Rand Capital Reports Net Investment Income Per Share of $0.11 for the Third Quarter 2020

Rand Capital Corporation (Nasdaq:RAND) (“Rand” or the “Company”), a business development company (“BDC”), announced its results for the quarter ended September 30, 2020.

Allen F. (“Pete”) Grum, President and Chief Executive Officer of Rand, commented, “We delivered solid results in the third quarter as we continue to advance the transformation of Rand. Since refocusing our business to become a regular dividend paying business development company, we have effectively increased our yielding assets and reduced our operating expenses. With our intention to elect regulated investment company tax status for 2020, we will be required to distribute at least 90% of our qualified net investment income in the form of a dividend. We expect to announce the plans for the distribution of this year’s earnings and capital gains before year end and to establish a regular quarterly dividend for 2021.”

Third Quarter 2020 Highlights

  • Net investment income grew to $0.11 per share in the third quarter compared with a loss of $0.09 per share in the prior-year period.
  • Net asset value (“NAV”) at September 30, 2020 was $49.95 million, up $0.24 million compared with $49.71 million at June 30, 2020. The increase in NAV was primarily the result of the $0.26 million increase in net assets from operations driven by the growth in net investment income.
  • On a per share basis, NAV increased to $19.32 per share compared with $19.21 at June 30, 2020. The per share increase was primarily the result of the increase in net assets from operations, which contributed $0.10 per share, and approximately $0.01 of the increase was related to the repurchase of 2,097 shares in the quarter.
  • At September 30, 2020, portfolio fair value increased $3.1 million, or 8.0%, to $41.7 million from $38.6 million on June 30, 2020, primarily due to new investments made during the quarter.

Third Quarter 2020 Operating Results

Total investment income of $737 thousand for the third quarter of 2020 increased 68%, or $300 thousand, over the prior-year period. The increase was primarily attributable to a 93%, or $307 thousand, increase in total interest from portfolio companies reflecting the changed portfolio profile to include more interest and dividend yielding assets.

Total expenses declined 14% to $456 thousand primarily due to $74 thousand in savings realized with the externalization of investment management and administration.

Higher investment income and lower operating expenses drove net investment income growth to $280 thousand compared with a net investment loss of $66 thousand in the prior-year period.

Portfolio and Investment Activity

As of September 30, 2020, Rand’s portfolio consisted of 42 companies. At that date, the portfolio was comprised of approximately 56% in equity investments and 44% in fixed-rate debt investments. The annualized weighted average yield of debt investments was 10.5%.

During the quarter, Rand committed $3.0 million in new investments which included:

  • $1.9 million in Science and Medicine Group through a 12% promissory note
  • $1.1 million in the public equity of three business development companies

Liquidity and Capital Resources

During the quarter, the Company repurchased 2,097 shares of outstanding common stock for $24 thousand under a $1.5 million share repurchase authorization through a 10b5-1 plan that was effective in September 2020. The average purchase price per share was $11.29 per share. Year to date, Rand has repurchased 3,397 shares of outstanding common stock for $38 thousand.

Cash and cash equivalents at the end of the quarter was $19.1 million and represented 38% of net assets. Approximately $9.7 million of cash was available for corporate purposes and $9.4 million was restricted to investments by the SBIC. Outstanding SBA leverage was $11.0 million at the end of the quarter and there was $3.0 million remaining available to draw on the SBA loan program. The earliest debenture maturity is in 2022 when $3.0 million in borrowings are due.

Debt to equity at September 30, 2020 was 23% and cost of debt was 3.45% at September 30, 2020.

Special Meeting of Shareholders

Rand has filed a preliminary proxy statement with the Securities and Exchange Commission (SEC) for a special meeting of shareholders, scheduled for December 16, 2020, to approve new investment advisory and management agreements in response to the pending change in ownership of Rand’s investment advisor, Rand Capital Management (RCM). The terms of the agreement are not changing from those contained in the Company’s current agreements and the services provided by RCM and its investment processes are not expected to change, but the transfer of ownership of RCM requires shareholder approval of the new agreements. Details of the change of ownership of RCM are more fully described in the preliminary proxy statement filed with the SEC.

