SOURCE: Rand Capital Corporation

Rand Capital Corporation

March 10, 2016 16:15 ET

Rand Capital Achieved Fifth Consecutive Year of Record Year-End Net Asset Value and Made Record Investments of $7.0 Million in 2015

BUFFALO, NY--(Marketwired - March 10, 2016) - Rand Capital Corporation (NASDAQ: RAND)

  • Net asset value per share of $5.35 at year end, up 5% over prior year end
  • Total portfolio value of $36.8 million, up 22% over 2014 year end
  • Cash proceeds of approximately $14 million from sale of Gemcor, Rand's largest portfolio company, anticipated to occur in the first quarter of 2016 
  • 10-year compound annual growth in net asset value per share of 13.5% through year-end 2015

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 2015 fourth quarter and full year ended December 31, 2015.

Allen F. ("Pete") Grum, President and Chief Executive Officer of Rand Capital, commented, "2015 was an exciting year for Rand on several fronts. First, we invested a record-breaking $7.0 million in promising opportunities, expanding our portfolio and offering equity appreciation potential. Second, we achieved record-breaking investment income of $2.8 million driven by the strong financial performance of our largest portfolio company, Gemcor. Third, we reached a record level of net asset value. Finally, subsequent to year end, we signed an agreement for the sale of Gemcor, one of our most successful portfolio companies to date, with the transaction expected to close in the first quarter of 2016. While we are pleased with these results, we are even more excited about the potential inherent in our existing portfolio and future investments as we effectively put additional capital to work."

Fourth Quarter and Full Year 2015 Financial Highlights

  • Achieved $5.35 net asset value (NAV) per share at December 31, 2015, up $0.24 per share, or 5%, over December 31, 2014
  • Invested $200,000 during the quarter with a follow-on investment in BeetNPath, LLC
  • Completed 23 financing transactions across 16 portfolio companies totaling $7.0 million in 2015
  • Increased investment portfolio fair value by 22% over prior year end, to $36.8 million at 2015 year end
  • Announced expected sale of Gemcor in first quarter of 2016

Strong Fourth Quarter Results in Record Year-end Net Asset Value 

  • Rand recorded $4.1 million of pretax unrealized gain relating to its investment in Gemcor II, LLC (www.gemcor.com), a Buffalo-area based, global leader in the development and manufacture of automated fastening systems used by virtually every airframe manufacturer throughout the world. The gain was based on the signed agreement for the sale of Gemcor, announced on January 5, 2016. Rand made its initial investment in Gemcor in 2004. Its equity cost basis is currently $625,000 and it expects to receive gross cash proceeds of approximately $14 million upon completion of the Gemcor sale, anticipated in the first quarter of 2016. At December 31, 2015, Gemcor represented approximately 38% of Rand's total portfolio, with a fair value of $13.8 million.
  • In the fourth quarter, Rand made a $200,000 follow-on investment in BeetNPath, LLC (www.grainful.com), an Ithaca, NY-based creator of frozen entrees and side dishes made from 100% whole grain steel cut oats. This investment took the form of Series A-2 Preferred Shares, following Rand's initial investment in 2014.
  • In accordance with its valuation policy, Rand also recorded unrealized market value net write-downs of $2.5 million in the fourth quarter of 2015. This included write-downs of $0.6 million for both Intrinsiq Materials, Inc. (www.intrinsiqmaterials.com) and First WaveProducts Group, LLC (www.firstwaveproducts.com) as well as $0.5 million for SciAps, Inc. (www.sciaps.com). The Company determines the fair value of each of its investments in good faith, based on the specific facts and circumstances of each portfolio company, while applying a consistent valuation process. If the factors which led to the reductions in valuation are overcome in future periods, the valuations may be restored.

As of December 31, 2015, Rand's portfolio was valued at $36.8 million and consisted of 31 businesses. A diversified group of investments, the portfolio includes approximately 50% in manufacturing, 22% in software, 14% in healthcare and 14% in a diverse group of other industry categories. The portfolio is comprised of approximately 85% in equity investments and 15% in debt investments.

