EXHIBIT 99 - PRESS RELEASE
Published on January 23, 2006
PRESS RELEASE
HARRIS & HARRIS GROUP, INC.(R) JANUARY 23, 2006
111 WEST 57th STREET, SUITE 1100
NEW YORK, NEW YORK 10019 CONTACT: CHARLES E. HARRIS
NASDAQ/NMS SYMBOL: TINY TEL. NO. (212) 582-0900
HARRIS & HARRIS GROUP UPDATES DEEMED DIVIDEND ESTIMATE
AND COMMONLY ASKED QUESTIONS ABOUT DEEMED DIVIDENDS
Harris & Harris Group, Inc.,(R) announced today updated estimates for
the designated undistributed capital gain dividend (also known as a
deemed dividend) declared on December 20, 2005. As of January 20, 2006,
the deemed dividend is estimated to be $23,206,763 or $1.11805631 per
share. This estimate is subject to change as we finalize our tax
return. It is payable to shareholders of record on December 31, 2005.
We have received a number of questions regarding deemed dividends
in general. Even though our 2004 Annual Report describes on page 13 how
deemed dividends work, we had not declared one since 2001, and they are
new to many of our shareholders.
Some Commonly Asked Questions
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WHAT IS THE PAYMENT DATE?
There is no payment date, as no cash is paid out.
WHO WILL SEND ME THE TAX INFORMATION ON THE DEEMED DIVIDEND, AND WHEN
WILL I GET THIS INFORMATION? ON WHAT IRS FORM DO I REPORT MY DEEMED
DIVIDEND?
If you own your shares in "street name" in electronic format, your
brokerage firm or bank will send you the tax information.
If you own your shares directly in your own name, The Bank of New
York will send you the tax information.
We expect to file our capital gains tax return for the year ended
December 31, 2005, on or before January 30, 2006. We will be able to
notify the brokerage firms, banks and The Bank of New York with the
final information on the deemed dividend at that time.
You will receive the deemed dividend information from your
brokerage firm or bank, or The Bank of New York, as applicable, on IRS
Form 2439. If you do not receive the information by March 1, 2006, you
should contact your brokerage firm or bank for it. You report your
deemed dividend on IRS Form 2439, along with your tax return.
WHAT ARE THE CONSEQUENCES TO ME AS A SHAREHOLDER OF THE DEEMED DIVIDEND?
The deemed dividend is payable to shareholders of record as of
December 31, 2005. Shareholders of record on the record date will be
provided with the exact amount of the deemed dividend attributable to
their shares by their brokerage firm or bank, if their shares are held
in electronic format, or by The Bank of New York, if their shares are
held directly. This information is to be reported by you on IRS Form
2439, along with your tax return.
The following simplified example illustrates the tax treatment
under Sub-Chapter M of the Internal Revenue Code for the Company and its
shareholders with regard to the estimated $23,206,763 or $1.11805631 per
share net long-term capital gain to be retained by the Company and
designated as an undistributed capital gain or deemed dividend:
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1. The Company will pay a corporate-level federal income tax of
35% or approximately $8,122,367 on the undistributed capital gain, or
approximately $0.39131971 per share, on behalf of shareholders.
2. Shareholders will increase their cost basis in their stock by
approximately $0.72673660 per share.
3. Individual shareholders who are taxable at the highest marginal
rate will pay a 15 percent federal capital gains tax on 100 percent of
the undistributed capital gain of $1.11805631 per share (or
approximately $0.16770845 per share in tax). Other taxable shareholders
will pay tax on the undistributed capital gain at their applicable
Federal capital gains tax rates.
4. All shareholders will receive a federal tax credit equal to the
35 percent tax paid by the Company on the undistributed capital gain, or
approximately $0.39131971 per share. Taxable shareholders can use that
credit to offset their federal tax liabilities for 2005 and can claim a
refund to the extent of any unused credit. (After payment of the
federal income tax on the deemed dividend, a shareholder taxable at a 15
percent federal capital gains tax rate will have a remaining tax credit
of $0.22361125 per share.) Shareholders which hold their shares in tax-
deferred accounts can receive a refund from the IRS of the taxes paid on
their behalf by the Company on the deemed dividend by having their
custodians file IRS Form 990T with the IRS. (It typically takes several
months for custodians to receive the refund and deposit it in
shareholders' accounts.) Other tax exempt shareholders can also receive
refunds of the taxes paid on their behalf on the deemed dividend by
filing IRS Form 990T.
Shareholders requiring further information about the impact of the
deemed dividend on their state and/or local taxes should consult their
tax advisors.
WHAT EXACTLY IS A DEEMED DIVIDEND, ANYWAY?
