1996
DECEMBER 31
FOURTH QUARTER
[LOGO]
RAND CAPITAL
CORPORATION
<PAGE>
January 24, 1997
To Our Shareholders:
One of our goals for 1996 was to improve shareholder
communication. So, for the first time in Rand's history, we are
issuing an unaudited fourth quarter report to provide more timely
information. We also intend to produce an annual report, which
will be sent in March, along with the Notice of our Annual
Meeting.
As we end the year, it is customary to provide a brief review of
1996 and a preview of 1997. There is only one way to describe
1996: it was a dismal year for the shareholders. As a company
whose sole goal is to maximize shareholder value, we are
dissatisfied with the results.
Over the past few years, the movements in our stock price can be
tied to the expectations of Aria Wireless Systems, Inc. This
promising venture (along with our related investment in Bydatel)
represented 46% of our assets at year end 1994 and attracted many
new investors who bought Rand solely to own Aria. Unfortunately,
the company failed and filed for bankruptcy protection in 1996.
While Aria did file a reorganization plan in 1996, its initial
failure led many shareholders to sell their stock throughout
1996. Quite often this created an excess of supply and drove the
stock price to a low trade of $1.00 in February. The year ended
with the stock price at $1.50.
While the stock price was a disappointment, we are pleased with
the changes we made in the strategy and structure of our company
and its' investments. In conjunction with the Board of
Directors, we developed a plan in early 1996 to provide Rand with
a new strategy and the resources necessary for implementation.
The four basic goals were :
- Reduce costs;
- Concentrate on investments that provide current income;
- Restructure current investments; and
- Raise new capital.
We have successfully implemented all aspects of the plan, as
illustrated by the following:
- Expenses were reduced 21% from 1995 to 1996;
- We made four new investments bearing both an average
interest rate of 10% and warrants;
- Equity investments declined from 75% of our portfolio
mix at year end 1995 to 63% by year end 1996; and
- We raised approximately $2.5 million in new capital
through a private placement offering of common shares
in January 1997.
In 1997, we will continue to follow the plan as outlined above.
We are pleased with the results of our capital raising efforts,
which will continue through February. The new shares were sold
at net asset value, making it a non-dilutive transaction. This
new capital will be used to grow our investment portfolio under
our new strategy and to further our business plan objectives.
In January 1997, we added to the strength of our Board of
Directors by electing Luiz F. Kahl, former President of The
Carborundum Company and Chief Executive Officer of BP Advanced
Materials, subsidiaries of British Petroleum, plc, and
manufacturers of high technology ceramic and composite materials.
Mr. Kahl brings a wealth of international and manufacturing
experience, rounding out the Board's diverse areas of expertise.
It is appropriate to point out the significant contributions of
our Directors. They were very active supporters of our company,
and continued to demonstrate their confidence in new management
by collectively having purchased a total of 350,000 shares in the
open market and 392,000 shares in the private placement.
In the fourth quarter, we liquidated our equity investment in
Jamestown Savings Bank and sold 7,000 shares of Heartland
Wireless Communications, Inc., generating a total of $667,000 in
cash. In December, we converted our Mobile Data Solutions, Inc.
debenture into 30,734 common shares. We recently sold all of
those shares at a pre-tax gain of $500,000.
Finally, we appreciate the support of our current shareholders
and welcome your comments. We are committed to providing
exceptional shareholder value.
Allen F. Grum Nora B. Sullivan
President Executive Vice President
<PAGE>
Rand Capital Corporation
Portfolio Valuation
December 31, 1996
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
------------------ ------------------
Per Per
Date Company and Share share
Acquired Business Type of Investment Cost Value of Rand Value of Rand
________ _______________ ------------------ -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6/23/95 AMERICAN TACTILE Convertible 150,000 150,000 0.04 150,000 0.04
CORP. Medina, NY. debentures at 8%
Develops equipment due June 2000 and
and systems to April 2001 with
produce ADA signs detachable
for the visually warrants
impaired
8/29/91 ARS, INC. Common stock - 25 125,000 250,000 0.06 250,000 0.06
Cheektowaga, NY shares
Assembles and Subordinated 375,000 750,000 0.18 750,000 0.18
distributes convertible
replacement debentures at 14
automotive products 2/3%; due August
2000
11/6/95 BIO WORKS, INC. Series A 56,000 56,000 0.01 56,000 0,01
Geneva, N.Y. Convertible
Develops and Preferred Stock -
manufactures 32,000 shares
biological
alternative to
chemical pesticides
02/23/96 CLEARVIEW CABLE TV, Common stock - 400 56,000 55,541 0.01 56,000 0.01
INC. shares
New Providence, NJ.
