RAND CAPITAL CORPORATION
BUFFALO, NEW YORK
[LOGO]
Annual Report
Proxy Statement
December 1996
<PAGE>
NET ASSET VALUE 1987 to 1996
Net Asset Value Per Share*
Rand Capital Corporation is a registered closed-end management
investment company investing in the securities of small
businesses, which offer unique opportunities for growth.
[Description - There follows a table in the form of a bar graph
with a rectangle showing the net asset value for each year shown]
Year Net Asset
Value Per Share
____ _______________
1987 - 2.07
1988 - 2.44
1989 - 2.53
1990 - 2.07
1991 - 2.12
1992 - 3.07
1993 - 3.07
1994 - 3.19
1995 - 2.21
1996 - 1.53
* adjusted for stock distributions
<PAGE>
MANAGEMENT'S LETTER Allen F. Grum and Nora B. Sullivan
To Our Shareholders,
1996 was a watershed year for Rand Capital. The year started
with a new management team. We spent the next twelve months
developing and implementing a strategic plan that integrated the
strengths of management, the needs of the company and the
investment opportunities that are available. The four goals of
this plan can be summarized as:
1. Reduce expenses
2. Raise capital
3. Invest in instruments that provide for a current return
4. Restructure the current portfolio
With the help of our Board of Directors we were successful
in all four areas.
1. Expenses were reduced by 21%
2. We raised approximately $2.3 million in new capital
3. We made 4 new investments that provided a current return
4. Equity investments were reduced from 75% of our portfolio
to 63%
We were very pleased with the results of these efforts in
1996 and will continue on the plan in 1997.
The financial performance of our portfolio was dismal in
1996. We wrote off our investments in Aria and Bydatel (which had
represented 46% of our assets at December, 1994) when Aria filed
for bankruptcy protection. We also lost over $2.5 million in our
common stock portfolio. These investments were primarily in
MobileMedia and various cable stocks where we typically received
restricted shares. Unfortunately, these restrictions limited our
ability to sell the shares. It was a very frustrating and
enlightening experience.
We enter 1997 with a highly liquid balance sheet including
$3,000,000 available for new investments. We are currently
evaluating a handful of promising opportunities and should be
reporting on them in the coming quarters.
We need to thank our Board of Directors for their support
and guidance. They were instrumental in developing our strategic
plan and raising capital. They have also supported us with their
wallets by purchasing 742,000 shares in the open market and
through a private placement.
The following pages contain detailed information about Rand
and our investment criteria. If you have any questions or ideas,
please contact us. Our address, phone number, and e-mail
addresses are enclosed.
We look forward to writing to you and announcing positive
financial results.
Sincerely,
s/Allen F. Grum s/Nora B. Sullivan
<PAGE>
PORTFOLIO OF INVESTMENTS December 31, 1996
<TABLE>
<CAPTION>
YearFirst Percent
Acquired Equity
Company Type of Investment (a) (b) (c) Cost Value (d)
----------------- ---------------------- -------- ------ ---- ---------
<S> <C> <C> <C> <C> <C>
AMERICAN TACTILE CORPORATION
Medina, NY. Develops equipment Convertible debentures at 8% 1995 - 150,000 150,000
and systems to produce ADA due June 2000 and April 2001,
signs for the visually impaired 90,109 warrants for preferred
stock
ARS, INC.
Cheektowaga, NY Assembles and Common stock - 25 shares 1991 2.5% 125,000 250,000
distribute replacement Convertible debentures at 7.5% 375,000 750,000
automotive products 14 2/3% due August 2000
BIOWORKS, INC. (FORMERLY TGT,
INC.)
Geneva, NY. Develops and Series A convertible preferred 1995 <1% 56,000 56,000
manufactures biological stock - 32,000
alternatives to chemical
pesticides
CLEARVIEW CABLE TV, INC.
New Providence, NJ. Wireless Common stock - 400 shares 1996 6.0% 55,541 55,541
cable television operator
COMMERCIAL MAINTENANCE
ORGANIZATION, INC.
