- Total assets grew by $24.3 million, or 60%, in 2019 to $64.8
million, benefiting from $25 million investment from East Asset
Management
- Ended the year with $25.8 million of cash available for
future investments and dividend payments
- Invested $2.8 million of follow-on capital in six portfolio
companies during 2019
- Net Asset Value per share was $3.66 at December 31, 2019,
impacted by 8.3 million shares issued to East
Rand Capital Corporation (Nasdaq: RAND) (“Rand” or “Rand
Capital”), a business development company, announced its results
for the quarter and year ended December 31, 2019.
Allen F. (“Pete”) Grum, President and Chief Executive Officer of
Rand Capital, commented, “2019 was a transformational year for us.
We ended it as a fundamentally different company, structured to
provide better returns to our shareholders. The year culminated
with a $25 million investment in Rand by East Asset Management
(East), in exchange for approximately 8.3 million shares of Rand
common stock. We received approximately $9.5 million in portfolio
assets and $15.5 million of cash, which we look forward to
investing to grow Rand’s investment portfolio.”
He noted, “We have nearly completed the process of transforming
Rand into a regulated investment company (RIC). As announced last
week, our Board declared a $23.7 million, or $1.62 per share,
special dividend equivalent to our accumulated earnings and
profits, payable in a combination of cash and Rand common stock.
The members of the Rand Board and management team have all
expressed their intent to elect to receive the dividend in the form
of Rand common stock, evidencing our confidence in Rand’s future.
Following payment of the special dividend, the Board intends to
authorize a reverse stock split of between 7:1 and 10:1. The effect
will be to consolidate the number of existing shares of Rand stock
into fewer, proportionately more valuable shares.”
Mr. Grum added, “Rand Capital Management’s newly formed
investment committee has been actively engaged in seeking
opportunities to put our new capital to work. Our focus is on more
interest-yielding debt securities to increase investment income,
facilitating the future payment of regular cash dividends to our
shareholders.”
Fourth Quarter and Full Year 2019 Financial
Highlights
- Driven by the $25 million East investment in Rand, at December
31, 2019, the Company’s portfolio fair value was $37.0 million and
consolidated cash was $25.8 million ($1.76 per share).
- For the full year, Rand invested in six companies totaling $2.8
million.
- During the fourth quarter, invested $1.75 million supporting
two existing portfolio companies with follow-on investments:
- GoNoodle, Inc., $1,500,000
- Lumious (formerly Tech 2000, Inc.), $250,000
- During the fourth quarter, Rand sold its equity interest in
Microcision LLC for $1.5 million. Initially acquired in 2009, Rand
realized a $1.5 million pre-tax gain on the sale. Microcision LLC
also repaid principal of approximately $453,000. In the first
quarter of 2020, Rand updated its $1.5 million subordinated note
due from Microcision LLC to reflect an 11% interest rate with a
five year maturity, and received a warrant for 5% of the company’s
equity.
- Reported $3.66 net asset value (NAV) per share at December 31,
2019, compared with $4.39 at September 30, 2019 and $4.99 at
December 31, 2018.
- NAV benefited from the net gain on the sale of the equity
investment in Microcision LLC as well as an increase in net
unrealized appreciation in other portfolio investments, including
ACV Auctions, Inc., in accordance with the Company’s valuation
policy.
- Offsetting this was the $0.83 per share dilutive impact of
issuing approximately 8.3 million shares to East, in conjunction
with the closing of the stock purchase transaction in
November.
- Investment income increased 47% and 29% over the prior-year
fourth quarter and full year, respectively, due to the Company’s
investment focus on income-generating instruments as well as
variations in nonrecurring investment income in each period.
Fourth Quarter 2019 Performance
Total investment income in the fourth quarter of 2019 was
$985,000, compared with $668,000 in the same period last year. The
$317,000 increase included approximately $76,000 of incremental
interest income, $70,000 of incremental dividend income, and
$170,000 of incremental nonrecurring fee income.
