July 18, 1997
To Our Shareholders:
For the first time in seven quarters, Rand Capital posted an
increase in net assets. This resulted from a decrease in
expenses, an increase in operating income and appreciation of our
portfolio investments. We are working to ensure that this is the
first of many increases. The management of Rand Capital would
like to acknowledge the help of its Board of Directors and the
patience of the shareholders. It has been a long time.
During the second quarter, we finished the recapitalization
of ARIA Wireless Systems, Inc., and are pleased that it emerged
from Chapter 11 on May 23, 1997. Rand participated in the
transaction by purchasing 438,000 shares of common stock
representing approximately 8% of the company. ARIA anticipates
that its shares will traded on the OTC market within the third
quarter. We believe that the combination of new management, a new
business model and a new operating strategy will allow ARIA to
maximize its market potential. Concurrently, we will evaluate our
ownership in Bydatel Corporation. Bydatel anticipates receiving
shares in ARIA to satisfy its claim as a creditor. This may lead
to Rand recognizing a positive value for its equity position in
Bydatel.
During the first quarter, we invested $100,000 in 3-D
Ventures, LLC which provided the production and marketing of 3-D
special television events in Venezuela. We are pleased to
announce that the venture was successful and Rand received
$150,000 in July. Our partners in the venture are based in
Buffalo and have a track record and expertise throughout the
world. Also, we assisted ARS, Inc. in raising $12,000,000 in
growth capital. In July, Rand received $1,257,820 for its
original investment of $500,000. We reinvested $1,000,000 into
Subordinated Debt with a 12% coupon and warrants. The company
used the capital to repurchase outstanding debt and equity.
In June, we re-negotiated the terms of our mortgage with
John Giardino. The new note calls for accelerated principal
payments and annual interest rate increases with a final maturity
date in 2002. Unfortunately, one of our directors, Frederick
Winter, is relocating to the University of Pittsburgh to serve as
the Dean of the School of Management. Our loss is their gain. We
will miss Rick's valued advice and commitment to Rand Capital and
thank him for his contributions.
We are highly liquid with approximately $3.7 million (or 64
cents per share) in current assets. We continue to pursue
opportunities that are consistent with our investment strategy.
Thank you for your continued support of Rand Capital. We welcome
any questions or comments.
Regards,
s/Allen F. Grum s/Nora B. Sullivan
________________________ ________________________________
Allen F. Grum, President Nora B. Sullivan, Executive Vice
President
<PAGE>
STATEMENTS OF FINANCIAL POSITION
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
Unaudited December 31,
Assets June 30, 1997 1996
______ _____________ ____________
<S> <C> <C>
Investments at Directors' valuation $ 4,675,878 $ 4,075,174
(cost: at 6/30/97 - $4,063,020;
at 12/31/96 - $3,737,286
Cash and cash equivalents 3,293,126 1,605,501
Interest receivable (net of allowance
of $64,042 at 6/30/97 and $0 at 12/31/96) 36,495 100,411
Deferred tax asset 548,742 751,106
Other assets 203,785 77,004
_________ _________
Total Assets $ 8,758,026 $ 6,609,196
Liabilities and Stockholder's
Equity (Net Assets)
Liabilities:
Accounts payable and accrued expenses $ 121,494 $ 150,660
Income taxes payable 5,800 0
___________ __________
Total Liabilities 127,294 150,660
___________ __________
Stockholders's Equity (Net Assets):
Common stock, $.10 par - shares 570,804 422,548
authorized 10,000,000
issued and outstanding 5,708,034
at June 30, 1997 and 4,225,477
at December 31, 1996.
Capital in excess of par value 6,907,517 4,810,369
Undistributed net investment (loss) (1,656,700) (1,210,521)
Undistributed realized gain on 2,571,029 2,258,384
investments
Net unrealized appreciation of 238,082 177,756
investments _________ _________
Net Assets (per share 6/30/97
$1.51; 12/31/96 - $1.53) 8,630,732 6,458,536
_________ _________
Total Liabilities and
Stockholder's Equity $ 8,758,026 $ 6,609,196
=========== ===========
</TABLE>
<PAGE>
STATEMENTS OF OPERATIONS
Six months ended June 30, 1997 and year ended December 31, 1996
<TABLE>
<CAPTION>
Unaudited Unaudited
June 30, 1997 December 31, 1996
<S> <C> <C>
Investment income:
Interest from portfolio companies $ 84,284 $ 122,255
Interest from other investments 69,038 38,730
Other income 11,405 12,921
__________ ___________
164,727 173,906
__________ ___________
Expenses:
Salaries 164,477 273,258
Employee benefits 18,781 32,188
Directors' fees 23,398 33,830
Legal fees 19,122 106,003
Professional fees 11,053 33,464
Stockholder and office 41,897 76,122
Insurance 47,190 94,263
Corporate development 37,395 79,557
Other operating 28,440 40,742
__________ ___________
391,753 769,427