Coral Springs, FL. Maintenance Common stock - 148,256 1995 19.8% 85,000 85,000
service network for retailers, shares
restaurants, vendors
COMPTEK RESEARCH, INC.*
Buffalo, NY. Develops Common stock - 49,221 shares^ 1994 <1% 693,998 246,105
electronic systems for military Term loan at prime less 1%, due - - 102,678 102,678
and non-military applications June 1998
CORAL SYSTEMS, INC.
Longmont, CO. Develops fraud Series A convertible preferred 1994 1.1% 200,000 422,222
prevention software for the stock - 99,999 shares
wireless industry Common stock - 11,938 shares <1% 18,271 18,271
HEALTHWAY PRODUCTS COMPANY, INC.
Syracuse, NY. Manufactures air Note, 21% interest, 1996 - 100,000 100,000
filters and climate control 4,667 warrants for Series A
devices preferred stock
HEARTLAND WIRELESS
COMMUNICATIONS, INC.*
Richardson, TX. Wireless cable Common stock - 2,880 shares^ 1996 <1% 59,165 38,045
television system operator Common stock - 10,843 shares 1996 <1% 245,391 118,180
J. GIARDINO
Buffalo, NY. Own and leases First mortgage at 10% interest 1988 - 218,448 218,448
commercial property
MOBILE DATA SOLUTIONS INC.*
Vancouver, BC. Develops mobile Common stock - 30,734 shares^ 1994 <1% 100,000 465,851
data software
MOBILEMEDIA CORPORATION*
New York, NY. Provider of Common stock - 50,923 shares^ 1990 <1% 67,322 25,461
paging and other wireless data Common stock - 20,369 shares <1% 26,928 9,268
services
REFLECTION TECHNOLOGY, INC.
Waltham, MA. Develops and Series J convertible preferred 1995 1.1% 500,000 500,000
licenses proprietary virtual stock - 443,784 shares
display technology
TRANSWORLD TELECOMMUNICATIONS,
INC.*
Salt Lake City, UT. Wireless Common stock - 132,826 shares^ 1995 <1% 131,498 37,058
cable television system operator
Ultra-Scan Corporation
Buffalo, NY. Ultrasonic Common stock - 47,583 shares 1992 12.6% 276,986 276,986
fingerprint scanning technology Term loan, 6% interest, due - 50,000 50,000
September 1997
OTHER INVESTMENTS Other investments 100,060 100,060
------- -------
Total Investments $3,737,286 $4,075,174
========= =========
* Publicly-owned Company ^ Unrestricted securities as defined in Note (a)
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Unrestricted securities (indicated by ^) are freely
marketable securities having readily available market quotations.
All other securities are restricted securities which are subject
to one or more restrictions on resale and are not freely
marketable. At December 31,1996 restricted securities represented
80% of the value of the investment portfolio.
(b) The Year First Acquired column indicates the year in which
the Corporation acquired its first investment in the company or a
predecessor company.
(c) The equity percentages express the percent of outstanding
voting securities held by the Corporation or the potential
percentage of voting securities held by the Corporation or the
potential percentage of voting securities held by the company
upon exercise of its warrants or conversion of debentures. The
symbol "<1%" indicates that the Corporation holds equity interest
of less than one percent.
(d) Under the valuation policy of the Corporation, unrestricted
securities are valued at the closing bid price for over-the-
counter securities for the last three days of the month.
Restricted securities, including securities of publicly-owned
companies which are subject to restrictions on resale, are valued
at fair value as determined by the Board of Directors. Fair
value is considered to be the amount which the Corporation may
reasonably expect to receive for portfolio securities if such
securities were sold on the valuation date. Valuations as of any
particular date, however, are not necessarily indicative of
amounts which may ultimately be realized as a result of future
sales or other dispositions of securities. Among the factors
considered by the Board of Directors in determining the fair
value of restricted securities are the financial condition and
operating results, projected operations, and other analytical
data relating to the investment. Also considered are the market
prices for unrestricted securities of the same class (if
applicable) and other matters which may have an impact on the
value of the portfolio company.
