,204,819 Series B-1 preferred shares.

717,772 Series C preferred

    4/5/13        4    

 

 

500,000

750,000

500,000

  

  

  

   

 

 

731,431

839,648

500,221

  

  

  

    6.1
       

 

 

   

 

 

   
  Total Social Flow         1,750,000        2,071,300     
       

 

 

   

 

 

   

Somerset Gas Transmission Company, LLC(e)

Columbus, OH. Natural gas transportation.

(Oil and Gas)

www.somersetgas.com

  26.5337 units.     7/10/02        3     719,097        500,000        1.5

Other Non-Control/Non-Affiliate Investments:

           

DataView, LLC (Software) (e)

  Membership Interest                   310,357               0.0

UStec/Wi3 (Manufacturing) (e)

  Common Stock.                   100,500               0.0
       

 

 

   

 

 

   

Subtotal Non-Control/Non-Affiliate Investments

        $ 8,606,053      $ 8,253,709     
       

 

 

   

 

 

   

 

34


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

(a)

Company, Geographic Location, Business
Description, (Industry)

and Website

 

Type of Investment

  (b)
Date
Acquired
    (c)
Equity
    Cost     (d)(f)
Fair
Value
    Percent
of Net
Assets
 

Affiliate Investments — 43.3% of net assets(k)

           

BeetNPath, LLC(e)(g)

Ithaca, NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)

www.grainful.com

  1,119,024 Series A-2 Preferred Membership Units.     10/20/14        9   $ 359,000      $ 359,000        1.0

Carolina Skiff LLC(g)

Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats.

(Manufacturing)

www.carolinaskiff.com

  6.0825% Class A common membership interest.     1/30/04        7     15,000        600,000        1.8
           

First Wave Products Group, LLC(e)(g)

Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health Care)

www.firstwaveproducts.com

 

$500,000 senior term notes at 10% due December 31, 2016.

$280,000 junior term notes at 10% due December 31, 2016.

Warrant for 41,619 capital securities.

    4/19/12        7  

 

 

 

 

661,563

316,469

 

22,000

  

  

 

  

 

 

 

 

 

250,000

0

 

0

  

  

 

  

    0.7
       

 

 

   

 

 

   
  Total First Wave         1,000,032        250,000     
       

 

 

   

 

 

   

Genicon, Inc.(e)(g)

Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care)

www.geniconendo.com

  1,586,902 Series B preferred shares.     4/10/15        6     1,000,000        1,000,000        3.0

GiveGab, Inc.(e)(g)

Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)

www.givegab.com

  5,084,329 Series Seed preferred shares.     3/13/13        9     616,221        424,314        1.2

G-TEC Natural Gas Systems(e)

Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)

www.gas-tec.com

  17.845% Class A membership interest. 8% cumulative dividend.     8/31/99        18     400,000        100,000        0.3

Intrinsiq Materials, Inc.(e)(g)

Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)

 

599,055 Series 2 preferred shares.

$95,000 convertible promissory note at 8% due March 31, 2016.

    9/19/13        7    

 

600,002

95,000

  

  

   

 

0

95,000

  

  

    0.3
       

 

 

   

 

 

   

www.intrinsiqmaterials.com

  Total Intrinsiq         695,002        95,000     
       

 

 

   

 

 

   

Knoa Software, Inc.(e)(g)

New York, NY. End user experience management and performance (EMP)

solutions utilizing enterprise applications. (Software) www.knoa.com

 

973,533 Series A-1 convertible preferred shares.

1,876,922 Series B preferred shares.

    11/20/12        7  

 

 

750,000

479,155

  

  

 

 

 

381,503

490,752

  

  

    2.6
       

 

 

   

 

 

   
          1,229,155        872,255     
       

 

 

   

 

 

   
           

KnowledgeVision Systems, Inc.(e)(g)

Lincoln, MA. Online presentation and training software. (Software)

www.knowledgevision.com

 

200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares.

129,033 Series A-3 preferred shares.

Warrant for 46,743 Series A-3 shares.

    11/13/13        7    

 

 

 

250,000

300,000

165,001

35,000

  

  

  

  

   

 

 

 

0

300,000

165,001

35,000

  

  

  

  

    1.5
       

 

 

   

 

 

   
  Total KnowledgeVision         750,001        500,001     
       

 

 

   

 

 

   

Mezmeriz, Inc.(e)(g)

Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)

www.mezmeriz.com

  1,554,565 Series Seed preferred shares.     1/9/08        15     742,850        351,477        1.0

 

35


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

(a)

Company, Geographic Location, Business
Description, (Industry)

and Website

 

Type of Investment

  (b)
Date
Acquired
    (c)
Equity
    Cost     (d)(f)
Fair
Value
    Percent
of Net
Assets
 

Microcision LLC(g)

Philadelphia, PA. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing)

www.microcision.com

 

$1,500,000 subordinated promissory note at 11% due January 31, 2017.