__________ ___________
Investment (loss) before income taxes (227,026) (595,521)
Income taxes provision 8,900 13,000
Deferred income tax provision (benefit) 94,827 (210,736)
__________ ___________
Investment (loss) - net (330,753) (397,785)
__________ ___________
Realized and unrealized gain (loss)
on investments:
Net gain (loss) on sales and dispostions 312,499 (462,964)
___________ ___________
Net realized gain (loss) on investments 312,499 (462,964)
Deferred income tax provision 115,764 145,952
___________ ___________
Net realized gain (loss) 196,735 (608,916)
___________ ___________
Unrealized appreciation on investments:
Beginning of period 337,889 3,236,040
End of period 389,988 337,889
___________ ____________
Increase (decrease) in unrealized
appreciation 52,099 (2,898,151)
Deferred income tax provision (benefit) 8,226 (1,030,083)
___________ ____________
Net increase (decrease) in unrealized
appreciation 60,325 (1,868,068)
___________ ____________
Net realized and unrealized gain (loss)
on investments 257,060 (2,476,984)
___________ ____________
Net (decrease) in net assets from operations $ (73,693) $ (2,874,769)
=========== ============
</TABLE>
<PAGE>
PORTFOLIO VALUATION / JUNE 30, 1997
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
Per
share Per
Date of share
Acquired Company and Business Type of Investment Cost Value Rand Value of Rand
<S> <C> <C> <C> <C> <C> <C> <C>
6/23/95 American Tactile Convertible 150,000 150,000 0.03 150,000 0.03
Corporation, Medina, debentures at 8%,
NY. Develops equipment due June 2000 and
and systems to produce April 2001 with
ADA signs for the detachable
visually impaired warrants
5/23/97 ARIA Wireless Systems, Common stock - 438,000 438,000 0.08 0 0.00
Inc.* Orchard Park, 438,000 shares
NY. Markets radio
transmission
communication
equipment
8/29/91 ARS, Inc. Common stock - 25 125,000 507,820 0.09 507,820 0.09
Cheektowaga, NY. shares
Assembles and Subordinated 375,000 750,000 0.13 750,000 0.13
distributes convertible
replacement automotive debentures at 14
products 2/3%, due August
2000
8/29/91 BioVector, Inc. Common stock - 50,000 50,000 0.00 0 0.00
Orchard Park, NY. 50,000 shares
Medical technological Convertible 360,000 360,000 0.06 0 0.00
sales promissory note at
8%, due April
2002. Option to
purchase 100,000
common shares
10/16/95 Commercial Maintenance Common stock - 100,000 100,000 0.02 100,000 0.02
Organization, Inc. 163,526
Coral Springs, FL.
Maintenance service
network for retailers,
restaurants, vendors
6/29/95 Compek Research, Common stock - 693,998 375,556 0.06 283,021 0.05
Inc..* 49,221 shares**
9/13/94 Buffalo, NY. Develops Term loan at price 82,143 82,143 0.01 92,410 0.02
electronic systems for less 1%, due June
military and non- 1999
military applications
3/31/94 Coral Systems, Inc. Series A 200,000 422,222 0.07 422,222 0.07
Longmont, CO. convertible
Develops fraud preferred stock
prevention software 99,999 shares 18,271 18,271 0.00 18,271 0.00
for the wireless Common stock -
industry 11,938 shares
3/18/96 HealthWay Products Promissory note at 100,000 100,000 0.02 100,000 0.02
Company, Inc. 15%, 4,667
Syracuse, NY. warrants for
Manufactures air Series A preferred
filters and climate stock
control devices
2/26/88 J. Giardino First mortgage at 211,545 211,545 0.04 214,553 0.04
Buffalo, NY. Owns and 10%
leases commercial
property
10/4/95 Reflection Technology, Series J 500,000 500,000 0.09 500,000 0.09
Inc. convertible
Waltham, MA Develops preferred stock -
and Licenses 443,784
proprietary virtual
display technology
12/11/92 Ultra-Scan Corporation Common stock - 276,986 276,986 0.05 276,986 0.05
Buffalo, NY. 47,583 shares
Ultrasonic fingerprint Term loan at 6%, 50,000 50,000 0.01 50,000 0.01
scanning technology due September 1997
Other investments Other 491,045 283,335 0.05 336,269 0.05
_______ ____ _______ ____
Total portfolio $4,675,878 0.81 $3,801,552 0.67
investments
Cash and cash 3,293,126 0.58 4,110,391 0.72
equivalents
Net receivables 118,786 0.02 159,309 0.02
(payables) _______ _______
Net assets before $8,087,790 1.41 $8,071,252 1.41
taxes
Tax provision (542,942) (0.10) (559,071) (0.10)
(benefit) _________ _________
Net assets $8,630,732 $8,630,323
========= =========
Net assets value $1.51 $1.51
per share
(5,708,034 shares
at June 30, 1997
and March 31,
1997)
</TABLE>
* Publicly owned company ** Unrestricted securities
<PAGE>
RAND CAPITAL CORPORATION
Board of Directors
Reginald B. Newman II Chairman of the Board
g Thomas R. Beecher, Jr.
Allen F. Grum
a, c Luiz F. Kahl
c, g Ross B. Kenzie
a Willis S. McLeese
c, g Jayne K. Rand
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 Chief Financial Officer
Corporate Data
Stock Listing Over the Counter - NASDAQ symbol RAND
Transfer Agent and Registrar Continental Stock Transfer & Trust
Company
General Counsel Hodgson, Russ, Andrews, Woods & Goodyear, LLP
Independent Accountants Deloitte & Touche LLP
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]