See notes to financial statements
<PAGE>
CHANGES IN INVESTMENTS AT COST AND REALIZED LOSS
Year ended December 31, 1996
<TABLE>
<CAPTION>
Cost Increase Realized
(Decrease) Gain(Loss)
<S> <C> <C>
New and Additions to Previous Investments:
American Tactile Corporation $ 50,000
Aria Wireless Systems, Inc. 100,000
Clearview Cable TV, Inc. 124,000
Commercial Maintenance Organization, Inc. 5,000
Comptek Research, Inc. 193,991
Coral Systems, Inc. 18,271
HealthWay Products, Inc. 100,000
Heartland Wireless Communications, Inc. 716,015
MobileMedia Corporation 8,250
Ultra-Scan Corporation 50,000
--------
1,365,527
----------
Investments Sold/Exchanged:
Cable Maxx, Inc. (97,500) 0
CAI Wireless Systems, Inc. (237,547) 157,618
Heartland Wireless Communications, Inc. (656,850) 76,199
Jamestown Savings Bank (500,000) 0
Phoenix Data Communications Corporation (100,000) 0
Three Sixty Corporation (987,906) 0
----------- -------
(2,579,803) 233,817
----------- -------
Investments Written Off:
Aria Wireless Systems, Inc. (400,000) (400,000)
Bydatel Corporation (520,000) (520,000)
----------- ---------
(920,000) (920,000)
----------- ---------
Other Changes:
Debenture repayments and distributions (136,363) 223,219
Net Change in Investments at Cost and
Realized Loss $ (2,270,639) $ (462,964)
</TABLE>
STATEMENTS OF FINANCIAL POSITION December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Investments at Directors' valuation
(identified cost: 1996 - $3,737,286;
1995 - $5,761,573) (Note 1) $ 4,075,174 $ 8,997,613
Cash and cash equivalents 1,605,501 707,559
Interest receivable (net of allowance of
$0 in 1996 and $20,400 in 1995 100,411 147,556
Deferred tax asset (Note 2) 751,106 0
Income taxes receivable (Note 2) 2,581 4,187
Other assets 74,423 46,957
--------- ---------
TOTAL ASSETS $ 6,609,196 $ 9,903,872
========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
(NET ASSETS) LIABILITIES
Accounts payable and accrued expenses
(Notes 4 and 6) $ 150,660 $ 226,808
Deferred tax liability (Note 2) 0 343,759
--------- ---------
TOTAL LIABILITIES 150,660 570,567
========= =========
STOCKHOLDERS EQUITY (NET ASSETS) (Note 3)
Common stock, $.10 par - shares
authorized 7,000,000; issued and outstanding
4,225,477 shares in 1996 and 1995 422,548 422,548
Capital in excess of par value 4,810,369 4,810,369
Undistributed net investment (loss) (1,210,521) (812,838)
Undistributed net realized gain on
investments 2,258,384 2,867,302
Net unrealized appreciation of investments 177,756 2,045,924
---------- ---------
Net assets (per share 1996 - $1.53;
1995 - $2.21) 6,458,536 9,333,305
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 6,609,196 $ 9,903,872
========== =========
See notes to financial statements.