15% Class A common membership interest.

    9/24/09        15  

 

 

1,891,964

  

  

 

 

 

1,891,964

  

  

    5.6
       

 

 

   

 

 

   
  Total Microcision         1,891,964        1,891,964     
       

 

 

   

 

 

   

New Monarch Machine Tool, Inc.(g)

Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)

www.monarchmt.com

  22.84 common shares.     9/24/03        15     22,841        22,841        0.1

OnCore Golf Technology, Inc.(e)(g)

Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product)

www.oncoregolf.com

 

150,000 Series AA preferred shares.

$150,000 subordinated convertible promissory note at 6% due January 24, 2017.

    12/31/14        7    

 

 

375,000

 

150,000

  

 

  

   

 

 

187,500

 

150,000

  

 

  

    1.0
       

 

 

   

 

 

   
  Total OnCore         525,000        337,500     
       

 

 

   

 

 

   

Rheonix, Inc.(e)

Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care)

www.rheonix.com

 

9,676 common shares.

(g) 1,839,422 Series A preferred shares. (g) 50,593 common shares.

(g) 589,420 Series B preferred shares.

    10/29/09        5    

 

 

 


2,099,999

702,732

  

  

  

  

   

 

 

 

11,000

2,165,999

59,000

702,732

  

  

  

  

    8.7
       

 

 

   

 

 

   
  Total Rheonix         2,802,731        2,938,731     
       

 

 

   

 

 

   

SciAps, Inc.(e)(g)

Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)

 

187,500 Series A convertible preferred shares.

274,299 Series A-1 convertible preferred shares.

117,371 Series B preferred shares.

    7/12/13        9    

 

 

1,500,000

504,710

250,000

  

  

  

   

 

 

1,000,000

504,710

250,000

  

  

  

    5.2
       

 

 

   

 

 

   

www.sciaps.com

  Total SciAps         2,254,710        1,754,710     
       

 

 

   

 

 

   

SOMS Technologies, LLC(e)(g)

Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products)

www.microgreenfilter.com

  5,959,490 Series B membership interests.     12/2/08        9     472,632        528,348        1.5

Statisfy, Inc.(e)(g)

Boston, MA. Mobile marketing platform for engagement, advertising and surveys. (Software)

 

65,000 Series seed preferred shares.

Warrant for 1,950,000 Series seed preferred shares.

    8/18/14        10    

 

20,968

629,032

  

  

   

 

20,968

629,032

  

  

    1.9
       

 

 

   

 

 

   

www.statisfy.co

  Total Statisfy         650,000        650,000     
       

 

 

   

 

 

   

Teleservices Solutions Holdings, LLC(g)(n)

Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)

  250,000 Class B preferred units. 1,000,000 Class C preferred units. 80,000 Class D preferred units. 104,198 Class E preferred units. PIK dividend for Series C and D at 12% and 14%, respectively.     5/30/14        6    

 

 

 

 

250,000

1,190,680

91,200

 

104,198

  

  

  

 

  

   

 

 

 

 

0

1,190,680

91,200

 

104,198

  

  

  

 

  

    4.1
       

 

 

   

 

 

   

www.ipacesetters.com

  Total Teleservices         1,636,078        1,386,078     
       

 

 

   

 

 

   

Tilson Technology Management, Inc.(g)

Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)

www.tilsontech.com

  12 Series B preferred shares.     1/20/15        8     600,000        600,000        1.8
       

 

 

   

 

 

   

Subtotal Affiliate Investments

        $ 17,663,217      $ 14,662,219     
       

 

 

   

 

 

   

 

36


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

(a)

Company, Geographic Location, Business
Description, (Industry)

and Website

 

Type of Investment

  (b)
Date
Acquired
    (c)
Equity
    Cost     (d)(f)
Fair
Value
    Percent
of Net
Assets
 

Control Investments — 41.1% of net assets(l)

           

Advantage 24/7 LLC(e)(g)

Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company)

www.advantage24-7.com

  53% Membership interest.     12/30/10        53   $ 99,500      $ 99,500        0.3

Gemcor II, LLC(g)(h)(m)

West Seneca, NY. Designs and sells automatic riveting machines used in the assembly of aircraft. (Manufacturing)

