RAND Rand Capital Corporation

• Invested $5.4 million in one new portfolio company and eight follow-on transactions during the year
• Net Asset Value per share increased sequentially to $5.05 at December 31
  • Improved $0.09 per share on portfolio and operating performance
  • Unfavorably impacted by $0.05 per share due to reduction in federal tax rates

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 year ended December 31, 2017.

Allen F. (“Pete”) Grum, President and Chief Executive Officer of Rand Capital, commented, “We finished 2017 with a strong year of investments, totaling $5.4 million. We made great progress in structuring those investments to increase our investment income. Our net investment income, along with net increases in realized gains and unrealized appreciation on certain investments favorably impacted net asset value per share during the third and fourth quarters of 2017.”

He continued, “As a result of the Tax Cuts and Jobs Act, federal tax rates decreased to 21% from 35%. During the fourth quarter, we were required to revalue our deferred tax assets based on the new, lower rates, resulting in a write-down amounting to $0.05 per share. As we monetize and exit portfolio companies in the future, we will significantly benefit from the lower tax rates beginning in 2018.”

Mr. Grum added, “We continue to work with the U.S. Small Business Administration (SBA) to finalize an arrangement for additional SBA capital.”

Fourth Quarter and Full Year 2017 Financial Highlights

• Reported $5.05 net asset value (NAV) per share at December 31, 2017, compared with $5.01 at September 30, 2017. The sequential improvement was driven by higher investment income, realized gains and unrealized appreciation on investments. These were partially offset by $0.05 per share to revalue the Company’s deferred tax assets at new, lower federal tax rates.
• For the full year, completed nine investment transactions totaling $5.4 million.
  • The fourth quarter included $1.5 million invested as a follow-on in Tilson Technology Management, Inc.
• During the fourth quarter, Rand sold its position in Athenex, Inc., generating approximately $781,000 of gross proceeds and realizing a $638,000 pretax gain.
• Investment income increased 26% and 41% over the prior-year fourth quarter and full year, respectively.
• At December 31, 2017, portfolio fair value was $32.3 million and consolidated cash was $6.3 million.

Total investment income in the fourth quarter of 2017 grew to approximately $380,000, up from approximately $301,000 in the fourth quarter of 2016. The $79,000 increase was driven by the Company’s success with focusing investments in income producing instruments. Total expenses in the 2017 and 2016 fourth quarters were approximately $448,000 and $486,000, respectively.

Total investment income was approximately $1.5 million and $1.0 million for the years ended December 31, 2017 and 2016, respectively. Similar to the fourth quarter, the growth was driven by the Company’s recent investment focus on income-generating instruments. Total expenses for the year were approximately $2.0 million in 2017, down from $3.4 million in 2016. The 2017 expenses included approximately $133,000 associated with the Company’s application process for its second SBIC. The 2016 expenses included higher incentive compensation expenses related to the Company’s Gemcor exit.