<PAGE>
</TABLE>
STATEMENTS OF OPERATIONS Year ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
INVESTMENT INCOME: (Note 5)
Interest from portfolio companies $ 122,255 $ 225,042
Interest from other investments 38,730 85,896
Other income 12,921 37,266
---------- ---------
173,906 348,204
========== =========
EXPENSES:
Salaries 273,258 469,985
Employee benefits 32,188 166,412
Directors' fees 33,830 17,750
Legal fees 106,003 82,612
Professional fees 33,464 18,162
Shareholders and office 76,122 52,368
Insurance 94,263 35,942
Corporate development 79,557 27,140
Other operating 40,742 119,324
---------- ----------
769,427 989,695
---------- ----------
INVESTMENT (LOSS) BEFORE INCOME TAXES (595,521) (641,491)
Income tax provision (Note 2) 13,000 14,100
Deferred income tax (benefit) (Note 2) (210,736) (245,660)
---------- -----------
INVESTMENT (LOSS) - NET (397,785) (409,931)
---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net loss on sales and dispositions (462,964) (65,416)
---------- ----------
Net realized (loss) on investments (462,964) (65,416)
Deferred income tax provision 145,952 30,003
---------- ----------
NET REALIZED (LOSS) (608,916) (95,419)
---------- ----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 3,236,040 9,064,200
End of period 337,889 3,236,040
---------- ---------
(Decrease) in unrealized appreciation
before income taxes (2,898,151) (5,828,160)
Deferred income tax (benefit) (Note 2) (1,030,083) (2,229,884)
---------- ---------
NET (DECREASE) IN UNREALIZED APPRECIATION (1,868,068) (3,598,276)
---------- ---------
NET REALIZED AND UNREALIZED (LOSS) ON
INVESTMENTS (2,476,984) (3,693,695)
---------- ---------
NET (DECREASE) IN NET ASSETS FROM
OPERATIONS $ (2,874,769) $ (4,103,626)
========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS/Years ended December 31,1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net assets at beginning of period
(including undistributed net
investment loss of $409,931 and
$319,192, respectively) $ 9,333,305 $ 13,351,926
OPERATIONS:
Net investment loss (397,785) (409,931)
Net realized loss on investments (608,916) (95,419)
Net (decrease) in unrealized
appreciation of investments (1,868,068) (3,598,276)
---------- ----------
Net (decrease) in net assets from
operations (2,874,769) (4,103,626)
Net proceeds of private offering
and stock distribution 0 85,005
NET ASSETS AT END OF PERIOD
(INCLUDES UNDISTRIBUTED NET INVESTMENT
LOSS OF $397,785 AND $409,931,
RESPECTIVELY) $ 6,458,536 $ 9,333,305
============== ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS Years ended
December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation operates as a closed-end management
investment company registered under the Investment Company Act of
1940.
Investments are stated at market or fair value as determined
in good faith by the Board of Directors, as described in the
Notes to Portfolio of Investments on page 5. Certain investments
have been determined by the Board of Directors in the absence of
readily ascertainable market values. Because of the inherent
uncertainty of valuation, these values may differ significantly
from the values that would have been used had a ready market for
the securities existed, and the difference could be material.
Temporary cash investments having a maturity of three months
or less when purchased are considered to be cash equivalents.
Interest income generally is recorded on the accrual basis
except where the investment is valued at less than cost to
reflect risk of loss. In such cases, interest is recorded at the
time of receipt. A reserve for possible losses on interest
receivable is maintained when appropriate.
Amounts reported as realized gains and losses are measured
by the difference between the proceeds of sale or exchange and
the cost basis of the investment without regard to unrealized
gains or losses reported in prior periods. The cost of securities
that have, in the Directors' judgment, become worthless, are
written off and reported as realized losses.
Net assets per share are based on the number of shares of
common stock outstanding during the respective year. The prior
years have been restated to show the effects of a twenty-five
percent stock distribution that occurred during 1995, 1994 and
1993 and a private offering which occurred during 1995.
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reporting
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
The Corporation accounts for income taxes in accordance with
FASB Statement No. 109, Accounting for Income Taxes. A
requirement of FASB Statement No. 109 is that deferred tax assets
and liabilities are recorded for temporary differences between
the financial statement and tax bases of assets and liabilities
using the currently enacted tax rate expected to be in effect
when the taxes are actually paid or recovered.
The net deferred tax liability (asset) presented in the
balance sheet includes the following:
1996 1995
Deferred tax liability $ 253,214 $ 1,280,976
Deferred tax asset 1,004,320 937,217
---------- --------
Net deferred tax liability
(asset) $ (751,106) $ 343,759
========= ========
The tax effect of the major temporary difference and
carryforwards that give rise to the Corporation's net deferred
tax liability (asset) are as follows:
1996 1995
Operations $ (6,020) $ (3,700)
Investments 253,213 1,280,976
Net operating loss carryforwards (689,226) (478,490)
---------- --------
Net deferred tax liability
(asset) $ (751,106) $ 343,759
========== ========
Income tax expense (benefit) is reported in the statement of
operations as follows:
1996 1995
Current:
State $ 13,000 $ 14,100
---------- -------
13,000 14,100
---------- -------
Deferred:
Tax (benefit) on change in
unrealized appreciation:
Federal (936,010) (2,084,137)
State (158,857) (361,404)
---------- --------
(1,094,867) (2,445,541)
---------- --------
Total $(1,081,867) $(2,431,441)
========== ==========
A reconciliation of the benefit for the income taxes at the
federal statutory rate to the benefit reported is as follows:
1996 1995
Net investment (loss) and realized
(loss) before income taxes (benefit) $(3,956,636) $(6,535,067)
=========== ===========
Expected tax (benefit) at
statutory rate of 34% $(1,295,888) $(2,239,193)
State - net of federal effect (96,264) (592,727)
Other 310,285 400,479
--------- ---------
Total $(1,081,867) $(2,431,441)
========== ==========
Deferred income taxes of approximately $172,000 and
$1,196,000 at December 31, 1996 and 1995, respectively, relate to
net unrealized appreciation of investments.