  $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units.     6/28/04        31    

 

 

416,972

 

625,000

  

 

  

   

 

 

416,972

 

13,400,000

  

 

  

    40.8
       

 

 

   

 

 

   

www.gemcor.com

  Total Gemcor         1,041,972        13,816,972     
       

 

 

   

 

 

   

Subtotal Control Investments

        $ 1,141,472      $ 13,916,472     
       

 

 

   

 

 

   

TOTAL INVESTMENTS — 108.8%

        $ 27,410,742      $ 36,832,400     

LIABILITIES IN EXCESS OF OTHER ASSETS — (8.8%)

         

 

(2,978,740

 
         

 

 

   

NET ASSETS — 100%

          $ 33,853,660     
         

 

 

   

Notes to the Consolidated Schedule of Portfolio Investments

 

(a) At December 31, 2015, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Freed Maxick CPA’s P.C. has not audited the business descriptions of the portfolio companies.

 

(b) The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a predecessor company.

 

(c) Each equity percentage estimates the Corporation’s ownership interest in the applicable 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 warrants or conversion of debentures, or other available data. If applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.

 

(d) The Corporation’s investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures,” which defines fair value and establishes guidelines for measuring fair value. At December 31, 2015, ASC 820 designates 100% of the Corporation’s investments as “Level 3” assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the month. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when 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 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 (see Note 2 “Investments” to the Consolidated Financial Statements).

 

37


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

(e) These investments are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or are not expected to do so going forward.

 

(f) As of December 31, 2015, the total cost of investment securities was approximately $27.5 million. Net unrealized appreciation was approximately $9.4 million, which was comprised of $14.1 million of unrealized appreciation of investment securities and ($4.7) million related to unrealized depreciation of investment securities. At December 31, 2015, the aggregate gross unrealized gain for federal income tax purposes was $10.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized gain for federal income tax purposes was $5.8 million based on a tax cost of $31.0 million.

 

(g) Rand Capital SBIC, Inc. investment.

 

(h) Reduction in cost and value from previously reported balances reflects current principal repayment.

 

(i) Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable on the Corporation’s Statement of Financial Position.

 

(j) Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.

 

(k) Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as those Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.

 

(l) Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where greater than 50% of the board representation is maintained.

 

(m) Gemcor II, LLC is an “unconsolidated significant subsidiary” as defined in SEC’s Regulation S-X.

 

(n) Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.

Investments in and Advances to Affiliates

 

Company

 

Type of Investment

  December  31,
2014

Fair Value
    Gross
Additions
(1)
    Gross
Reductions
(2)
    December 31,
2015 Fair
Value
    Amount  of
Interest/

Dividend/
Fee
Income(3)
 

Control Investments:

           

Advantage 24/7 LLC

  53% Membership interest.   $ 99,500      $      $      $ 99,500      $   

Gemcor II, LLC

 

$1,000,000 subordinated promissory note at 15%.

31.25 membership units.

   

 

622,800

9,300,000

  

  

   

 


4,100,000

  

  

   

 

(205,828


  

   

 

416,972

13,400,000

  

  

   

 

77,077

1,743,934

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Gemcor     9,922,800        4,100,000        (205,828     13,816,972        1,821,011   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Control Investments   $ 10,022,300      $ 4,100,000      ($ 205,828   $ 13,916,472      $ 1,821,011   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Affiliate

Investments:

           

BeetNPath, LLC

  1,119,024 Series A-2 Preferred Membership Units.          $ 359,000             $ 359,000        7,250   

Carolina Skiff LLC

 

$985,000 Class A preferred membership interest at 9.8%.

$250,000 subordinated promissory note at 14%.

6.0825% Class A common membership interest.

 

 

 

 

985,000

125,000

600,000

  

  

  

 

 

 

 

  

  

  

 

 

 

 

(985,000

(125,000

  

 

 

 

 

600,000

  

  

  

 

 

 

 

81,782

14,778

116,052

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Carolina Skiff     1,710,000               (1,110,000     600,000        212,612   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Chequed.com, Inc.

 

408,476 Series A preferred shares.

$250,000 convertible promissory note at 8%.

   

 

1,383,222

250,000

  

  

   

 


  

  

   

 

(1,383,222

(250,000


   

 


  

  

   

 


11,507

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Chequed     1,633,222               (1,633,222            11,507   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

Company

 

Type of Investment

  December  31,
2014

Fair Value
    Gross
Additions
(1)
    Gross
Reductions
(2)
    December 31,
2015 Fair
Value
    Amount  of
Interest/

Dividend/
Fee
Income(3)
 

CrowdBouncer, Inc.