Webcast and Conference Call

Rand will host a conference call and live webcast today, November 6, 2020, at 10:30 a.m. Eastern Time to review its financial condition and results 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 1:30 p.m. ET on the day of the call through Friday, November 13, 2020. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13711508. 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 and Rand Capital SBIC, Inc. (“Rand SBIC”) to elect to be taxed as a regulated investment company (“RIC”) for U.S. federal tax purposes; the intention to make a distribution of the company’s earnings and profits for 2020; the intention to establish a regular quarterly dividend in 2021; the effectiveness of Rand’s new investment strategy, the impact of the change in ownership of Rand Capital Management, scope of services to be provided by Rand Capital Management and the investment processes to be used by Rand Capital Management each under the new investment advisory and management agreement with Rand; the competitive ability and position of Rand; 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 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) evolving legal, regulatory and tax regimes; (3) changes in general economic and/or industry specific conditions; and (4) other risk factors as detailed from time to time in Rand ’s reports filed with the Securities and Exchange Commission (“SEC”), including Rand’s annual report on Form 10-K for the year ended December 31, 2019, 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’s current plans, estimates and beliefs. Except as required by applicable law, Rand assumes no obligation to update the forward-looking information contained in this release.

FINANCIAL TABLES FOLLOW.

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

September 30,
2020
(Unaudited)

December 31,
2019

ASSETS

Investments at fair value:

Affiliate investments (cost of $22,859,230 and $19,035,446, respectively)

15,459,415

12,151,435

Non- Control/Non-Affiliate investments (cost of $26,961,995 and $25,584,017, respectively)

26,223,106

24,869,357

Total investments, at fair value (cost of $49,821,225 and $44,619,463, respectively)

41,682,521

37,020,792

Cash and cash equivalents

19,074,372

25,815,720

Interest receivable (net of allowance: $142,413 at 9/30/20 and $166,413 at 12/31/19)

457,501

142,265

Deferred tax asset

-

1,204,198

Prepaid income taxes

40,789

343,096

Other assets

53,732

265,378

Total assets

$

61,308,915

$

64,791,449

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

Liabilities:

Debentures guaranteed by the SBA (net of debt issuance costs)

$

10,815,169

$

10,786,913

Amounts due to investment adviser

$

152,447

$

50,564

Accounts payable and accrued expenses

82,785

207,873

Deferred tax payable

228,695

-

Bonus payable

-

80,000

Deferred revenue

79,666

37,583

Total liabilities

11,358,762

11,162,933

Stockholders’ equity (net assets):

Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916 at 9/30/20

and 1,688,485 at 12/31/19; shares outstanding: 2,585,403 at 9/30/20 and 1,628,369 at 12/31/19

2,384,547

1,519,637

Capital in excess of par value

34,142,455

34,142,455

Treasury stock, at cost: shares: 63,513 at 9/30/20 and 60,116 at 12/31/19

(1,507,093

)

(1,469,105

)

Total distributable earnings

14,930,244

19,435,529

Total stockholders’ equity (net assets) (per share – 9/30/20: $19.32, 12/31/19: $32.93)

49,950,153

53,628,516

Total liabilities and stockholders’ equity (net assets)