Such appreciation is not included in taxable income until
realized.
Included in deferred taxes on the accompanying statements of
financial position is approximately $81,000 and $85,000 at
December 31, 1996 and 1995, respectively, applicable to a gain
being reported under the installment method for income tax
purposes. This amount will be reduced in future periods as
payments are received.
At December 31, 1996, the Corporation had a federal and
state net operating loss carryforward of approximately $1,719,000
and $1,185,000, respectively, which expire commencing in 2007.
3. STOCKHOLDERS EQUITY
On June 16, 1995, the Corporation issued 837,150 shares of
common stock to shareholders of record as of May 26, 1995 in
conjunction with a 25% stock distribution declared by the Board
of Directors. Per share amounts reported in the financial
statements and in the schedule of selected per share data and
ratios have been restated to reflect the stock distribution. An
amount equal to par value was charged to undistributed net
investment income and credited to common stock.
On October 19, 1995, the Corporation completed the sale of
40,000 shares of authorized and unissued common stock of the
Corporation at $3.32 per share.
At December 31, 1996 and 1995, there were 500,000 shares of
$10 par value preferred stock authorized and unissued.
Summary of change in capital accounts:
<TABLE>
<CAPTION>
Undistributed Net Unrealized
Undistributed Net Realized Gain Appreciation
Investment Income on Investments on Investments
<S> <C> <C> <C>
Balance, December 31, 1994 $ (319,192) $ 2,962,721 $ 5,644,200
Net (decrease) in net assets
from operations (409,931) (95,419) (3,598,276)
Stock distribution (83,715) 0 0
-------------- ------------ ----------
Balance, December 31, 1995 (812,838) 2,867,302 2,045,924
Net (decrease) in net assets
from operations (397,785) (608,918) (1,868,168)
-------------- ------------ ----------
Balance, December 31, 1996 $ (1,210,623) $ 2,258,384 $ 177,756
============== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common Stock Capital in
Shares Amount Excess of Par
<S> <C> <C> <C>
Balance, December 31, 1994* 3,348,327 $ 334,833 $ 4,729,364
Private offering and
stock distribution - 1995 877,150 87,715 81,005
--------- ------------- ---------------
Balance, December 31, 1995
and December 31, 1996 4,225,477 $ 422,548 $ 4,810,369
========= ============= ===============
</TABLE>
* As previously reported, pre-1995 stock distribution
4. COMMITMENTS AND CONTINGENCIES
In 1995, the Corporation entered into an agreement with a
former officer of the Corporation which, among other things,
stipulated the following:
a) From the date of retirement of December 31, 1995, until the
earlier of December 31, 1999 or death, the Corporation could
employ this former officer as a consultant. The former officer
was retained as a consultant in 1996 at an annual fee of $10,000.
This agreement was subject to annual renewal and was not renewed
for 1997.
b) This former officer will continue to be compensated under
terms of a deferred compensation agreement. Payments under this
agreement are expected to be paid out over the period of January
1, 1996 through September 1, 1999. The amounts under this
agreement have been accrued as of December 31, 1995 due to all
terms of the contract being satisfied by that fiscal year end.
c) The Corporation offers health and dental benefits to this
former officer and his family under terms of the deferred
compensation agreement. These benefits are accounted for under
Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions" (FASB
106), requiring the accrual method of accounting for these
benefits.
