SOURCE: Rand Capital Corporation

Rand Capital Corporation

March 08, 2017 16:44 ET

Rand Capital Announces Fourth Quarter and Full Year 2016 Results

BUFFALO, NY--(Marketwired - March 08, 2017) -

  • 2016 included sale of Gemcor, Rand's largest exit, generating $14 million in proceeds
  • Invested $5.9 million in four new portfolio companies and twelve follow-on transactions in eight portfolio companies during the year
  • Net Asset Value per share was $5.16 at December 31
  • Recently received "green light" letter from SBA in support of strategic plan to continue strong growth of Rand's capital base

Rand Capital Corporation (NASDAQ: RAND) ("Rand"), a venture capital company which invests in early stage and emerging growth businesses with unique product, service or technology concepts, announced its results for the quarter and full year ended December 31, 2016.

Allen F. ("Pete") Grum, President and Chief Executive Officer of Rand Capital, commented, "The 'green light' letter we recently received from the SBA authorizes us to file a formal application for a new fund. Over the past fourteen years, we have provided capital to over 50 companies through our partnership with the SBA. This new proposed fund enables us to use some of the cash we received from the Gemcor exit combined with additional leverage to create a $22.5 million fund. We will use the fund to advance our investment strategy focus on privately-held, early stage and emerging growth businesses with proven management teams."

Mr. Grum continued, "We reflect on 2016 as a year of significant progress. Early in the year with the sale of our Gemcor investment, we realized the largest exit in our history. During our 12-year holding period, Gemcor grew to be a strong provider of cash flow to Rand in the form of dividend and investment income. Accordingly, our near-term investment focus is on rebuilding cash dividends and interest to fund our ongoing operating expenses."

He added, "There are holdings in our portfolio that could represent exits over the next several years, but in the meantime, the incremental capital from the proposed new fund will enable us to expand our portfolio. Our pipeline of investment opportunities remains robust."

Fourth Quarter and Full Year 2016 Financial Highlights

  • Reported $5.16 net asset value (NAV) per share at December 31, 2016, compared with $5.35 per share at December 31, 2015; decrease due to lower net investment income and lower net realized and unrealized gains in 2016
  • Realized approximately $14 million of net pre-tax proceeds in 2016 from the sale of Gemcor, Rand's largest exit
  • For the full year, completed 16 investment transactions across 12 portfolio companies totaling $5.9 million
  • Investments made in 2016 are estimated to generate approximately $350,000 in annualized interest income
  • Portfolio fair value of $27.5 million and cash of $12.3 million at December 31, 2016

Dividend and other investment income was down approximately $553,000 in the fourth quarter of 2016, compared with the 2015 fourth quarter. Consistent with the second and third quarter results, the decline was primarily the result of the 2016 first quarter sale of Gemcor. Partially offsetting that decline was an approximately $100,000 increase in interest from portfolio companies in the fourth quarter. The increase reflects the recent debt investments. Additionally, operating expenses in the current quarter were down approximately $110,000 compared with last year's fourth quarter.

Net realized and unrealized (loss) gain on investments was down approximately $656,000 compared with the prior-year fourth quarter primarily due to the recognition of an unrealized gain on the Company's Gemcor investment in last year's fourth quarter.

Selected portfolio highlights:

  • Tilson Technology Management, Inc. (http://www.tilsontech.com/) is an information technology professional services and network construction company. Having grown 500% since 2011, Tilson has been on the Inc. 5000 List of America's fastest-growing private companies for six consecutive years. They have partnered with Verizon Wireless in numerous regions, providing the know-how and resources necessary to get nodes deployed quickly in rights-of-way. Additionally, they have been licensed as a contract provider by several states for services such as electronics and telecom construction. Rand initially invested $600,000 in series B preferred shares in January 2015. Rand made additional investments of $200,000 in Series C convertible preferred shares and $200,000 in a subordinated promissory note in the third quarter of 2016.
  • PostProcess Technologies LLC (http://postprocess.com/) provides innovative solutions for the post-processing of additive manufactured parts. The company is the first and only provider of automated and intelligent post-processing for 3D-printed parts. Their technology increases the consistency, throughput and productivity of the third step of 3D printing -- post-processing. Rand provided a $300,000 promissory note in the third quarter of 2016, supporting the company's product development and global growth initiatives.

