Rand Capital Invests $2.2 Million in Second Quarter of 2016

BUFFALO, NY -- (Marketwired) -- 08/02/16 --

  • Net Asset Value per share of $5.28 at quarter end
  • Added eHealth Global Technologies to portfolio with $1.5 million debt investment
  • Provided $0.7 million in loans as follow-on funding to support growth of five portfolio companies
  • Strong cash position with $14.4 million on hand; current priority to build investment income

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

Allen F. ("Pete") Grum, President and Chief Executive Officer of Rand Capital, commented, "While we have a strong balance sheet and sufficient capital, we are currently prioritizing debt instrument investments to generate interest income. Our goal is to replace the income previously generated from investments exited in the trailing first quarter. All of the follow-on and initial investments we made in the second quarter were loans."

He added, "We believe we have a straight-forward portfolio strategy:

  • Identify investments with strong growth potential to drive capital appreciation,
  • Balance the maturities of our investments to allow for staging of exits,
  • And, make investments that provide dividend or interest income to support operating costs.

Our pipeline of investment opportunities is strong. And, we believe that with this approach, we can repeat the levels of growth and success we have had over the last five and ten year periods."

Second Quarter Highlights

  • Reported $5.28 net asset value (NAV) per share at June 30, 2016, up $0.12 per share, or 2%, over June 30, 2015.
  • Invested $1.5 million in eHealth Global Technologies, Inc. during the quarter, a new addition to the Rand portfolio.
  • Supported existing portfolio companies with approximately $748,000 of loans during the quarter:
    • Empire Genomics, LLC: $250,000
    • SciAps, Inc.: $200,000
    • BeetNPath, LLC: $150,000
    • Genicon, Inc.: $100,000
    • Knoa Software, Inc.: $ 48,466
  • Made investments in the first half of 2016 that are expected to generate approximately $375,000 in annualized interest income.
  • Portfolio fair value was $27.7 million and cash was $14.4 million at the end of the 2016 second quarter.

Compared with the prior-year period, dividend and interest income was down $0.5 million in the second quarter of 2016. The decline was the result of the sale in the first quarter of Gemcor, a large dividend and interest generating asset. Additionally, operating expenses in the current quarter were up $104,723 compared with last year's second quarter, primarily due to higher professional fees related to evaluation of strategic options.

Selected portfolio highlights:

  • eHealth Global Technologies, Inc. (http://ehealthtechnologies.com/), a new investment this quarter, is an industry-leading provider of clinically-informed referral services. The company's eHealth Connect® solution enhances patient and physician satisfaction by intelligently aggregating patients' clinical records to streamline referrals. The company's eHealth Connect® Image Exchange enables automated access to full diagnostic quality medical images within the context of an aggregated patient record. Rand provided $1.5 million in a senior subordinated secured term loan.
  • SciAps, Inc. (http://sciaps.com/), is a leading provider of handheld analytical instruments used in industrial, service/security, and mining markets to identify and analyze compounds, minerals and elements. Rand provided a $200,000 subordinated convertible note in the second quarter, supporting the company's investments in new products and market penetration initiatives. This is the third follow-on since the initial investment in July 2013, and brings Rand's total investment in SciAps to approximately $2.45 million at June 30, 2016.
  • Tilson Technology Management, Inc. (http://www.tilsontech.com/). Another rapidly growing company within the Rand portfolio, Tilson is an information technology professional services and network construction company. Tilson recently announced that it was selected to manage the construction of security, communications and other elements for the final construction stages of a new US Embassy near Oslo, Norway. Tilson's headcount has approximately doubled in each of the past two years to support its growth initiatives. As of June 30, 2016, Rand's investment in Tilson was valued at $0.6 million in series B preferred shares issued in January 2015.

As of June 30, 2016, Rand's portfolio consisted of 31 active businesses. The portfolio is comprised of approximately 68% in equity investments and 32% in debt investments, compared with 77% in equity investments and 23% in debt investments at the same time last year.

Capital Allocation Priorities and Growth Strategy
Rand's priority for its capital is investment in its portfolio. However, the Company also maintains a share repurchase program which was authorized by the Board of Directors in October 2015. Under the program, the Company may repurchase up to approximately 465,000 shares through October 22, 2016. Rand will opportunistically use its capital to repurchase shares as a means of returning capital to shareholders.

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

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

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

FINANCIAL TABLES FOLLOW

   
   
Rand Capital Corporation and Subsidiary  
Consolidated Statements of Financial Position  
             
    June 30,        
    2016     December 31,  
    (Unaudited)     2015  
ASSETS                
  Investments at fair value:                
    Control investments (cost of $99,500 and $1,141,472, respectively)   $ 1,512,000     $ 13,916,472  
    Affiliate investments (cost of $16,708,952 and $17,663,217, respectively)     12,824,154       14,662,219  
    Non-Control/Non-affiliate investments (cost of $13,468,832 and $8,606,053, respectively).     13,321,933       8,253,709  
  Total investments, at fair value (cost of $30,277,284 and $27,410,742, respectively     27,658,087       36,832,400  
  Cash     14,376,673       5,844,795  
  Interest receivable (net of allowance: $122,000 at 6/30/16 and 12/31/15)     254,801       215,224  
  Deferred tax asset     633,086       -  
  Prepaid income taxes     -       65,228  
  Other assets     1,650,534       1,604,413  
      Total assets   $ 44,573,181     $ 44,562,060  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)                
  Liabilities:                
  Debentures guaranteed by the SBA (net of debt issuance costs)   $ 7,814,073     $ 7,800,373  
  Income tax payable     1,417,888       -  
  Deferred tax liability     -       2,361,186  
  Profit sharing and bonus payable     1,593,659       282,000  
  Accounts payable and accrued expenses     249,177       238,911  
  Deferred revenue     60,336       25,930  
      Total liabilities     11,135,133       10,708,400  
                 
