Greetings, and welcome to Rand Capital Corporation Second Quarter 2018 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host Deborah Pawlowski, Investor Relations. Thank you. Please go ahead.

Thanks Rob, and good afternoon, everyone. We certainly appreciate your time today and your interest in Rand Capital. Joining me on the call are Pete Grum, our Chief Executive Officer and Dan Penberthy, our Executive Vice President and Chief Financial Officer. Pete and Dan will be reviewing the results that were published this morning in the new release. If you don't have that release and the slide that will also accompany today’s discussion they can be found on our website at www.randcapital.com. So, if you’re looking at that slide deck, and turn to Slide 2, I’ll review our Safe Harbor statement. As you are likely aware, we may make some forward-looking statements during this presentation, as well as, during the question-and-answer session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today. These risks and uncertainties and other factors are provided in the earnings release, as well as, in other documents filed by the Company with the Securities and Exchange Commission. So, you can find these documents either on our website or at sec.gov. So with that, let me turn it over to Pete to begin his discussion. Pete?

Good afternoon, everyone. We’re happy to happy have this opportunity to update you on Rand’s second quarter. I’m going to start with Slide 3. At the end of the quarter, our net asset value or as we call it the NAV was $4.87 per share, down from $4.97 at the end of Q1 2018. From an operating standpoint, our net investment income nearly covered all of our expenses, only short by $0.01 a share. Most of the decline in the NAV was due to unrealized losses we recorded on certain investments, which amounted to $0.09 per share base [ph]. This was from our normal quarterly review we’ve performed based on the operating performances of certain companies. During the first quarter, we invested $775,000 on one of our existing portfolio company KnowledgeVision. These debt instruments will be used to support KnowledgeVision progression of its smart media technology. Our initial investment in KnowledgeVision was back in 2013. Since then they have increased their registered user base ten-fold. As you know, if you’ve been listening in the past couple of years, we have been focused on building our investment income. That resulted in an 18% increase with investment income over the prior year quarter and a 15% increase over the first half of the year. Dan, when he goes through the financial results later in the discussion can highlight that. Finally, I’m pleased that we finally received word from the SBA that our application for $6 million of additional leverage has been verbally approached by the SBA Credit Committee. This has been a long process and we looked forward to finalizing the process. If you now turn to Slide 4, as I do each quarter, I want to take the opportunity to feature some of the companies within our portfolio, as a way…

Thanks, Pete, and good afternoon, everyone. If you could please turn to Slide 11, I'll start with the net asset value per share or NAV. As Pete mentioned, we finished the quarter with net asset value at $4.87 per share. As you can see on the chart, NAV declined $0.10 per share over the trailing quarter. This decrease is attributable primarily to two factors. First, our valuation policy has us review the fair value of our investments each quarter. This sometimes results in unrealized appreciation or depreciation in fair value. This is based on the operating performance trends of the particular portfolio companies. During the quarter, we recognized unrealized depreciation in fair value amounting to about $0.09 per share. The second factor pertains to the fact that our expenses modestly exceeded our investment income this quarter. This impact was about $0.01 per share. Please turn to Slide 12. Here, I’ve summarized our operating performance for the second quarters of 2018 and 2017 and also the first half of both periods. I'll take you through the key line items that are noted here on the scheduled. As we’ve previously mentioned, we have been investing in more income producing instruments over the past few years. This has increased our investment income. You can see the results. Our second quarter investment income of $413,000 is up 18% over last year. On a year-to-date basis investment income is up $98,000 or 14%. Our second quarter expenses of $474,000 are 22% below the same quarter of the prior year. The decrease in expenses was due to lower professional services, partially offset by bad debt expense. For the year, expenses are down $62,000 or 6%. As I mentioned in the last slide, we have recorded unrealized losses on certain investments in accordance with our valuation policy.…

Thanks, Dan. If you could turn to Slide 15, when we reemphasized our cash along capital priority, our first and foremost priority is to execute on our business plans, which calls for investments to deliver both high returns, as well as, cash for reinvestment. As we consider our various alternatives, we're also focused on structuring our investments to deliver sufficient cash flow to cover our ongoing operating and financing expenses. Now we hope to be able to put an additional $6 million of leverage from the SBA to put to work. Finally, we may also consider returning capital to shareholders on an opportunistic basis when cash flow dictates and on good timing. Before we open our lines for questions, I want to say I hope you can see, lot of excitement going with brand and a lot of underlying value in our portfolio of companies. We as a management team are working hard to take to the next level by driving our growth strategy. With that, we’ll open it up for question.