Mr. Grum stated, "2016 was another robust year of investment activity. We made new investments in four diverse companies and follow-on investments in eight of our portfolio holdings, for a total of nearly $6 million. Additionally, our proposed new fund will provide us a strong capital base for further growth."

As of December 31, 2016, Rand's portfolio consisted of 33 companies. At year end, the portfolio was comprised of approximately 64% in equity investments and 36% in debt investments, compared with 85% in equity investments and 15% in debt investments at the same time last year.

Share Repurchase Program and Growth Strategy

Rand maintains a share repurchase program which has been approved by the Board of Directors through October 2017. During 2016, the Company purchased 6,550 shares; approximately 459,000 shares remain authorized for repurchase under the program.

Rand's growth strategy is to increase net asset value by capitalizing on maturing investments and leveraging those returns for further investment. Rand invests in early stage or emerging growth companies with new or unique products or services that offer competitive advantages and compelling future potential.

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 equity investments in early or expansion stage companies and generally lends to more mature companies. Rand looks for strong leadership who is 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.

 
Rand Capital Corporation and Subsidiary
Consolidated Statements of Financial Position
          
   December 31,  
   2016   2015  
ASSETS         
 Investments at fair value:           
  Control investments (cost of $99,500 and $1,141,472, respectively)  $99,500   $13,916,472  
  Affiliate investments (cost of $17,589,623 and $17,663,217, respectively)   13,605,974    14,662,219  
  Non-Control/Non-affiliate investments (cost of $13,941,907 and $8,606,053, respectively)   13,795,007    8,253,709  
 Total investments, at fair value (cost of $31,631,030 and $27,410,742, respectively   27,500,481    36,832,400  
 Cash   12,280,140    5,844,795  
 Interest receivable (net of allowance: $161,000 at 12/31/16 and $122,000 at 12/31/15)   324,237    215,224  
 Deferred tax asset   1,165,164    -  
 Prepaid income taxes   -    65,228  
 Other assets   1,148,508    1,604,413  
   Total assets  $42,418,530   $44,562,060  
            
LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)           
 Liabilities:           
 Debentures guaranteed by the SBA (net of debt issuance costs)  $7,827,773   $7,800,373  
 Profit sharing and bonus payable   1,270,052    282,000  
 Income tax payable   320,008    -  
 Deferred tax liability   -    2,361,186  
 Accounts payable and accrued expenses   324,537    238,911  
 Deferred revenue   46,797    25,930  
   Total liabilities   9,789,167    10,708,400  
             
 Stockholders' equity (net assets):           
 Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,321,988 at 12/31/16 and 6,328,538 at 12/31/15   686,304    686,304  
 Capital in excess of par value   10,581,789    10,581,789  
 Accumulated net investment loss   (1,577,848 )  (24,580 )
 Undistributed net realized gain on investments   27,127,054    18,262,401  
 Net unrealized (depreciation) appreciation on investments   (2,718,831 )  5,795,237  
 Treasury stock, at cost; 541,046 shares at 12/31/16 and 534,496 shares at 12/31/15   (1,469,105 )  (1,447,491 )
   Total stockholders' equity (net assets) (per share 12/31/16: $5.16, 12/31/15: $5.35)   32,629,363    33,853,660  
   Total liabilities and stockholders' equity  $42,418,530   $44,562,060  
            
 
Rand Capital Corporation and Subsidiary
Consolidated Statements of Operations
                  
   For the Quarter Ended
December 31,
  For the Year Ended December 31,  
   2016   2015   2016   2015  
Investment income:                     
 Interest from portfolio companies:                     
  Control investments  $-   $16,321   $11,828   $77,077  
  Affiliate investments   130,632    75,806    403,850    388,135  
  Non-Control/Non-Affiliate investments   111,448    49,363    351,475    225,897  
   Total interest from portfolio companies   242,080    141,490    767,153    691,109  
                       
