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TMCNet:  Rand Capital Announces Third Quarter 2018 Results

[November 07, 2018]

Rand Capital Announces Third Quarter 2018 Results

Rand Capital Corporation (Nasdaq: RAND) ("Rand"), a venture capital company which invests in growth businesses with unique product, service or technology concepts, announced its results for the quarter and nine months ended September 30, 2018.

Allen F. ("Pete") Grum, President and Chief Executive Officer of Rand Capital, commented, "During the third quarter we invested $140,000 in a convertible secured note supporting BeetNPath's ongoing growth. As we previously reported, earlier this year the company updated its brand look and feel, and introduced new packaging for its frozen entrée product line."

Third Quarter 2018 Financial Highlights

  • Reported $4.84 net asset value (NAV) per share at September 30, 2018, compared with $4.87 at June 30, 2018. The decrease was primarily due to a realized loss upon the sale of a portfolio company, partially offset by a tax benefit.
  • Supported an existing portfolio company, BeetNPath, LLC, by investing $140,000 during the quarter.
  • Investment income increased 66% and 34% over the prior-year third quarter and nine month periods, respectively, driven by nonrecurring loan restructuring income in the third quarter.
  • At September 30, 2018, portfolio fair value was $32.2 million and consolidated cash was
    $4.4 million.

Total investment income in the third quarter of 2018 grew to $662,000, up from $397,000 in the third quarter of 2017. The $265,000 increase included approximately $233,000 of nonrecurring interest and debt modification fee income upon a portfolio company loan restructuring. The remaining $32,000 increase represented an 8% increase over the third quarter of 2017. Total expenses in the 2018 and 2017 third quarters were $448,000 and $439,000, respectively. The 2% increase is primarily due to higher professional fees, partially offset by a bad debt recovery.

Total investment income was $1.4 million and $1.1 million for the first nine months ended September 30, 2018 and 2017, respectively. The growth was driven by the loan restructuring income noted above as well as the Company's investment focus on income-generating instruments. Total expenses for the first nine months of 2018 and 2017 were $1.5 million and $1.6 million, respectively.

Selected Portfolio Highlights

  • Genicon, Inc. is recognized as an emerging leader in the design, production, and distribution of patented surgical instrumentation focused exclusively on laparoscopic surgery. The company reports increasing market penetration, with revenue up 38% over the prior year. Recent new contract wins or expansions from HealthTrust Purchase Group, Vizient, and Germany-based Helios are expected to lead to further revenue and profit growth. Additionally, six new inventions, as well as registration and market approval in Saudi Arabia, are expected to be catalysts for further global market acceptance of Genicon's growing product offering. At September 30, 2018, Genicon was Rand's highest valued investment, at approximately
    $4.2 million.
  • Tilson Technology Management, Inc. provides network deployment and information system professional services to telecom, construction, utility and government clients, and successfully executes complex and challenging projects worldwide. Tilson was recently ranked eight consecutive years on the Inc. 5000 list, the most prestigious ranking of the fastest-growing private companies in the U.S. Only a fraction of companies on the list have ranked more than once, and less than 2% have made the list eight or more times, according to Inc. Media. Additionally, Tilson projects 2018 revenue growth of over 50%, and a similar trajectory in 2019. The company's ongoing growth is being driven by its differentiated capability to lead technology advancement in support of expanding 5G infrastructure deployment. At September 30, 2018, Rand's investment in Tilson was valued at $2.5 million.
  • GiveGab, Inc. is the Nonprofit Giving Platform, providing a quick and easy way for fundraising professionals to raise money online. Synergies from GiveGab's acquisition of Kimbia earlier this year include adopting the best practices and platforms of each company to drive the growth of the combined organization. The company's 2018 giving transaction volume is on pace to grow at a rate of approximately 10x over 2017 - when it grew about 5x over 2016. Over the past three years, GiveGab has expanded to partner with more than 150 giving days annually, while helping tens of thousands of nonprofits raise approximately $500 million on GiveGab's platforms in 2018 alone. At September 30, 2018, Rand's investment in GiveGab was valued at approximately $616,000.

As of September 30, 2018, Rand's portfolio consisted of 29 active companies. At that date, the portfolio was comprised of approximately 57% in equity investments and 43% in debt investments, compared with 58% in equity investments and 42% in debt investments at September 30, 2017.

Webcast and Conference Call

Rand will host a conference call and live webcast today, November 7, 2018, at 1:30 p.m. Eastern Time to review its financial condition and results for the 2018 third quarter, 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 approximately 4:30 p.m. Eastern Time today through Wednesday, November 14, 2018. To listen to the archived call, dial (412) 317-6671, and enter conference ID number 13683885. A transcript of the call will be placed on Rand's website, once available.