  300,000 Series A preferred shares.                                   

First Wave Products

Group, LLC

 

$500,000 senior term notes at 10%.

$280,000 junior term notes at 10%.

Warrant for 41,619 capital securities.

   

 

 

637,992

308,687

22,000

  

  

  

   

 

 

23,571

7,782

  

  

  

   

 

 

(411,563

(316,469

(22,000


   

 

 

250,000

  

  

  

   

 

 

24,571

8,447

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total First Wave     968,679        31,353        (750,032     250,000        33,018   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Genicon, Inc.

  1,586,902 Series B preferred shares.            1,000,000               1,000,000          

GiveGab, Inc.

  5,084,329 Series Seed preferred shares.     403,388        212,833        (191,907     424,314          

G-TEC Natural Gas

Systems

  17.8% Class A membership interest. 8% cumulative dividend.     100,000                      100,000          

Intrinsiq Materials,

Inc.

 

599,055 Series 2 preferred shares.

$95,000 convertible promissory note at 8%.

   

 

600,002

  

  

   

 


95,000

  

  

   

 

(600,002


  

   

 


95,000

  

  

   

 


2,436

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Intrinsiq     600,002        95,000        (600,002     95,000        2,436   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Knoa Software, Inc.

  973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares.    

 

381,503

490,752

  

  

   

 


  

  

   

 


  

  

   

 

381,503

490,752

  

  

   

 


  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      872,255                      872,255          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

KnowledgeVision

Systems, Inc.

 

200,000 Series A-1 preferred shares.

214,285 Series A-2 preferred shares.

129,033 Series A-3 preferred shares.

Warrant for 46,743 Series A-3 shares.

   

 

 

 

250,000

300,000

  

  

  

  

   

 

 

 


165,001

35,000

  

  

  

  

   

 

 

 

(250,000


  

  

  

   

 

 

 


300,000

165,001

35,000

  

  

  

  

   

 

 

 


  

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Knowledge Vision     550,000        200,001        (250,000     500,001          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mezmeriz, Inc.

 

1,554,565 Series seed preferred shares.

$200,000 convertible notes at 8%.

   

 


200,000

  

  

   

 

351,477

  

  

   

 


(200,000

  

   

 

351,477

  

  

   

 


  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Mezmeriz     200,000        351,477        (200,000     351,477          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Microcision LLC

 

$1,500,000 subordinated promissory note at 11%.

15% Class A common membership interest.

   

 

1,891,964

  

  

   

 


  

  

   

 


  

  

   

 

1,891,964

  

  

   

 

208,116

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Microcision     1,891,964                      1,891,964        208,116   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

New Monarch

Machine Tool, Inc.

  22.84 common shares.     22,841                      22,841        30,409   

OnCore Golf

Technology, Inc.

 

150,000 Series AA preferred shares.

$150,000 subordinated convertible promissory note at 6%.

   

 


  

  

   

 

375,000

150,000

  

  

   

 

(187,500


  

   

 

187,500

150,000

  

  

   

 


3,945

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total OnCore            525,000        (187,500     337,500        3,945   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Rheonix, Inc.

 

9,676 common shares.

1,839,422 Series A preferred shares.

50,593 common shares.

589,420 Series B preferred shares.

$680,475 convertible promissory notes at 8%.

   

 

 

 

 

11,000

2,165,999

59,000

  

  

  

  

  

   

 

 

 

 


702,732

702,732

  

  

  

  

  

   

 

 

 

 


(702,732

  

  

  

  

   

 

 

 

 

11,000

2,165,999

59,000

702,732

  

  

  

  

  

   

 

 

 

 


22,258

  

  

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Rheonix     2,235,999        1,405,464        (702,732     2,938,731        22,258   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SciAps, Inc.

 

187,500 Series A convertible preferred shares.

274,299 Series A-1 convertible preferred shares.

117,371 Series B preferred shares.

   

 

 

1,500,000

  

  

  

   

 

 


504,710

250,000

  

  

  

   

 

 

(500,000


  

  

   

 

 

1,000,000

504,710

250,000

  

  

  

   

 

 


4,711

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total SciAps     1,500,000        754,710        (500,000     1,754,710        4,711   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SOMS Technologies,

LLC

  5,959,490 Series B membership interests.     528,348                      528,348        4,355   

Statisfy, Inc.

 

65,000 Series seed preferred shares.

Warrant for 1,950,000 Series seed preferred shares.

