Semi Annual Report July 19, 2000 Dear Shareholders: We ended the quarter with our net asset value unchanged from the previous quarter at $1.51. During the quarter, we completed new investments in BanKor.com and TSS-Transnet and increased our investments in two portfolio companies, UStec and Ultra-Scan. We purchased $200,000 of preferred stock in BanKor.com as part of a syndicate that provided $3.75 million of financing to BanKor.com. BanKor.com provides an affordable, cost-efficient online banking solution to community banks and other financial institutions. BanKor.com is dedicated to removing the barriers to online banking and is especially interested in helping to level the playing field between community banks and their much larger competitors. Our investment represents approximately 3% of BanKor.com. We also provided $250,000 of capital to a management team, which allowed them to purchase all of the assets of TSS-Transnet. TSS-Transnet is a trucking and logistics management company offering a single source logistics solution that encompasses road, rail, air, ocean, and a variety of distribution services tailored to the customers' individual business needs. We purchased preferred stock and a warrant for 25% of the common stock. Management intends to use TSS-Transnet as a platform to consolidate other trucking companies. We increased our investment in UStec by exercising options for 50,000 shares. Also, we provided $25,000 in a bridge loan for Ultra-Scan. Both of these companies are actively pursuing fundraising. As our portfolio ages, many of our companies are displaying the promise that we anticipated when we made our original investment. We look forward to sharing these results with you in the coming quarters. Rand's website has been launched (www.randcapital.com). The site includes information and links to our portfolio companies as well as other related sites. We feel our website will provide a more efficient manner in which to communicate with our shareholders and provide portfolio company updates. We encourage you to visit our website. Allen F. Grum Portfolio Valuation / June 30, 2000 June 30, 2000 March 31, 2000 Company and Business Type of Investment Date Acquired Cost Value Per Share Value Per Share of Rand of Rand - -------------------------- --------------------- -------------- ------------ ---------- ----------- ----------- ---------- - -------------------------- --------------------- -------------- ------------ ---------- ----------- ----------- ---------- American Tactile Convertible 6/23/95 150,000 50,000 0.01 50,000 0.01 Corporation Medina, NY. Debentures at 8% Develops equipment and due June 2000 and systems to produce April 2001 with signage. detachable warrants www.americantactile.com ARIA Wireless Systems, Common Stock - 5/23/97 543,840 349,840 0.06 349,840 0.06 Inc. (OTC:AWSI)* 488,000 shares Buffalo, NY. Markets $105,840 Demand wireless radio Notes at 15% transmission communication equipment. www.aria-glb.com BanKor.com Bloomfield, Series A 5/30/00 200,000 200,000 0.03 MN. Provides turn-key Convertible solutions for on-line Preferred Stock - community banking. 200,000 shares Cumulative Dividend $0.08 per share per annum BioWorks, Inc. Geneva, Series A 11/6/95 56,000 56,000 0.01 56,000 0.01 NY. Develops and Convertible manufactures biological Preferred Stock - alternative to chemical 32,000 shares pesticides. www.bioworksbiocontrol.com Clearview Cable TV, Inc. Common Stock - 400 2/23/96 55,541 55,541 0.01 55,541 0.01 New Providence, NJ. shares Cable television operator. Contract Staffing Series A 8% 11/8/99 100,000 100,000 0.02 100,000 0.02 Buffalo, NY. PEO Cumulative providing human resource Preferred administration for small Stock-10,000 shares businesses. www.contract-staffing.com DataView, LLC Mt. Kisco, 5.5% Membership 10/1/98 310,357 343,357 0.06 343,357 0.06 NY. Designs, develops Interest and markets browser based software for investment professionals. www. marketgauge. com Fertility Acoustics, Common Stock - 