Wireless cable
television operator
10/16/95 COMMERCIAL Common stock - 85,000 85,000 0.02 85,000 0.02
MAINTENANCE 148,526 shares
ORGANIZATION, INC.
Coral Springs, FL.
Maintenance service
network for
retailers,
restaurants,
vendors
9/13/94 COMPTEK RESEARCH, Common stock -
INC. Buffalo, NY. 49,221 shares
Develops electronic Term loan at prime 693,998 246,105 0.06 272,684 0.07
systems for less 1%, due June 102,678 102,678 0.03 112,946 0.03
military and non- 1998
military
applications
3/31/94 CORAL SYSTEMS, INC. Series A
Longmont, CO. Convertible
Develops fraud preferred stock
prevention software 200,000 shares 200,000
for the wireless Common stock - 18,271 440,493 0.10 440,493 0.10
industry 11,993 shares
3/18/96 HEALTHWAY PRODUCTS Promissory Note, 100,000 100,000 0.02 100,000 0.02
COMPANY, INC. 21% interest,
Syracuse, NY. 4,667 warrants
Manufactures air
filters and climate
control devices
2/23/96 HEARTLAND WIRELESS Common stock - 59,165 38,045 0.01 232,575 0.06
COMMUNICATIONS, 2,880 shares
INC. Richardson,
TX. Wireless cable
television system
operator
2/26/88 J. GIARDINO First mortgage at 220,347 218,448 0.05 220,347 0.05
Buffalo, NY. Owns 10% interest
and leases
commercial property
11/9/95 JAMESTOWN SAVINGS Common stock - 500,000 - - 500,000 0.12
BANK 50,000 shares
Jamestown, NY
Community savings
bank
5/19/94 MOBILE DATA Common stock - 100,000 465,851 0.11 315,560 0.07
SOLUTIONS, INC. 30,734 shares
Vancouver, BC.
Develops mobile
data software
12/31/90 MOBILE MEDIA CORP. Common stock - 94,250 34,729 0.01 325,575 0.08
New York, NY. 71,292 shares
Provider of paging
and other wireless
data services
10/4/95 REFLECTION Series J 500,000 500,000 0.12 500,000 0.12
TECHNOLOGY, INC. Convertible
Waltham, MA. Preferred Stock -
Develops and 243,902 shares
licenses
proprietary virtual
display technology
1/6/95 TRANSWORLD Common stock - 131,498 37,058 0.01 139,866 0.03
TELECOMMUNICATIONS, 132,826 shares
INC.
Salt Lake City, UT.
Wireless cable
television systems
operator
12/11/92 ULTRA-SCAN Common stock - 276,986 276,986 0.07 276,986 0.07
CORPORATION 47,583 shares
Buffalo, NY Note at 6%, due 50,000 50,000 0.01 50,000 0.01
Ultrasonic June 1997
fingerprint
scanning technology
OTHER INVESTMENTS Other 100,060 100,060 0.02 100,060 0.02
-------- -------- ---- ------ ----
Total portfolio $3,956,994 1.94 $4,934,092 1.17
investments
Cash and money 1,602,786 0.38 1,105,807 0.26
market investments
Net receivables 145,233 0.03 199,389 0.04
(payables) _______ -------
Net assets before $5,705,013 1.35 $6,239,288 1.47
taxes
Tax provision (795,351) (0.19) (795,351) (0.19)
(benefit) --------- ---------
Net assets $6,500,364 $7,034,639
--------- ---------
Net asset value $1.54 $1.66
per share
(4,225,477)
</TABLE>
<PAGE>
RAND CAPITAL CORPORATION
BOARD OF DIRECTORS
---------------------------------------------------------------
Reginald B. Newman II Chairman of the Board
g Thomas R. Beecher, Jr
Allen F. Grum
c,g Ross B. Kenzie
a,c Willis S. McLeese
c,g Jayne K. Rand
a Donald A. Ross
a Frederick W. Winter
a - MEMBER OF AUDIT COMMITTEE
c - MEMBER OF COMPENSATION COMMITTEE
g - MEMBER OF GOVERNANCE COMMITTEE
OFFICERS
---------------------------------------------------------------
Allen F. Grum........President, Chief Executive Officer
Nora B. Sullivan.....Executive Vice President
Robin K. Penberthy...Secretary and Treasurer
CORPORATE DATA
---------------------------------------------------------------
General Counsel..................Hodgson, Russ, Andrews,Woods &
Goodyear, LLP
Independent Accountants..........Deloitte & Touche, LLP
Transfer Agent and Registrar.....Continental Stock Transfer &
Trust Company
Stock Listing....................Over the Counter-NASDAQ symbol
RAND
We appreciate the support of our current shareholders and welcome
your comments.
Tel: 716-853-0802
Fax: 716-854-8480
Email: [email protected]
[email protected]