   

 


  

  

   

 

20,968

629,032

  

  

   

 


  

  

   

 

20,968

629,032

  

  

   

 


  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Statisfy            650,000               650,000          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

Company

 

Type of Investment

  December  31,
2014

Fair Value
    Gross
Additions
(1)
    Gross
Reductions
(2)
    December 31,
2015 Fair
Value
    Amount  of
Interest/

Dividend/
Fee
Income(3)
 

Teleservices

Solutions Holdings,

LLC

 

250,000 Class B shares.

1,000,000 Class C shares.

80,000 Class D preferred units.

104,198 Class E preferred units.

   

 

 

 

250,000

1,070,680

80,000

  

  

  

  

   

 

 

 


120,000

11,200

104,198

  

  

  

  

   

 

 

 

(250,000


  

  

  

   

 

 

 


1,190,680

91,200

104,198

  

  

  

  

   

 

 

 


168,000

15,680

  

  

  

  

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Teleservices     1,400,680        235,398        (250,000     1,386,078        183,680   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tilson Technology

Management, Inc.

  12 Series B preferred shares.            600,000               600,000        14,417   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Affiliate Investments   $ 14,617,378      $ 6,420,236      ($ 6,375,395   $ 14,662,219      $ 738,714   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Total Control and Affiliate Investments   $ 24,639,678      $ 10,520,236      ($ 6,581,223   $ 28,578,691      $ 2,559,725   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.

 

(1) Gross additions include increases in the cost basis of investments resulting from new portfolio investment, follow on investments, capitalized interest and the accretion of discounts. Gross Additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of a another category.

 

(2) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.

 

(3) Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate categories, respectively.

 

40


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)

 

 

Industry Classification

   Percentage of Total
Investments (at fair value)
as of December 31, 2015
 

Manufacturing

         49.6

Software

     22.2

Healthcare

     13.9

Contact Center

     6.7

Consumer Product

     3.3

Professional Services

     1.6

Oil and Gas

     1.4

Electronics

     1.0

Marketing

     0.3
  

 

 

 

Total Investments

     100
  

 

 

 

 

41


Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014

 

(a)

Company, Geographic Location, Business
Description, (Industry)

and Website

 

Type of Investment

  (b)
Date
Acquired
    (c)
Equity
    Cost     (d)(f)
Fair
Value
    Percent
of Net
Assets
 

Non-Control/Non-Affiliate Investments — 17.5% (j)

           

BeetNPath, LLC(e)(g)

Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats.
(Consumer Product)

www.grainful.com

  $150,000 convertible promissory
note at 6% due October 20, 2016.
    10/20/14        —        $ 150,000      $ 150,000        0.5

Crashmob, Inc.(e)(g)

Boston, MA. Mobile marketing platform for engagement, advertising and surveys. (Software)

www.statisfy.co

  500,000 Series seed preferred
shares.
    8/18/14        4     500,000        500,000        1.5

Empire Genomics, LLC(e)(g)

Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)

www.empiregenomics.com

  $600,000 senior secured convertible term note at 10% due December 1, 2015.     6/13/14        —          600,000        600,000        1.9

Kinex Pharmaceuticals, Inc.(e)(g)

Buffalo, NY. Specialty pharmaceutical and drug development. (Health Care)

www.kinexpharma.com

  11,574 common shares.     9/8/14        <1     143,285        254,628        0.8

Mercantile Adjustment Bureau, LLC(e)(g)

Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center)

www.mercantilesolutions.com

 

$1,099,039 subordinated secured note at 13% due October 30, 2017.

$150,000 subordinated debenture at 8% due June 30, 2018.

Warrant for 3.29% membership interests. Option for 1.5% membership interests.

(i) Interest receivable $79,025.

    10/22/12        4  

 

 

 

1,070,697

150,000

97,625

  

  

  

 

 

 

 

1,070,697

150,000

97,625

  

  

  

 
       

 

 

   

 

 

   
  Total Mercantile         1,318,322        1,318,322        4.1

OnCore Golf Technology, Inc.(e)(g)

Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product)

www.oncoregolf.com

  80,000 Series AA preferred shares.     12/31/14        4     200,000        200,000        0.6

SocialFlow, Inc.(e)(g)

New York, NY. Provides instant analysis of social networks using proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)

www.socialflow.com

  1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares.     4/5/13        4     1,250,000        1,250,000        3.9

Somerset Gas Transmission Company, LLC

Columbus, OH. Natural gas transportation.

(Oil and Gas)

www.somersetgas.com

  26.5337 units.     7/10/02        3     719,097