[Operator Instructions] Our first question comes from Thomas Burns, a Private Investor. Please proceed with your question.

Yes, I'd like to ask, Pete, in light of the fact over the last five years, the way I look at the 10-K, the two top officers have taken out millions of dollars in compensation between bonuses and salaries and the shareholders who actually own the company hadn’t received anything. In fact, be share price today, I don't know if you’ve looked at it, $2.38 which is just about half of what you’re reporting your net asset to be. Given the market is in my opinion shown a big no confidence in management. Have you considered either liquidating the company or doing a large stock buyback to finally give long suffering shareholders some relief other than just earning enough interest income, which you seem to be holding to cover expenses?

Let me take that in pieces, I think it was two years ago at our Annual Meeting, you can stay online or I’d be happy to send it to you and discuss it. We looked at everything from liquidating the company, to going dark, to merging the company with another thing, to becoming a traditional BDC and the alternatives needed to make those happen, cash needed to make those happen. And at the time, the thing that we could control was to continue to grow the company, using the SBA as our partner. It was our analysis and the board’s analysis at the time, liquidating the company did not make any sense. The board continues to look at alternatives. We have had discussions throughout the years with other ways to run the company; have not found that we could execute as a board. But we will continue to look for any other alternatives at the time we can control growing the company through the SBA. If you’re following, and you sound like you do follow the industry, you’ll see that all of the BDCs and specifically, the smaller ones, the stock price has not been a good place to be. I'm sure because you’ve read our Ks and Qs over the time, you also know that both Dan and I have taken those bonuses you’ve referred to and used them to buy substantial parts of our net worth are in the stock of the company, so we’re very aware of what’s happened to the price of the stock.

Can I have a follow-up?

Yeah, yeah, absolutely.

Okay, I appreciate that. Well, I appreciate that answer, but I still don't understand quite honestly, I am familiar with the whole industry and the fact that many of the BDCs still at discounts and they’re more normally in the 15% to 20% range, not 50%. To me, it seems like it’s a bit gift that the market seems to be given management, it's like a no brainer in other words, if I’m making decision, if I had $1 million to invest, and I can either invest it and loan it to somebody at 8% with maybe some warrants or I can buy my own stock back at $0.50 on the $1, I still don't understand management’s reticence, other than it would mean that the company would temporarily decrease in value and the management fee seems to be based upon the size of the company. So, I respect, and obviously, I'd like to hear your answer that one of the reasons that the company seems to be growing by the small business administration is to generate more fee income, rather than really generating returns to shareholders and maximizing shareholder value. Just my thought.

I appreciate your thoughts. We have to take it on offline if you like. There are no really management fees as you referred to it. Or maybe I misunderstood what you’re implying with that. There are no management fees.

Okay, so management would get paid the same whether the company was half the size or double the size?

Exactly. Yes.

Okay.

In our business, we are, what is referred to as internally managed, most of the other BDCs are what's called externally managed and they do have a fee that is based on the size of the company.

Okay. Thank you very much for your answer.

Thank you.

[Operator Instructions] Our next question is from Brett Reiss with Janney Montgomery. Please proceed with your question.

Yeah, hi and if this was asked and answered, I apologize because I’ve had a hop off briefly. Pete, you mentioned in your prepared remarks that you're going to be open to opportunistically sharing capital with shareholders. Can you give us a little bit more color and what you have in mind? And what milestones or triggers would we have to see, to see some of that stuff happen?

If you mean by that, buying back shares, we have done that opportunistically in the past to the point of about 0.5 million shares over the years. And we have done that in situations where we have cash flow from operations, exceeding expenses and I think the board would use that as a trigger again.

Okay, now I’d say about two years ago, you had monetized one of your major investments and there was a huge, as a percentage of the net worth of the company that came in and at that time you did not dividend out or do something with shareholders. What prevented you at that time and if something like that happens in the future, would that be different going forward?