$

61,308,915

$

64,791,449

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

For the Quarter Ended
September 30,

For the Nine Months Ended
September 30,

2020

2019

2020

2019

Investment income:
Interest from portfolio companies:
Affiliate investments

$

178,714

$

217,953

$

487,822

$

632,705

Non-Control/Non-Affiliate investments

456,160

110,150

1,253,439

416,852

Total interest from portfolio companies

634,874

328,103

1,741,261

1,049,557

Interest from other investments:
Non-Control/Non-Affiliate investments

1,157

36,797

87,161

108,146

Total interest from other investments

1,157

36,797

87,161

108,146

Dividend and other investment income:
Affiliate investments

13,125

65,996

39,375

307,681

Non-Control/Non-Affiliate investments

80,212

-

161,525

-

Total dividend and other investment income

93,337

65,996

200,900

307,681

Fee income:
Affiliate investments

5,000

3,607

10,417

11,460

Non-Control/Non-Affiliate investments

2,500

2,852

7,500

262,927

Total fee income

7,500

6,459

17,917

274,387

Total investment income

736,868

437,355

2,047,239

1,739,771

 
Expenses:
Base management fee

152,438

-

434,201

-

Interest on SBA obligations

104,190

94,191

312,570

303,849

Professional fees

126,759

68,931

383,795

406,859

Stockholders and office operating

50,022

85,782

217,866

466,543

Directors' fees

28,375

30,124

85,125

87,372

Insurance

8,033

10,500

26,101

31,070

Corporate development

10,474

18,301

12,480

51,627

Other operating

107

604

572

3,413

Salaries

-

181,500

-

544,500

Employee benefits

-

40,606

-

143,705

Bad debt (recovery) expense

(24,000

)

-

(24,000

)

5,413

Total expenses

456,398

530,539

1,448,710

2,044,351

Net investment income (loss) before income taxes

280,470

(93,184

)

598,529

(304,580

)

Income tax benefit

-

(27,635

)

(419,101

)

(118,498

)

Net investment income (loss)

280,470

(65,549

)

1,017,630

(186,082

)

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

-

-

-

80,393

Affiliate investments

-

-

56,916

(472,632

)

Non-Control/Non-Affiliate investments

-

-

2,355,130

-

Income tax benefit

-

-

-

(90,861

)

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

-

-

2,412,046

(301,378

)

Net change in unrealized depreciation on investments:
Affiliate investments

-

(1,847,468

)

(515,804

)

(1,176,320

)

Non-Control/Non-Affiliate investments

(17,947

)

(1,749,661

)

(24,229

)

(3,020,961

)

Change in unrealized depreciation before income taxes

(17,947

)

(3,597,129

)

(540,033

)

(4,197,281

)

Deferred income tax (benefit) expense

-

(783,790

)

1,773,412

(913,719

)

Net change in unrealized depreciation on investments

(17,947

)

(2,813,339

)

(2,313,445

)

(3,283,562

)

Net realized and unrealized (loss) gain on investments

(17,947

)

(2,813,339

)

98,601

(3,584,940

)

Net increase (decrease) in net assets from operations

$

262,523

$

(2,878,888

)

$

1,116,231

$

(3,771,022

)

Weighted average shares outstanding

2,587,155

702,443

2,162,308

702,443

Basic and diluted net increase (decrease) in net assets from operations per share

$

0.10

$

(4.10

)

$

0.52

$

(5.37

)

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

 
 

For the Quarter Ended
September 30,

For the Nine Months Ended
September 30,

 

2020

2019

2020

2019

     
Net assets at beginning of period  

$

49,711,314

 

$

30,632,053

 

$

53,628,516

 

$

31,524,187

Net investment income (loss) 

280,470

 

(65,549

)

 

1,017,630

 

(186,082

)

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

                     -

 

                     -

 

        2,412,046

 

          (301,378

)

Net change in unrealized depreciation on investments 

(17,947

)

 

(2,813,339

)

 

(2,313,445

)

 

(3,283,562

)

Net increase (decrease) in net assets from operations 

262,523

 

(2,878,888

)

 

1,116,231

 

(3,771,022

)

Purchase of treasury shares 

(23,684

)

 

                     -

 

            (37,988

)

 

                     -

Payment of cash dividend 

                     -

 

                     -

 

       (4,756,606

)

 

                     -

Net assets at end of period 

$

49,950,153

 

$

27,753,165

 

$

49,950,153

 

$

27,753,165

Contacts:

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

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