Total expenses in the 2019 and 2018 fourth quarters were
$726,000 and $684,000, respectively. Excluding costs related to the
East transaction that are in the statements of operations, fourth
quarter 2019 and 2018 expenses were $645,000 and $581,000,
respectively, with the prior year quarter benefiting from a $50,000
bad debt recovery. The 2019 fourth quarter includes costs for the
base management fee payable to Rand Capital Management, LLC
(“RCM”), the newly established external registered investment
adviser retained by Rand in conjunction with the East transaction.
RCM, as the external investment adviser, is now responsible for
paying certain expenses such as compensation and office
expenses.
Rand recorded a $1.5 million pre-tax gain upon the sale of its
equity investment in Microcision LLC during the fourth quarter of
2019, compared with a $338,000 realized pre-tax loss during the
prior-year fourth quarter.
The Company also recorded a positive change in pre-tax net
unrealized appreciation of $224,000 and $1.5 million in the fourth
quarters of 2019 and 2018, respectively. The 2019 appreciation was
driven by a favorable valuation adjustment for ACV Auctions, Inc.
and also benefited from an increased value of PostProcess
Technologies, Inc., two portfolio companies whose values increased
upon the completion of financing rounds during the quarter. These
increases were partially offset by valuation reductions of four
other portfolio companies and the reversal of previously recorded
appreciation of Microcision LLC, which was realized upon Rand’s
sale of its equity investment.
Full Year 2019 Performance
Total investment income was $2.7 million and $2.1 million for
the years ended December 31, 2019 and 2018, respectively. The
growth resulted from the Company’s investment focus on
income-generating instruments as well as variations in nonrecurring
investment income in each period. Total expenses for the years
ended December 31, 2019 and 2018 were $2.8 million and $2.2
million, respectively. Excluding costs related to the East
transaction, full year 2019 and 2018 expenses were $2.2 million and
$2.1 million, respectively.
Pre-tax realized gain was $1.1 million for the year ended
December 31, 2019, compared with a pre-tax realized loss of $1.5
million in 2018. The 2019 gain resulted primarily from the sale of
Rand’s equity investment in Microcision LLC in the fourth quarter,
partially offset by its investment in a company that ceased doing
business during the second quarter of 2019, reflecting a
reclassification of an unrealized loss previously recorded.
Pre-tax net unrealized depreciation on investments was a
decrease of $4.0 million and an increase of $780,000 for the years
ended December 31, 2019 and 2018, respectively.
Selected Portfolio Highlights
The following are new investments acquired as part of the East
transaction. All include a subordinated note that provides current
income.
- Andretti Indoor Karting & Games LLC (AIKG) offers go
karting, games, rides and adventure activities at each of its
locations in Marietta, Georgia; Orlando, Florida; and San Antonio,
Texas. Their venues also offer food and a full service bar,
catering to parties, meetings and special events. The investment
consists of a term note that had a fair market value of $4.4
million at December 31, 2019.
- Filterworks Acquisition USA, LLC is a licensed Florida
general and mechanical contractor, providing spray booth equipment,
frame repair machines and paint booth filter services. Since its
founding in 1988, the Filterworks team has installed over 1,500
paint booths. The investment includes a subordinated note as well
as Class A Units, collectively with a fair market value of $2.9
million at December 31, 2019.
- Hilton Displays Inc (HDI) is a nationally recognized
manufacturer of signage and branding products. Formed in 1981 and
based in upstate South Carolina, the company is an industry leader
with emphasis on primary brand identification, architectural,
retail interior, wayfinding, and digital display products. The
investment consists of a term loan that had a fair market value of
$1.2 million at December 31, 2019.
- Mattison Avenue Holdings, LLC provides venues for the
beauty industry. Currently leasing salon suites in the Dallas,
Houston and Tampa areas, Mattison Avenue provides facilities for
beauty professionals looking to expand their business. The
investment consists of promissory note that had a fair market value
of $1.0 million at December 31, 2019.