The transaction you are talking about, I believe with GEMCORE [ph] which we didn’t monetize and really didn't change NAV because it went from a realized to an unrealized. And we did not pay a dividend and I frankly, struggle with whether dividend makes any sense because it’s not beneficial to us on tax basis. And frankly, the problem that we have is always we're too small to shrink the company is something that the board has not – has decided not to do and I’m not sure when they would do it. But we do hear from you and we hear from some other people that they would like a dividend because of our structure and kind of an atypical BDC we are taxpaying vehicle. And so paying out a dividend that has no tax advantage and frankly, we end up with a smaller company with the same fixed costs. So, the board when we’ve discussed it and we do discuss at every meaning has not adopted that strategy.

Right, right. You have a new large, deep pocketed, sophisticated shareholder. What do you think brings them to the table? What are they seeing here that the market is not seeing?

You can call them and ask them yourself and we have met with them and as we will meet with all shareholders and talk to them and talk through the portfolio. Show them the information that’s publicly available and what we view them and we’ll see; where it goes from them. We have a very nice and cordial relationship with them and ongoing and I think I would rather have them explain what they saw in the company rather than, me put words into their mouth.

Well, I hope if I call them, they'll take my call.

Okay, it wouldn't surprise me, if they say that they weren't on this call because they have been in previous ones.

Right, right. All right. Thank you. Enjoy the rest of the summer.

Thank you, Brett.

Our next question is from Norman Kadezja, a Private Investor. Please proceed with your question.

Hi, Pete and Dan. We’ve received verbal okays from the SBA credit, when will the cash actually arise or do we have a guess?

Well, the way and they're under a new process and it’s not a process we have gone through. What I believe will happen within the next couple of weeks, we will receive a letter to that effect. And what I believe happens and has happened historically you then pay a fee to in essence reserve that $6 million and then you take it down over time as you have deals that match up with it. So, it's not a one shot deal. There is a reserve part, I believe, you pay 1% upfront and then you take it down over time to fund deals.

Congratulations. Looking at your portfolio of companies; GENICON, eHealth and OutMatch are three of your larger holdings. Will any of those three companies move into the high traction stage net share if you had to guess?

Dan is more involved, but I believe he held probably as the highest revenues, but I’ll let Dan answer that if he heard it, able to do it off the cuff, Dan.

Yeah, I guess, I'm not prepared to answer that given confidentiality issues, but each one of those companies are beginning to make deeper penetrations into their respective fields of expertise, their business segments. And certainly, we remain optimistic that their revenue trends will continue. So, yeah, I think that those companies have as high a potential as any of the other ones in our portfolios to continue their growth trajectories, that's a generic enough and safe enough answer.

Okay. One other remark, I think it was Bill Nixon [ph], whether it was the last call or a couple of calls before, talked about penny stocks and stocks trading at $5 a share. And, I guess, until it really affects me, I didn't pay enough attention because this week I got a letter from Merrill Lynch saying that they have a new policy on low priced over-the-counter stocks, specifically stocks trading below $5 a share. And in most cases they will not allow customers or clients to purchase stocks that are in that $5 or below category. And I know UBS actually put in that same type of rule, I’m not sure exactly it’s the same within the last month or two. So I’d like the companies to be aware that the brokerage community, looks like it's toughening up on over-the-counter stocks, especially those trading over $5 a share, which prevents me from using my knowledge account to buy anymore Rand of these [ph], one of the low prices. So, something you might once again, not be aware of. Thank you so much.

Thank you. We actually did follow-up with Bill after the last call, and from the work we did, we then talk with Bill we weren’t -- Rand was not covered; A, because it was trading on NASDAQ over-the-counter, but we will stay aware. That maybe just the Merrill Lynch, but there is definitely a trend either through indexing and a variety of other things that is not helpful for smaller cap stock.

Ladies and gentlemen, we’ve reached the end of the question-and-answer session. At this time, I'd like to turn the call back to Pete Grum for closing comments.

Thank you. As I’ve said before, and I talked to some of you in between calls, we’re always willing to learn about your concerns and any things we can enlighten you to what we're doing up here and feel free to call in between and we look forward to talking to you another quarter.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.