Selected Portfolio Highlights

• Tilson Technology Management, Inc. is an award-winning, veteran owned IT professional services and network deployment firm. The company primarily operates in two fast growing markets: 1) network deployment for cellular carriers, utilities, and governments; and 2) consulting for construction IT, broadband and energy, and government institutional markets. Recognized for its sustained high growth, Tilson has been on the prestigious Inc. 5000 list of fastest-growing private U.S. companies for seven consecutive years, from 2011 through 2017. As a result of this distinction, Tilson joins a select group of firms on the Inc. 5000 ‘Honor Roll,’ a milestone which just two percent of the Inc. 5000 companies ever achieve, according to the publisher. Tilson has grown more than 410% to become one of the top 25 telecommunications firms on the list as of 2016. During the fourth quarter of 2017, Rand invested $1.5 million in both debt and equity capital, to support Tilson’s ongoing growth. This represents Rand’s third investment in Tilson since its initial investment in January 2015. At December 31, 2017 Rand’s investment in Tilson was valued at $2.5 million.
• Carolina Skiff, LLC is a leading manufacturer of high quality, versatile outboard boats, including the #1 fiberglass outboard brand within their size range. Offering more than 60 models, Carolina Skiff boats provide the most features and the best functionality available. The company has an established footprint with 94 dealers across 23 states. Since 2014, revenue and EBITDA have grown at compound annual growth rates exceeding 9% and 27%, respectively. Rand initially invested in Carolina Skiff in 2004. The company’s recent strong financial performance has driven Rand to increase its carrying value by $650,000 during the fourth quarter, resulting in a carrying value of $1.75 million in Rand’s portfolio as ofDecember 31, 2017.
• GiveGab, Inc. provides a user-friendly social platform that cultivates long-term giving relationships by connecting donors and volunteers with nonprofits. The GiveGab team helps nonprofits thrive, providing an affordable, secure and customized way to engage with supporters, raise funds online, and manage data. In January 2018, GiveGab announced that they acquired Austin, Texas-based Kimbia. This synergistic acquisition results in significant growth for GiveGab, especially driven by Kimbia’s Everyday Giving solution. The combination of these two organizations allows them to benefit from each other’s knowledge and experience, resources, and customer base. At December 31, 2017 Rand’s investment in GiveGab was valued at approximately $424,000.

As of December 31, 2017, Rand’s portfolio consisted of 30 active companies. At that date, the portfolio was comprised of approximately 58% in equity investments and 42% in debt investments, compared with 64% in equity investments and 36% in debt investments at December 31, 2016. The change in investment mix reflects Rand’s strategy to generate sufficient investment income to cover operating expenses.

Webcast and Conference Call

Rand will host a conference call and live webcast today, March 8, 2018, at 1:30 p.m. Eastern Time to review its financial condition and results for the 2017 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 heading “Investor Relations.” 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 heading “Investor Relations.”

A telephonic replay will be available from approximately 4:30 p.m. Eastern Time today through Thursday, March 15, 2018. To listen to the archived call, dial (412) 317-6671, and enter conference ID number 13675501. 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

      December 31, 2017       2016

ASSETS

      Investments at fair value: Control investments (cost of $99,500) $   99,500

$

  99,500 Affiliate investments (cost of $20,871,129 and $17,589,623, respectively) 17,016,795 13,605,974 Non-Control/Non-Affiliate investments (cost of $15,718,690 and $13,941,907, respectively)     15,167,767     13,795,007 Total investments, at fair value (cost of $36,689,319 and $31,631,030, respectively) 32,284,062 27,500,481 Cash 6,262,039 12,280,140 Interest receivable (net of allowance: $161,000) 231,048 324,237 Deferred tax asset 551,863 1,165,164 Prepaid income taxes 762,047 - Other assets     42,854     1,148,508 Total assets $   40,133,913 $   42,418,530  

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

Liabilities: Debentures guaranteed by the SBA (net of debt issuance costs) $ 7,855,173 $ 7,827,773 Profit sharing and bonus payable 144,000 1,270,052 Income tax payable - 320,008 Accounts payable and accrued expenses 178,348 324,537 Deferred revenue     37,707     46,797 Total liabilities 8,215,228 9,789,167   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 12/31/17 and 12/31/16 686,304 686,304 Capital in excess of par value 10,581,789 10,581,789 Accumulated net investment loss (1,597,146) (1,577,848) Undistributed net realized gain on investments 27,215,738 27,127,054 Net unrealized depreciation on investments (3,498,895) (2,718,831) Treasury stock, at cost; 541,046 shares     (1,469,105)     (1,469,105) Total stockholders’ equity (net assets) (per share $5.05 at 12/31/17; $5.16 at 12/31/16)     31,918,685     32,629,363 Total liabilities and stockholders’ equity (net assets) $   40,133,913 $   42,418,530      

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

     