5. TRANSACTIONS WITH AFFILIATES
Income from affiliates of the Corporation as of December 31
was as follows:
1996 1995
Interest Income $ 61,678 $ 85,896
Other 0 32,014
------------ ----------
Total $ 61,678 $ 117,910
============ ==========
6. PENSION EXPENSE
The Corporation sponsored a contributory and non-
contributory defined benefit plan. On September 23, 1996, the
Corporation terminated the Plans. Prior to the termination, a
former officer received a lump sum payment from the Plan in 1996
of approximately $486,000, and another participant received a
lump sum distribution. As of the termination date, the Plan
termination liability was $11,527 and is to be distributed to the
two remaining vested participants in 1997. Defined benefits were
not provided under a successor Plan. The Plan ceased to exist as
an entity.
Prior to termination, the Corporation accounted for its
pension plans in accordance with Statement of Financial
Accounting Standards No. 87, Employers' Accounting for Pensions.
The Plan was for all employees meeting specified age and service
requirements. Benefits were determined based on compensation
history. Net pension expense for the Plan was $21,398 in 1995. At
December 31, 1995, the fair value of plan assets was $496,340 and
the pension liability was $2,331.
For years ended December 31, 1996 and 1995, total retirement
expense amounted to $9,785 and $81,131, respectively. Actual
contributions to the Plan amounted to $8,040 and $78,718 in 1996
and 1995, respectively.
7. SUBSEQUENT EVENT
The Corporation raised approximately $1.8 million in new
capital via a private placement offering of common shares in
January 1997. The new shares were sold at the then current net
asset value, making it a non-dilutive transaction. Appropriately,
the financial statements have not been restated for this event.
<PAGE>
SCHEDULE OF SELECTED PER SHARE DATA AND RATIOS Five Years
ended December 31, 1996 and 1995
Selected data for each share of capital stock outstanding
throughout the five most current years is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994* 1993* 1992*
<S> <C> <C> <C> <C> <C>
Investment income (Note 5) $ 0.04 $ 0.09 $ 0.07 $ 0.13 $ 0.17
Expenses 0.18 0.23 0.17 0.18 0.18
___________________________________________________________________________
Investment (loss) before
income taxes (0.14) (0.14) (0.10) (0.05) (0.01)
Provision (benefit) for
income taxes (Note 2) (0.05) (0.05) (0.03) (0.01) 0.00
----------- ---------- ---------- ---------- ---------
Net investment (loss) (0.09) (0.09) (0.07) (0.04) (0.01)
Net realized and unrealized
gain (loss) on investments (0.59) (0.89) 0.18 (0.02) 0.96
----------- ---------- ---------- ---------- --------
Increase (decrease) in net
asset value before cumulative
effect of change in method
of accounting (0.68) (0.98) 0.11 (0.06) 0.95
Cumulative effect of change
in method of accounting for
income taxes (Note 2) 0.00 0.00 0.00 0.06 0.00
___________________________________________________________________________
Increase (decrease) in net
asset value (0.68) (0.98) 0.11 0.00 0.95
Net asset value - beginning 2.21 3.19 3.07 3.07 2.12
Net proceeds of private placement 0.00 0.00 0.01 0.00 0.00
----------- --------- --------- --------- ---------
Net asset value - ending $ 1.53 $ 2.21 $ 3.19 $ 3.07 $ 3.07
=========== ========= ========= ========= ==========
Ratio of expense to average
net assets 9.75% 8.73% 6.13% 5.86% 6.66%
Ratio of net investment (loss)
to average net assets (5.04)% (3.48)% (2.32)% (1.11)% (0.38)%
Number of shares outstanding
at end of period 4,225,477 4,225,477 4,185,477 3,357,352 3,357,352
</TABLE>
*Per share data presented has been restated from prior years
to reflect the 25% stock distributions of
the Corporation occurring in 1995, 1994 and 1993.
See notes to financial statements.