As of December 31, 2019, Rand’s portfolio consisted of 32 active
companies. At that date, the portfolio was comprised of
approximately 59% in equity investments and 41% in debt
investments, comparable with the mix at December 31, 2018.
Webcast and Conference Call
Rand will host a conference call and live webcast today, March
9, 2020, at 1:30 p.m. Eastern Time to review its financial
condition and results for the 2019 fourth quarter and full year, as
well as its strategy and outlook. The review will be accompanied by
a slide presentation, which will be available on Rand’s website at
www.randcapital.com under the “Investor Relations” heading. A
question-and-answer session will follow the formal
presentation.
Rand’s conference call can be accessed by calling (201)
689-8263. Alternatively, the webcast can be monitored on Rand’s
website at www.randcapital.com under the “Investor Relations”
heading.
A telephonic replay will be available from 4:30 p.m. ET on the
day of the call through Monday, March 16, 2020. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13698315. The webcast replay will be available in the Investors
section at www.randcapital.com, where a transcript will also be
posted once available.
ABOUT RAND CAPITAL
Rand Capital (Nasdaq: RAND) is an externally-managed Business
Development Company (BDC) with a wholly-owned subsidiary licensed
by the U.S. Small Business Administration (SBA) as a Small Business
Investment Company (SBIC). The Company’s investment objective is to
maximize total return to its shareholders with current income and
capital appreciation by focusing its debt and related equity
investments in privately-held, lower middle market companies with
committed and experienced managements in a broad variety of
industries. Rand invests in early to later stage businesses that
have sustainable, differentiated and market-proven products,
revenue of more than $2 million and a path to free cash flow or up
to $5 million in EBITDA. The Company’s investment activities are
managed by its external investment adviser, Rand Capital
Management, LLC. Additional information can be found at the
Company’s website where it regularly posts information:
https://www.randcapital.com/.
Safe Harbor Statement
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than historical facts, including but
not limited to statements regarding the intention of Rand Capital
and Rand Capital SBIC, Inc. (“Rand SBIC”) to elect to be taxed as a
RIC for U.S. federal tax purposes; the intention to declare and pay
a special cash and stock dividend; the expected timing for the
payment of the special dividend; the estimated amount of the
Company’s accumulated earnings and profits; the intention to adopt
a new dividend policy that includes regular cash dividends to
shareholders; the expected benefits of the transaction such as a
lower expense-to-asset ratio for Rand Capital, availability of
additional resources and an enhanced investment team; the
competitive ability and position of Rand Capital; and any
assumptions underlying any of the foregoing, are forward-looking
statements. Forward-looking statements concern future circumstances
and results and other statements that are not historical facts and
are sometimes identified by the words “may,” “will,” “should,”
“potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,”
“estimate,” “overestimate,” “underestimate,” “believe,” “could,”
“project,” “predict,” “continue,” “target” or other similar words
or expressions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove to be
incorrect, actual results may vary materially from those indicated
or anticipated by such forward-looking statements. The inclusion of
such statements should not be regarded as a representation that
such plans, estimates or expectations will be achieved. Important
factors that could cause actual results to differ materially from
such plans, estimates or expectations include, among others, (1)
the risk that Rand Capital and/or Rand SBIC may be unable to
fulfill the conditions required in order to elect to be treated as