Liquidity and Capital Resources

Rand is focused on increasing net asset value through capital appreciation and maintaining sufficient cash flow to drive operational leverage.

Cash on hand at December 31, 2015 was $5.8 million. The primary use of cash is for follow-on and new investments to grow the Company's portfolio and net asset value as well as to fund the company's operations.

Strategy Update and Outlook

Rand's strategy has been to expand its net asset value by capitalizing on maturing investments and leveraging the returns to invest in early-stage companies with new or unique products or services that offer competitive advantage and strong growth potential. The Company's unique advantages are its focus on equity appreciation within its portfolio, its ability to provide smaller investments, its network of investment partners and growing opportunities in the undercapitalized, but strengthening markets of upstate New York and surrounding regions.

Mr. Grum concluded, "The 10-year compound annual growth rate of Rand's net asset value per share was 13.5% through the end of 2015. Capitalizing on this success, our growth strategy now entails broadening our network and geographic reach as we evaluate a growing pipeline of investment opportunities. Our goal is to achieve double-digit growth of our net asset value per share on average over the next five to ten years. We are also more committed than ever to being proactive about keeping our investors informed of the progress of our portfolio companies. We continue to be focused on maximizing shareholder value as we drive Rand to the next level." 

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 investments in early or expansion stage companies with strong leadership that 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: 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 the expected timing and completion of the Gemcor sale transaction, the expected cash proceeds of the transaction to Rand and Rand's plans for those proceeds 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, the satisfaction or performance by the parties or otherwise of all conditions to closing of the Gemcor sale, and the timing and opportunity for investments of the sale proceeds among others. 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  
       
    December 31,  
    2015     2014  
ASSETS                
  Investments at fair value:                
    Control investments (cost of $1,141,472 and $1,347,300, respectively)   $ 13,916,472     $ 10,022,300  
    Affiliate investments (cost of $17,663,217 and $15,188,935, respectively)     14,662,219       14,617,378  
    Non-affiliate investments (cost of $8,606,053 and $5,677,241, respectively)     8,253,709       5,665,698  
  Total investments, at fair value (cost of $27,410,742 and $22,213,476,respectively)     36,832,400       30,305,376  
  Cash     5,844,795       13,230,717  
  Interest receivable (net of allowance: 2015: $122,000 and 2014: $128,311)     215,224       165,094  
  Prepaid income taxes     65,228       -  
  Other assets     1,804,040       1,824,800  
      Total assets   $ 44,761,687     $ 45,525,987  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)                   
  Liabilities:                
  Debentures guaranteed by the SBA   $ 8,000,000     $ 8,000,000  
  Income tax payable     -       2,065,795  
  Deferred tax liability     2,361,186       1,838,351  
  Profit sharing and bonus payable     282,000       953,490  
  Accounts payable and accrued expenses     238,911       290,646  
  Deferred revenue     25,930       24,264  
      Total liabilities     10,908,027       13,172,546  
                 
  Stockholders' equity (net assets):                
  Common stock, $.10 par; shares authorized 10,000,000; shares issued6,863,034; shares outstanding of 6,328,538 as of 12/31/15 and 12/31/14    
686,304
     
686,304
 
  Capital in excess of par value     10,581,789       10,581,789  
  Accumulated net investment gain (loss)     (24,580 )     (867,482 )
  Undistributed net realized gain on investments     18,262,401       18,290,374  
  Net unrealized appreciation on investments     5,795,237       5,109,947  
  Treasury stock, at cost; 534,496 shares as of 12/31/15 and 12/31/14     (1,447,491 )     (1,447,491 )
      Total stockholders' equity (net assets) (per share: 2015: $5.35, 2014: $5.11)     33,853,660       32,353,441  
      Total liabilities and stockholders' equity   $ 44,761,687     $ 45,525,987  
                 