Harris & Harris Group is an internally managed venture capital
company that has elected to be treated as a business development company
("BDC") under the Investment Company Act of 1940. The Company has also
elected to be a regulated investment company ("RIC") under Subchapter M
of the Internal Revenue Code (the "Code"). Under Subchapter M of the
Code, a RIC may deduct distributions paid out of its taxable income and
accordingly may avoid Federal income tax if it distributes all of its
taxable income. With respect to its net long-term capital gains,
Subchapter M provides the Company with three choices: it can retain
them and pay tax, it can declare a deemed dividend (or designated
undistributed capital gain dividend) or it can pay out the gains as a
distribution.
When the Company declares a deemed dividend instead of a cash
distribution, the Company is taxable on the retained capital gains, the
shareholders are deemed to have received the deemed dividend as a
capital gain dividend and the shareholders are deemed to have paid the
tax actually paid by the Company. Thus, they receive a tax credit that
they can use to offset their tax on the deemed dividend or for other
purposes. The shareholders also increase their cost basis in their
shares in the Company by the amount of the deemed distribution, net of
taxes paid by the Company and deemed paid by the shareholders.
WHY DID THE COMPANY CHOOSE TO DECLARE A DEEMED DIVIDEND RATHER THAN A
CASH DIVIDEND AT THIS TIME?
The Company has grown rapidly since 2001, when it began to invest
exclusively in tiny technology. The Company has increased its net
assets from $24,334,770 at December 31, 2001, to $123,376,692 at
September 30, 2005. In the same period, net asset value per share has
increased from $2.75 to $5.94. The Company has increased its number of
employees from four at year end 2001 to ten and a half at year end 2005,
including three Ph.D.'s, one additional CPA and one attorney. Since
2001, to help finance the Company's continued growth, in years in which
the Company realizes net long-term capital gains, the Company's Board of
Directors has primarily declared deemed dividends rather than cash
dividends. In financing the Company's growth, the Board believes that
deemed dividends are more beneficial to the Company's shareholders than
secondary offerings of additional shares. From a bookkeeping point of
view, shareholders wind up in the same position whether the Company pays
deemed dividends or cash dividends, as Figures 1 and 2 below illustrate.
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Figure 1 -- Analysis of Dividend Policy
with Respect to Taxable Shareholders
Assumption: Regulated Investment Company XYZ Generates a Net Realized
Long-Term Capital Gain for the Year of $23,220,067 or approximately
$1.12 per Share with 20,756,345 Shares Outstanding.
Cash Dividends Deemed Dividends
Per Share Per Share
Taxable Shareholders
Cash distributed to shareholders $ 1.12 --
Maximum Federal capital gains tax (0.17) $(0.17)
Tax credit to shareholders -- 0.39
Increase in investment in Company -- 0.73
------ ------
After-tax increase in shareholder
assets per share $ 0.95 $ 0.95
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Figure 2 -- Analysis of Dividend Policy
with Respect to Non-Taxable Shareholders
Assumption: Regulated Investment Company XYZ Generates a Net Realized
Long-Term Capital Gain for the Year of $23,220,067 or approximately
$1.12 per Share with 20,756,345 Shares Outstanding.
Cash Dividends Deemed Dividends
Per Share Per Share
Non-Taxable Shareholders
Cash distributed to shareholders $1.12 --
Maximum Federal capital gains tax -- --
Tax refund to shareholders -- $0.39
Increase in investment in Company -- 0.73
---- -----
After-tax increase in shareholder
assets per share $1.12 $1.12
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IF I HAVE QUESTIONS ABOUT MY INDIVIDUAL TAX SITUATION, WHERE CAN I GET
THEM ANSWERED?
Harris & Harris Group is not equipped or qualified to give tax
advice. You should consult your tax advisor.
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Harris & Harris Group is a publicly traded venture capital company
that now makes initial investments exclusively in tiny technology,
including nanotechnology, microsystems and microelectromechanical
systems (MEMS). The Company's last 26 initial private equity investments
have been in tiny technology-enabled companies. The Company has
20,756,345 common shares outstanding.
Detailed information about Harris & Harris Group and its holdings
can be found on its website at www.TinyTechVC.com.
This press release may contain statements of a forward-looking nature
relating to future events. These forward-looking statements are subject
to the inherent uncertainties in predicting future results and
conditions. These statements reflect the Company's current beliefs, and
a number of important factors could cause actual results to differ
materially from those expressed in this press release. Please see the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for a more detailed discussion of the risks and
uncertainties associated with the Company's business, including but not
limited to the risks and uncertainties associated with venture capital
investing and other significant factors that could affect the Company's
actual results. Except as otherwise required by Federal securities laws,
Harris & Harris Group, Inc., undertakes no obligation to update or
revise these forward-looking statements to reflect new events or
uncertainties. The reference to the website www.TinyTechVC.com has been
provided as a convenience, and the information contained on such website
is not incorporated by reference into this press release.
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