<PAGE>
INDEPENDENT AUDITOR'S REPORT Deloitte & Touche LLP
To the Board of Directors and Stockholders
Rand Capital Corporation
Buffalo, New York
We have audited the accompanying statements of financial
position of Rand Capital Corporation, including the schedules of
portfolio investments, as of December 31, 1996 and 1995, and the
related statements of operations and changes in net assets for
the years then ended, and the selected per share data and ratios
for each of the five years in the period then ended. These
financial statements and per share data and ratios are the
responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial
statements and per share data and ratios based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and per share data and ratios are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included examination or
confirmation of securities owned as of December 31, 1996 and
1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per
share data and ratios referred to above present fairly, in all
material respects, the financial position of Rand Capital
Corporation as of December 31, 1996 and 1995, the results of its
operations and changes in its net assets for the years then ended
and the selected per share data and ratios for each of the five
years in the period then ended, in conformity with generally
accepted accounting principles.
As explained in Note 1, the financial statements include
securities valued at $4,075,174 (63% of net assets), and
$8,997,613 (96% of net assets) at December 31, 1996 and 1995,
whose values have been estimated by the Board of Directors in the
absence of readily ascertainable market values. We have reviewed
the procedures used by the Board of Directors in arriving at its
estimate of value of such securities and have inspected
underlying documentation, and, in the circumstances, we believe
the procedures are reasonable and the documentation appropriate.
However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that
would have been used had a ready market for the securities
existed, and the differences could be material.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole. The
supplemental schedule of changes in investments at cost for the
year ended December 31, 1996, on page 6, is presented for the
purpose of additional analysis and is not a required part of the
basic financial statements. This schedule is the responsibility
of the Corporation's management. Such schedule has been subjected
to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements
taken as a whole.
s/Deloitte & Touche LLP
---------------------
Buffalo, NY
January 24, 1997
<PAGE>
SHAREHOLDER INFORMATION
Transfer Agent
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
Shareholders
The Corporation had approximately 179 record holders of its
common stock. This total does not include an estimated 739
shareholders with shares held under beneficial ownership in
nominee name or within clearinghouse positions of brokerage firms
or banks.
Market Prices
The common stock of Rand Capital is traded on The NASDAQ
SmallCap Market tier of The NASDAQ Stock Market under the symbol:
RAND. The following high and low bid prices for the shares during
each quarter of the last two years were taken from quotations
provided to the Corporation by the National Association of
Securities Dealers, Inc.
Stock Bid Price Data*
1996 1995
Quarter High Low High Low
1st 3 1/2 1 4 1/4 3 1/2
2nd 2 1/4 1 3/8 5 3/8 4 1/2
3rd 2 1/8 1 1/2 7 5 1/4
4th 1 11/16 1 3/16 6 1/2 3
*Stock bid price data has been adjusted for stock distribution
Notice of Annual Meeting
The Annual Meeting of Shareholders of Rand Capital
Corporation will be held on Thursday, April 17, 1997 at 10:00 am
at the Rand Building (Room 1734), 14 LaFayette Square, Buffalo,
New York. All shareholders are encouraged to attend.
Directors
Reginald B. Newman II........President, NOCO Energy Corporation
Buffalo, NY Chairman, Rand Capital Corporation
Thomas R. Beecher, Jr........President, Beecher Securities
Buffalo, NY
Allen F. Grum................President, Rand Capital Corporation
Buffalo, NY
Luiz F. Kahl.................President, Vector Group, LLC
Buffalo, NY
Ross B. Kenzie...............Retired
Buffalo, NY
Willis S. McLeese............Chairman, Colmac Holdings Ltd.
Toronto, Canada
Jayne K. Rand................Vice President, M&T Bank, N.A.
Buffalo, NY
Donald A. Ross...............Retired
Buffalo, NY
Frederick W. Winter..........Dean, School of Management,
Buffalo, NY University of New York at Buffalo
Officers
Allen F. Grum - President
Nora B. Sullivan - Executive Vice President
Robin K. Penberthy - Chief Financial Officer
Corporate Counsel
Hodgson, Russ, Andrews,Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, NY 14203
Independent Accountants
Deloitte & Touche LLP
KeyBank Tower
50 Fountain Plaza, Suite 250
Buffalo, NY 14202
Rand Capital Corporation
Tel: 716-853-0802
Fax: 716-854-8480
Email: [email protected]