For the Quarter Ended December 31,

For the Year Ended December 31,

  2017       2016         2017       2016   Investment income:     Interest from portfolio companies: Control investments $ - $ - $ - $ 11,828 Affiliate investments 147,461 130,632 563,708 403,850 Non-Control/Non-Affiliate investments   174,202       111,448     591,608       351,475   Total interest from portfolio companies   321,663       242,080     1,155,316       767,153     Interest from other investments: Non-Control/Non-Affiliate investments   6,579       11,456     30,761       45,139   Total interest from other investments   6,579  

 

  11,456     30,761       45,139     Dividend and other investment income: Affiliate investments 43,739 39,101 233,544 188,908 Non-Control/Non-Affiliate investments   2,472       1,013     10,070  

 

  4,024   Total dividend and other investment income   46,211       40,114     243,614       192,932     Fee income: Control investments - - - 2,000 Affiliate investments 2,166 1,917 8,416 5,862 Non-Control/Non-Affiliate investments   3,368       5,768     16,675       18,772   Total fee income   5,534       7,685     25,091       26,634   Total investment income   379,987       301,335     1,454,782       1,031,858     Expenses: Salaries 165,411 155,437 661,650 621,749 Bonus and profit sharing 12,000 (26,607 ) 12,000 1,385,052 Employee benefits 22,256 9,844 160,779 174,796 Directors' fees 34,876 42,615 142,499 184,750 Professional fees 46,308 101,837 356,936 339,823 Stockholders and office operating 55,795 52,749 249,085 227,631 Insurance 6,258 6,258 31,876 32,134 Corporate development 15,264 15,093 65,202 64,412 Other operating   12,620       11,944     20,675       21,414   370,788 369,170 1,700,702 3,051,761 Interest on SBA obligations 77,569 77,567 310,275 310,276 Bad debt expense   -       39,000     -       39,000   Total expenses   448,357       485,737     2,010,977       3,401,037   Net investment loss before income taxes (68,370 ) (184,402 ) (556,195 ) (2,369,179 ) Income tax (benefit) expense   (347,936 )     17,614     (536,897 )     (815,911 ) Net investment income (loss)   279,566       (202,016 )   (19,298 )     (1,553,268 )   Net realized gain (loss) on sales and dispositions of investments: Control investments - 31,250 - 14,620,063 Affiliate investments - (650,000 ) - (650,000 ) Non-Control/Non-Affiliate investments   138,240       -     138,240       168,140   Net realized gain (loss) before income tax expense (benefit) 138,240 (618,750 ) 138,240 14,138,203 Income tax expense (benefit)   49,556       (230,793 )   49,556       5,273,550   Net realized gain (loss) on investments 88,684 (387,957 ) 88,684 8,864,653   Net change in unrealized depreciation on investments: Control investments - - - (12,775,000 ) Affiliate investments 794,990 567,160 129,315 (846,651 ) Non-Control/Non-Affiliate investments   (81,715 )     -     (404,023 )     69,444   Change in unrealized depreciation before income tax expense (benefit) 713,275 567,160 (274,708 ) (13,552,207 ) Deferred income tax expense (benefit)   855,316       192,958     505,356       (5,038,139 ) Net change in unrealized depreciation on investments   (142,041 )     374,202     (780,064 )     (8,514,068 )   Net realized and unrealized (loss) gain on investments   (53,357 )     (13,755 )   (691,380 )     350,585   Net increase (decrease) in net assets from operations $ 226,209     $ (215,771 ) $ (710,678 )   $ (1,202,683 ) Weighted average shares outstanding 6,321,988 6,321,988 6,321,988 6,325,792 Basic and diluted net increase (decrease) in net assets from operations per share $ 0.04     $ (0.03 ) $ (0.11 )   $ (0.19 )  

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Company:Rand CapitalAllen F. ("Pete") Grum, 716-853-0802President and CEOpgrum@randcapital.comorInvestors:Kei Advisors LLCDeborah K. Pawlowski, 716-843-3908dpawlowski@keiadvisors.comorKaren L. Howard, 716-843-3942khoward@keiadvisors.com