10/1/97 87,440 1,167,012 0.20 1,167,012 0.20 Inc. Buffalo, NY. 848,736 Shares Developer of proprietary methods to diagnose onset of ovulation. G-TEC Natural Gas 41.67% Class A 8/31/99 300,000 300,000 0.05 300,000 0.05 Systems Buffalo, NY. Membership Interest Manufactures and 8% Cumulative distributes systems that Dividend allow natural gas to be used as an alternative fuel to gases. www.gas-tec.com. Hammertime Kitchen & Convertible 10/1/98 300,000 300,000 0.05 300,000 0.05 Bath Works, Inc. Preferred Stock - Clarence, NY. Exclusive 1,000 Shares Sears licensed installer Senior Subordinated of kitchens and baths. Note at 12% due October 2000 Promissory Note at 15%, due August 1999 HCI Systems Kennebunk, Series B Preferred 12/15/99 100,500 100,500 0.02 100,500 0.02 ME. Facilities Stock - 67,000 management software Shares 5% solution. Cumulative Dividend www.hcisystems.com MemberWare Technologies, Promissory Note at 9/16/99 100,000 150,000 0.03 150,000 0.03 Inc. Pittsford, NY. Prime Rate + 4.5% Internet company engaged due September 2004. in web related Common Stock - consulting services. 40,000 Shares www.memberware.com 34,000 warrants for shares of stock MINRAD, Inc. Buffalo, 595,506 Common 8/4/97 874,030 1,111,000 0.19 1,111,000 0.19 NY. Developer of laser Shares. 53,628 guided surgical devices. Preferred Shares Merged with BioVector, Inc. December 1999. Pathlight Technology, Class A Series 10/7/97 1,174,996 2,012,922 0.35 2,012,922 0.35 Inc. Ithaca, NY. Convertible Develops SAN technology Preferred Stock - for computer industry. 200,000 shares with www.pathlight.com 6% cumulative dividend. Preferred Class B - 117,187 shares Class C Preferred Stock - 214,285 Shares 67,578 warrants for shares of stock Platform Technology Two units with 9/24/97 8,045 60,000 0.01 60,000 0.01 Holdings, LLC option for two Charlottes-ville, VA. additional units Provides sales support and management for unique medical businesses. TSS-TransnetMilton, Series A Preference 6/1/00 250,000 250,000 0.04 Ontario. Canadian and Stock - 250 shares U.S. trucking and 12% Quarterly logistics company. Dividend250 warrants for common stock UStec, Inc. Victor, NY. Promissory Note at 12/17/98 100,500 150,000 0.03 100,000 0.02 Manufacturers and 12% due December markets digital wiring 2003 50,000 common systems for residential shares new home construction. 2,500 warrants for www.ustecnet.com common shares Vanguard Modular Preferred Units - 12/16/99 270,000 270,000 0.05 270,000 0.05 Building Systems 2,673 Units with Philadelphia, PA. Leases Warrants and sells high-end modular space solutions. www.vanguardmodular.com Preferred Stock Merrill Lynch - 7/15/99 1,047,888 951,460 0.17 925,838 0.16 Portfolio* ^ Merrill 12,000 shares; Lynch (MER-F), Motorola Motorola - 10,000 (MOT-A), Citicorp shares; Citicorp - (CIH-A), Texaco (TXC-A) 10,000 shares; Texaco - 12,000 shares 896,397 25,163 0.01 164 ------- ------ ---- --- Other investments Other Total 6,925,534 8,002,795 1.40 7,452,174 1.30 Portfolio investments Cash and Cash 51,154 0.01 646,881 0.11 equivalents ------ ---- ------- ---- Net receivables 114,871 0.02 97,663 0.02 (payables) Net Assets before 8,168,820 1.43 8,196,718 1.43 Taxes --------- ---- --------- ---- Tax provision (471,880) (0.08) (471,880) (0.08) (benefit) --------- --------- Net Assets 8,640,700 8,668,598 Net Asset Value per Share 1.51 1.51 (5,708,034 shares outstanding at March 31, 2000 and 5,723,034 shares outstanding at June 30, 2000)