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) with a wholly owned subsidiary 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. The Company seeks investment opportunities in businesses with strong leaders who are 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: http://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 Subsidiaries

Consolidated Statements of Financial Position

   
September 30,
2018 December 31,
(Unaudited)     2017

ASSETS

Investments at fair value:
Control investments (cost of $99,500) $ 99,500 $ 99,500
Affiliate investments (cost of $20,413,709 and $20,871,129, respectively) 16,728,607 17,016,795
Non-Control/Non-Affiliate investments (cost of $16,796,433 and $15,718,690, respectively)   15,344,150     15,167,767  
Total investments, at fair value (cost of $37,309,642 and $36,689,319, respectively) 32,172,257 32,284,062
Cash 4,404,574 6,262,039
Interest receivable (net of allowance: $211,342 at 9/30/18; $161,000 at 12/31/17) 147,934 231,048
Deferred tax asset 772,275 551,863
Prepaid income taxes 1,122,826 762,047
Other assets   38,360     42,854  
Total assets $ 38,658,226   $ 40,133,913  
 

LIABILITIES AND STOCKHOLDERS' EQUITY (NET (News - Alert) ASSETS)

Liabilities:
Debentures guaranteed by the SBA (net of debt issuance costs) $ 7,875,723 $ 7,855,173
Profit sharing and bonus payable - 144,000
Accounts payable and accrued expenses 120,886 178,348
Deferred revenue   73,941     37,707  
Total liabilities 8,070,550 8,215,228
 
Stockholders' equity (net assets):
Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034;
shares outstanding of 6,321,988 686,304 686,304
Capital in excess of par value 10,581,789 10,581,789
Accumulated net investment loss (1,643,744 ) (1,597,146 )
Undistributed net realized gain on investments 26,496,804 27,215,738
Net unrealized depreciation on investments (4,064,372 ) (3,498,895 )
Treasury stock, at cost; 541,046 shares   (1,469,105 )   (1,469,105 )
Total stockholders' equity (net assets) (per share $4.84 at 9/30/18; $5.05 at 12/31/17)   30,587,676     31,918,685  
Total liabilities and stockholders' equity (net assets) $ 38,658,226   $ 40,133,913  
 
                 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

               
For the Quarter Ended September 30, For the Nine Months Ended September 30,
2018     2017 2018     2017
Investment income:
Interest from portfolio companies:
Affiliate investments $ 192,758 $ 142,247 $ 515,784 $ 416,247
Non-Control/Non-Affiliate investments   257,531         167,675     547,553         417,406  
Total interest from portfolio companies   450,289         309,922     1,063,337         833,653  
 
Interest from other investments:
Non-Control/Non-Affiliate investments   7,872         6,348     20,717         24,182  
Total interest from other investments   7,872         6,348     20,717         24,182  
 
Dividend and other investment income:
Affiliate investments 48,856 74,408 175,905 189,805
Non-Control/Non-Affiliate investments   -         2,405     6,058         7,598  
Total dividend and other investment income   48,856         76,813     181,963         197,403  
 
Fee income:
Affiliate investments 4,042 2,166 11,625 6,250
Non-Control/Non-Affiliate investments   151,243         1,770     160,987         13,307  
Total fee income   155,285         3,936     172,612         19,557  
Total investment income   662,302         397,019     1,438,629         1,074,795  
 
Expenses:
Salaries 169,875 165,413 509,624 496,239
Employee benefits 39,845 38,454 148,841 138,523
Directors' fees 28,624 36,374 92,123 107,623
Professional fees 81,745 48,433 220,773 310,628
Stockholders and office operating 47,839 45,355 176,877 193,290
Insurance 8,700 8,058 27,588 25,618
Corporate development 15,028 16,621 41,470 49,938
Other operating   4,875         2,772     9,990         8,055  
396,531 361,480 1,227,286 1,329,914
Interest on SBA obligations 77,568 77,568 232,406 232,706
Bad debt (recovery) expense   (26,299 )       -     50,342         -  
Total expenses   447,800         439,048     1,510,034         1,562,620  
Net investment gain (loss) before income taxes 214,502 (42,029 ) (71,405 ) (487,825 )
Income tax expense (benefit)   50,003         (17,050 )   (24,807 )       (188,961 )
Net investment gain (loss)   164,499         (24,979 )   (46,598 )       (298,864 )
 
Net realized loss on sales and dispositions of investments:
Affiliate investments   (1,125,673 )       -     (1,125,673 )       -  
Net realized loss before income tax expense benefit (1,125,673 ) - (1,125,673 ) -
Income tax benefit   406,739         -     406,739         -  
Net realized loss on investments (718,934 ) - (718,934 ) -
 
Net change in unrealized depreciation on investments:
Affiliate investments 725,673 - 169,232 (665,675 )
Non-Control/Non-Affiliate investments   (249,871 )       111,000     (901,360 )       (322,308 )
Change in unrealized depreciation before income tax expense (benefit) 475,802 111,000 (732,128 ) (987,983 )

Deferred income tax expense (benefit)

  100,669         28,090     (166,651 )       (349,960 )
Net change in unrealized depreciation on investments   375,133         82,910     (565,477 )       (638,023 )
 
Net unrealized (loss) gain on investments   (343,801 )       82,910     (1,284,411 )       (638,023 )
Net (decrease) increase in net assets from operations $ (179,302 )     $ 57,931   $ (1,331,009 )     $ (936,887 )
Weighted average shares outstanding 6,321,988 6,321,988 6,321,988 6,321,988
Basic and diluted net (decrease) increase in net assets from operations per share $ (0.03 )     $ 0.01   $ (0.21 )     $ (0.15 )
 


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