 Interest from other investments:                     
  Non-Control/Non-Affiliate investments   11,456    3,329    45,139    22,048  
   Total interest from other investments   11,456    3,329    45,139    22,048  
                       
 Dividend and other investment income:                     
  Control investments   -    371,628    -    1,735,934  
  Affiliate investments   39,101    221,674    188,908    345,913  
  Non-Control/Non-Affiliate investments   1,013    -    4,024    -  
   Total dividend and other investment income   40,114    593,302    192,932    2,081,847  
                       
 Fee income:                     
  Control investments   -    2,000    2,000    8,000  
  Affiliate investments   1,917    1,416    5,862    4,666  
  Non-Control/Non-Affiliate investments   5,768    4,250    18,772    16,667  
   Total fee income   7,685    7,666    26,634    29,333  
Total investment income   301,335    745,787    1,031,858    2,824,337  
                      
Operating expenses:                     
 Salaries   155,437    149,555    621,749    598,220  
 Bonus and profit sharing   (26,607 )  122,500    1,385,052    122,500  
 Employee benefits   9,844    30,391    174,796    117,937  
 Directors' fees   42,615    40,000    184,750    129,000  
 Professional fees   101,837    74,990    339,823    202,194  
 Stockholders and office operating   52,749    65,601    227,631    222,431  
 Insurance   6,258    6,132    32,134    32,086  
 Corporate development   15,093    14,190    64,412    62,553  
 Other operating   11,944    14,357    21,414    23,330  
     369,170    517,716    3,051,761    1,510,251  
 Interest on SBA obligations   77,567    77,568    310,276    307,028  
 Bad debt expense   39,000    -    39,000    -  
 Total expenses   485,737    595,284    3,401,037    1,817,279  
Net investment (loss) income before income taxes   (184,402 )  150,503    (2,369,179 )  1,007,058  
 Income tax expense (benefit)   17,614    (98,129 )  (815,911 )  164,156  
Net investment (loss) income   (202,016 )  248,632    (1,553,268 )  842,902  
                      
Net realized (loss) gain on sales and dispositions of investments:                     
 Control investments   31,250    -    14,620,063    -  
 Affiliate investments   (650,000 )  (300,000 )  (650,000 )  (300,000 )
 Non-Control/Non-Affiliate investments   -    (5,394 )  168,140    257,531  
 Net realized (loss) gain before income taxes   (618,750 )  (305,394 )  14,138,203    (42,469 )
 Income tax (benefit) expense   (230,793 )  (104,238 )  5,273,550    (14,496 )
 Net realized (loss) gain on sales and dispositions of investments   (387,957 )  (201,156 )  8,864,653    (27,973 )
                      
Net change in unrealized depreciation or appreciation on investments:                     
 Control investments   -    4,100,000    (12,775,000 )  4,100,000  
 Affiliate investments   567,160    (1,986,004 )  (846,651 )  (2,429,440 )
 Non-Control/Non-Affiliate investments   -    (534,373 )  69,444    (340,801 )
 Change in unrealized depreciation or appreciation before income taxes   567,160    1,579,623    (13,552,207 )  1,329,759  
 Deferred income tax expense (benefit)   192,958    736,021    (5,038,139 )  644,469  
 Net increase (decrease) in unrealized depreciation or appreciation on investments   374,202    843,602    (8,514,068 )  685,290  
Net realized and unrealized (loss) gain on investments   (13,755 )  642,446    350,585    657,317  
Net (decrease) increase in net assets from operations  $(215,771 ) $891,078   $(1,202,683 ) $1,500,219  
Weighted average shares outstanding   6,321,988    6,328,538    6,325,792    6,328,538  
Basic and diluted net (decrease) increase in net assets from operations per share  $(0.03 ) $0.14   $(0.19 ) $0.24  
                      

Contact Information

  • Contacts:

    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