   
Rand Capital Corporation and Subsidiary
 
Consolidated Statements of Operations  
                         
    For the Quarter Ended December 31,     For the Year Ended December 31,  
    2015     2014     2015     2014  
Investment income:                                
  Interest from portfolio companies:                                
    Control investments   $ 16,321     $ 23,799     $ 77,077     $ 112,218  
    Affiliate investments     75,806       106,163       388,135       481,649  
    Non-Control/Non-Affiliate investments     49,363       58,761       225,897       195,681  
      Total interest from portfolio companies     141,490       188,723       691,109       789,548  
  Interest from other investments:                                
    Non-Control/Non-Affiliate investments     3,329       3,765       22,048       14,288  
      Total interest from other investments     3,329       3,765       22,048       14,288  
  Dividend and other investment income:                                
    Control investments     371,628       514,824       1,735,934       1,549,185  
    Affiliate investments     221,674       108,658       345,913       198,723  
    Non-Control/Non-Affiliate investments     -       -       -       2,531  
      Total dividend and other investment income     593,302       623,482       2,081,847       1,750,439  
Fee income:                                
  Control investments     2,000       2,000       8,000       12,000  
    Affiliate investments     1,416       4,399       4,666       8,866  
    Non-Control/Non-Affiliate investments     4,250       3,251       16,667       9,334  
      Total fee income     7,666       9,650       29,333       30,200  
Total investment income     745,787       825,620       2,824,337       2,584,475  
                                 
Operating expenses:                                
  Salaries     149,555       147,669       598,220       590,675  
  Bonus and profit sharing     122,500       981,979       122,500       936,344  
  Employee benefits     30,391       80,621       117,937       169,808  
  Directors' fees     40,000       24,000       129,000       112,500  
  Professional fees     74,990       38,504       202,194       164,740  
  Stockholders and office operating     65,601       24,066       222,431       133,505  
  Insurance     6,132       8,100       32,086       35,709  
  Corporate development     14,190       22,549       62,553       64,490  
  Other operating     14,357       13,475       23,330       19,116  
      517,716       1,340,963       1,510,251       2,226,887  
  Interest on SBA obligations     77,568       70,439       307,028       266,099  
  Bad debt expense     -       -       -       6,311  
  Total operating expenses     595,284       1,411,402       1,817,279       2,499,297  
Net investment gain (loss) before income taxes     150,503       (585,782 )     1,007,058       85,178  
  Income tax (benefit) expense     (98,129 )     (28,738 )     164,156       63,343  
Net investment gain (loss)     248,632       (557,044 )     842,902       21,835  
Net realized (loss) gain on sales and dispositions of investments:                                
  Affiliate investments     (300,000 )     -       (300,000 )     (617,619 )
  Non-Control/Non-Affiliate investments     (5,394 )     8,302,495       257,531       7,855,556  
  Net realized (loss) gain before income taxes     (305,394 )     8,302,495       (42,469 )     7,237,937  
  Income tax (benefit) expense     (104,238 )     2,833,809       (14,496 )     2,470,453  
  Net realized (loss) gain on sales and dispositions of investments     (201,156 )     5,468,686       (27,973 )     4,767,484  
Net increase (decrease) in unrealized appreciation on investments:                                
  Control investments     4,100,000       -       4,100,000       5,336  
  Affiliate investments     (1,986,004 )     (300,000 )     (2,429,440 )     (270,020 )
  Non-Control/Non-Affiliate investments     (534,373 )     (1,138,254 )     (340,801 )     (97,160 )
  Change in unrealized appreciation before income taxes     1,579,623       (1,438,254 )     1,329,759       (361,844 )
  Deferred income tax expense (benefit)     736,021       (494,488 )     644,469       (114,006 )
  Net increase (decrease) in unrealized appreciation on investments     843,602       (943,766 )     685,290       (247,838 )
Net realized and unrealized gain on investments     642,446       4,524,920       657,317       4,519,646  
Net increase in net assets from operations   $ 891,078     $ 3,967,876     $ 1,500,219     $ 4,541,481  
Weighted average shares outstanding     6,328,538       6,338,411       6,328,538       6,391,175  
Basic and diluted net increase in net assets from operations per share   $ 0.14     $ 0.63     $ 0.24     $ 0.71  
                                 

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