a RIC for U.S. tax purposes; (2) uncertainty of the expected
financial performance of Rand Capital; (3) failure to realize the
anticipated benefits of the transaction; (4) the risk that the
board of directors of Rand Capital is unable or unwilling to adopt
a new dividend policy that includes the payment of regular cash
dividends on a going forward basis; (5) evolving legal, regulatory
and tax regimes; (6) changes in general economic and/or industry
specific conditions; and (7) other risk factors as detailed from
time to time in Rand Capital’s reports filed with the Securities
and Exchange Commission (“SEC”), including Rand Capital’s annual
report on Form 10-K for the year ended December 31, 2019, later
filed quarterly reports on Form 10-Q, the definitive proxy
statement and other documents filed with the SEC. Consequently,
such forward-looking statements should be regarded as Rand
Capital’s current plans, estimates and beliefs. Except as required
by applicable law, Rand Capital 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
December 31,
2019
2018
ASSETS Investments at fair
value: Control investments (cost of $0 and $99,500)
$
-
$
99,500
Affiliate investments (cost of $19,035,446 and $20,708,659,
respectively)
12,151,435
17,026,091
Non-Control/Non-Affiliate investments (cost of $25,584,017 and
$17,483,984, respectively)
24,869,357
17,541,213
Total investments, at fair value (cost of $44,619,463 and
$38,292,143, respectively)
37,020,792
34,666,804
Cash and cash equivalents
25,815,720
4,033,792
Interest receivable (net of allowance of $166,413 and $161,000,
respectively)
142,265
145,532
Deferred tax asset
1,204,198
525,198
Prepaid income taxes
343,096
1,138,708
Other assets
265,378
11,690
Total assets
$
64,791,449
$
40,521,724
LIABILITIES AND STOCKHOLDERS’
EQUITY (NET ASSETS) Liabilities: Debentures
guaranteed by the SBA (net of debt issuance costs)
$
10,786,913
$
8,554,443
Profit sharing and bonus payable
80,000
125,000
Accounts payable and accrued expenses
258,437
245,758
Deferred revenue
37,583
72,336
Total liabilities
11,162,933
8,997,537
Stockholders’ equity (net assets): Common stock,
$0.10 par; shares authorized 100,000,000 and 10,000,000,
respectively; sharesissued 15,196,367 and 6,863,034, respectively;
shares outstanding of 14,655,321 and 6,321,988, respectively
1,519,637
686,304
Capital in excess of par value
34,142,455
10,581,789
Accumulated net investment loss
(1,751,249
)
(1,665,552
)
Undistributed net realized gain on investments
27,083,281
26,221,443
Net unrealized depreciation on investments
(5,896,503
)
(2,830,692
)
Treasury stock, at cost: 541,046 shares
(1,469,105
)
(1,469,105
)
Total stockholders’ equity (net assets) (per share 2019: $3.66;
2018: $4.99)
53,628,516
31,524,187
Total liabilities and stockholders’ equity (net assets)
$
64,791,449
$
40,521,724
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
For the Quarter Ended December
31,
For the Year Ended December
31,
2019
2018
2019
2018
Investment income:
Interest from portfolio
companies:
Affiliate investments
$
190,861
$
225,648
$
823,565
$
741,432
Non-Control/Non-Affiliate
investments
280,122
209,755
696,975
757,308
Total interest from portfolio
companies
470,983
435,403
1,520,540
1,498,740
Interest from other
investments:
Non-Control/Non-Affiliate
investments
58,410
16,897
166,556
37,614
Total interest from other
investments
58,410
16,897
166,556
37,614
Dividend and other investment
income:
Control investments
-
60,000
-
60,000
Affiliate investments
13,125
142,419
320,806
318,324
Non-Control/Non-Affiliate
investments
259,042
-
259,042
6,058
Total dividend and other
investment income
272,167
202,419
579,848
384,382
Fee income:
Affiliate investments
16,179
4,042
27,639
15,667
Non-Control/Non-Affiliate
investments
167,186
9,564
430,113
170,551
Total fee income
183,365
13,606
457,752
186,218
Total investment income
984,925
668,325
2,724,696
2,106,954
Expenses:
Salaries
76,790
169,875
621,290
679,499
Profit sharing and bonuses
115,000
125,000
115,000
125,000
Employee benefits
45,452
45,977
189,157
194,818
Directors' fees.