* Publicly owned company ^ Unrestricted securities Note: 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. RAND CAPITAL CORPORATION Results from Annual Shareholders Meeting held April 13, 2000 (1) Board of Directors Election Votes For Votes Withheld Against --------- -------------- ------- Reginald B. Newman II 4,955,438 8,940 - Allen F. Grum 4,955,438 8,940 - Luiz F. Kahl 4,955,438 8,940 - Erland E. Kailbourne 4,954,238 10,140 - Ross B. Kenzie 4,943,823 20,555 - Willis S. McLeese 4,954,438 9,920 - Jayne K. Rand 4,955,438 8,940 - (2) Appointment of Deloitte & Touche as Auditors Votes For Votes Withheld Against --------- -------------- ------- 4,932,215 16,078 16,085 Officers Title Email - -------- ----- ----- Allen F. Grum President/CEO pgrum@randcap.com Daniel P. Penberthy Chief Financial Officer dpenberthy@randcap.com CORPORATE DATA Stock Listing NASDAQ SmallCap Market-symbol RAND Transfer Agent and Registrar Continental Stock Transfer & Trust Company www.continentalstock.com General Counsel Hodgson, Russ, Andrews, Woods & Goodyear, LLP Independent Accountants Deloitte & Touche LLP Number of Shareholders 823 (as of March 6, 2000) Rand is actively seeking business opportunities for investment consideration. If you are aware of those businesses that may need Rand's support and assistance, please feel free to contact us. Rand Capital Corporation 2200 Rand Building Buffalo, NY 14203 Tel: 716-853-0802 Fax: 716-854-8480 RAND CAPITAL CORPORATION Statements of Financial Position June 30, 2000 and December 31, 1999 Assets Unaudited June 30, 2000 December 31, 1999 Investments at Directors' $ 8,002,795 $ 5,319,399 valuation (cost: at 6/30/00 - $6,925,534; at 12/31/99 - $6,182,596 Cash and cash equivalents 51,154 1,139,708 Interest receivable (net of allowance of $13,167 98,576 83,524 at 6/30/00 and at 12/31/99) Deferred tax asset 471,880 1,071,880 Other assets 55,396 34,436 ------ ------ Total Assets $ 8,679,801 $ 7,648,947 ================== ================== Liabilities and Stockholders' Equity (Net Assets) Liabilities: Accounts payable and accrued expenses $ 39,070 $ 44,174 Income taxes payable 30 30 -- -- Total Liabilities 39,100 44,204 ------ ------ Stockholders' Equity (Net Assets): Common stock, $.10 par - shares 572,804 570,804 authorized 10,000,000 issued and outstanding 5,723,034 at June 30, 2000 and 5,708,034 at December 31, 1999. Capital in excess of par value 6,907,329 6,889,379 Undistributed net investment (2,180,259) (1,955,808) (loss) Undistributed realized gain on investments 2,596,531 2,696,531 Net unrealized (depreciation) (744,296) (596,163) of investments --------- --------- Net Assets (per share 6/30/00 - $1.51; 12/31/99 - $1.33) 8,640,701 7,604,743 --------- --------- Total Liabilities and $ 8,679,801 $ 7,648,947 Stockholder's Equity =========== =========== RAND CAPITAL CORPORATION Statements of Operations Six Months ended June 30, 2000 and December 31, 1999 Unaudited June 30, 2000 December 31, 1999 Investment income: Interest from portfolio $ 44,063 $ 78,926 companies Interest from other 79,707 77,264 investments Other income - 45,878 ------- ------- 123,770 202,068 ------- ------- Expenses: Salaries 149,804 155,500 Employee benefits 44,825 38,443 Directors' fees 18,000 13,500 Legal fees 14,380 9,928 Professional fees 15,628 12,342 Stockholder and office 36,206 28,184 Insurance 14,510 16,936 Corporate development 8,851 13,318 Other operating 40,019 57,701 ------ ------ 342,223 345,58 ------- ------ Investment (loss) before (218,453) (143,786) income taxes Income taxes provision 5,998 5,488 Deferred income tax provision (benefit) - - -------- ------- Investment (loss) - net (224,451) 149,274 -------- ------- Realized and unrealized gain (loss) on investments: Net gain (loss) on sales (100,000) (14,300) and dispositions -------- ------- Net realized gain (loss) on (100,000) (14,300) investments Deferred income tax - - provision -------- -------- Net realized gain (loss) (100,000) (14,300) -------- -------- Unrealized appreciation (depreciation) on investments: Beginning of period (863,197) (551,889) End of period (1,077,262) (863,197) ---------- --------- Increase (decrease) in 1,940,459 (311,308) unrealized appreciation Deferred income tax 600,000 - provision (benefit) ------- ------- Net increase (decrease) in 1,340,459 (311,308) unrealized appreciation --------- -------- Net realized and unrealized 1,240,459 (325,608) gain (loss) on investments --------- -------- Net increase (decrease) in net $ 1,016,008 $ 474,882) assets from operations =========== =========