SOURCE: Rand Capital Corporation

Rand Capital Corporation

August 02, 2016 16:15 ET

Rand Capital Invests $2.2 Million in Second Quarter of 2016

BUFFALO, NY--(Marketwired - August 02, 2016) -

  • 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  

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