30,128
36,627
117,500
128,750
Professional fees
141,182
186,386
548,041
407,159
Shareholders and office
operating
91,003
53,173
557,546
230,050
Insurance
7,232
6,599
38,302
34,187
Corporate development
15,814
20,647
67,441
62,117
Base management fee
85,483
-
85,483
-
Other operating
14,091
11,102
17,504
21,092
622,175
655,386
2,357,264
1,882,672
Interest on SBA obligations
104,190
78,594
408,039
311,000
Bad debt (recovery) expense
-
(50,342
)
5,413
-
Total expenses
726,365
683,638
2,770,716
2,193,672
Net investment gain (loss) before income taxes
258,560
(15,313
)
(46,020
)
(86,718
)
Income tax expense (benefit)
158,175
6,495
39,677
(18,312
)
Net investment gain (loss)
100,385
(21,808
)
(85,697
)
(68,406
)
Net realized gain (loss) on sales and dispositions of
investments:
Control investments
-
-
80,393
-
Affiliate investments
-
(338,469
)
(472,632
)
(1,464,142
)
Non-Control/Non-Affiliate
investments
1,510,000
-
1,510,000
-
Net realized gain (loss) on sales
and dispositions, before income taxes
1,510,000
(338,469
)
1,117,761
(1,464,142
)
Income tax expense (benefit)
346,784
(63,108
)
255,923
(469,847
)
Net realized gain (loss) on sales
and dispositions of investments
1,163,216
(275,361
)
861,838
(994,295
)
Net change in unrealized depreciation or appreciation on
investments:
Affiliate investments
(2,793,687
)
438,975
(3,970,007
)
608,207
Non-Control/Non-Affiliate
investments
3,017,636
1,073,071
(3,325
)
171,711
Change in unrealized depreciation
or appreciation before income taxes
223,949
1,512,046
(3,973,332
)
779,918
Deferred income tax expense (benefit)
6,198
278,366
(907,521
)
111,715
Net change in unrealized depreciation or appreciation on
investments
217,751
1,233,680
(3,065,811
)
668,203
Net realized and unrealized gain (loss) on
investments
1,380,967
958,319
(2,203,973
)
(326,092
)
Net increase (decrease) in net assets from operations
$
1,481,352
$
936,511
$
(2,289,670
)
$
(394,498
)
Weighted average shares outstanding
11,175,468
6,321,988
7,532,034
6,321,988
Basic and diluted net increase (decrease) in net assets from
operations per share
$
0.13
$
0.15
$
(0.30
)
$
(0.06
)
Adjusted Expenses
Reconciliation – Unaudited
For the Quarter Ended December
31,
For the Year Ended December
31,
2019
2018
2019
2018
Total expenses
$
726,365
$
683,638
$
2,770,716
$
2,193,672
Costs related to East transaction
included above
81,186
103,000
605,777
103,000
Adjusted expenses
$
645,179
$
580,638
$
2,164,939
$
2,090,672
Non-GAAP Financial Measure:
Adjusted expenses is defined as total expenses excluding costs
related to the East transaction. Adjusted expenses is not a measure
determined in accordance with generally accepted accounting
principles in the United States, commonly known as GAAP.
Nevertheless, Rand believes that providing non-GAAP information
such as adjusted expenses is important for investors and other
readers of Rand's financial statements, as it is used as an
analytical indicator by Rand's management to better understand
operating performance. Because adjusted expenses is a non-GAAP
measure and is thus susceptible to varying calculations, adjusted
expenses, as presented, may not be directly comparable to other
similarly titled measures used by other companies.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200309005265/en/
Company: Allen F. ("Pete") Grum President and
CEO Phone: 716.853.0802 Email:
pgrum@randcapital.com Investors: Deborah K.
Pawlowski / Karen L. Howard Kei Advisors LLC Phone:
716.843.3908 / 716.843.3942 Email:
dpawlowski@keiadvisors.com khoward@keiadvisors.com
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