  Stockholders' equity (net assets):                
  Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,328,538 as of 6/30/16 and 12/31/15     686,304       686,304  
  Capital in excess of par value     10,581,789       10,581,789  
  Accumulated net investment loss     (1,261,104 )     (24,580 )
  Undistributed net realized gain on investments     26,629,373       18,262,401  
  Net unrealized (depreciation) appreciation on investments     (1,750,823 )     5,795,237  
  Treasury stock, at cost; 534,496 shares as of 6/30/16 and 12/31/15     (1,447,491 )     (1,447,491 )
      Total stockholders' equity (net assets) (per share 6/30/16: $5.28, 12/31/15: $5.35)     33,438,048       33,853,660  
      Total liabilities and stockholders' equity   $ 44,573,181     $ 44,562,060
 
   
   
Rand Capital Corporation and Subsidiary  
Consolidated Statements of Operations  
(Unaudited)  
                         
    For the Quarter Ended
June 30,
    For the Six Months Ended June 30,  
    2016     2015     2016     2015  
Investment income:                                
  Interest from portfolio companies:                                
    Control investments   $ -     $ 20,275     $ 11,828     $ 42,420  
    Affiliate investments     94,614       96,522       159,575       211,651  
    Non-Control/Non-Affiliate investments     68,527       66,422       129,632       115,222  
      Total interest from portfolio companies     163,141       183,219       301,035       369,293  
                                   
  Interest from other investments:                                
    Non-Control/Non-Affiliate investments     18,648       8,369       21,709       15,190  
      Total interest from other investments     18,648       8,369       21,709       15,190  
                                   
  Dividend and other investment income:                                
    Control investments     -       491,208       -       903,359  
    Affiliate investments     33,232       29,061       80,797       58,429  
      Total dividend and other investment income     33,232       520,269       80,797       961,788  
                                   
  Fee income:                                
    Control investments     -       2,000       2,000       4,000  
    Affiliate investments     1,167       416       1,862       1,833  
    Non-Control/Non-Affiliate investments     4,318       4,251       7,234       8,167  
      Total fee income     5,485       6,667       11,096       14,000  
Total investment income     220,506       718,524       414,637       1,360,271  
                                 
Operating expenses:                                
  Salaries     155,437       149,555       310,875       299,110  
  Bonus and profit sharing     -       -       1,411,659       -  
  Employee benefits     36,711       29,394       126,222       59,801  
  Directors' fees     47,380       29,300       94,755       51,050  
  Professional fees     86,288       20,433       151,048       93,502  
  Stockholders and office operating     61,542       55,717       124,036       115,114  
  Insurance     6,258       6,300       17,518       17,554  
  Corporate development     16,055       14,400       31,525       31,381  
  Other operating     2,375       2,224       5,975       5,874  
        412,046       307,323       2,273,613       673,386  
  Interest on SBA obligations     77,570       77,569       155,139       151,891  
  Total operating expenses     489,616       384,892       2,428,752       825,277  
Net investment (loss) income before income taxes     (269,110 )     333,632       (2,014,115 )     534,994  
  Income tax (benefit) expense     (114,564 )     101,920       (777,591 )     173,987  
Net investment (loss) income     (154,546 )     231,712       (1,236,524 )     361,007  
                                 
Net realized gain on investments:                                
  Control investments     -       -       13,176,313       -  
  Non-Control/Non-Affiliate investments     168,140       131,181       168,140       262,925  
  Net realized gain before income taxes     168,140       131,181       13,344,453       262,925  
  Income tax expense     34,520       42,591       4,977,481       89,742  
  Net realized gain on investments     133,620       88,590       8,366,972       173,183  
                                 
Net change in unrealized depreciation or appreciation on investments:                                
  Control investments     -       -       (11,362,500 )     -  
  Affiliate investments     (325,000 )     (193,436 )     (747,800 )     (193,436 )
  Non-Control/Non-Affiliate investments     69,444       (73,219 )     69,444       (127,728 )
  Change in unrealized depreciation or appreciation before income taxes     (255,556 )     (266,655 )     (12,040,856 )     (321,164 )
  Deferred income tax benefit     (78,390 )     (89,449 )     (4,494,796 )     (109,618 )
  Net decrease in unrealized depreciation or appreciation on investments     (177,166 )     (177,206 )     (7,546,060 )     (211,546 )
                                 
Net realized and unrealized (loss) gain on investments     (43,546 )     (88,616 )     820,912       (38,363 )
Net (decrease) increase in net assets from operations   $ (198,092 )   $ 143,096     $ (415,612 )   $ 322,644  
Weighted average shares outstanding     6,328,538       6,328,538       6,328,538       6,328,538  
Basic and diluted net (decrease) increase in net assets from operations per share   $ (0.03 )   $ 0.02     $ (0.07 )   $ 0.05  

Contacts:

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

Investors:
Deborah K. Pawlowski
Kei Advisors LLC
Phone: 716.843.3908
Email: dpawlowski@keiadvisors.com

Source: Rand Capital Corporation