RAND CAPITAL CORPORATION 1300 Rand Building Buffalo, New York 14203 SEMI ANNUAL REPORT June 30, 1996 August 5, 1996 TO OUR SHAREHOLDERS: Enclosed is our report for the six months ended June 30, 1996. Net asset value was $7,425,198 or $1.76 per share, compared to $9,333,304 or $2.21 per share at December 31, 1995. During the second quarter, we made an additional investment in American Tactile Corporation, a maker of equipment for the manufacture of signs for the visually impaired. We received a $12,965 dividend from Sand River Resources Limited, and Phoenix Data Corporation liquidated so we recouped all of our original $100,000 investment. We sold all 38,570 shares of CAI Wireless Systems, Inc. at a pre-tax gain of $132,000 and we sold 15,000 shares of Heartland Wireless Communications, Inc. at a pre-tax gain of $72,000. Due to a change in estimate in the valuation of Ultra-Scan Corporation, we re-valued our investment at cost, resulting in a $1.3 million decrease in unrealized appreciation. Our change in estimate is due primarily to a longer than anticipated engineering development cycle. The company recently expanded its management team with the addition of a Sales and Marketing Executive. In our 1995 annual report, we indicated we would conduct a strategic review of the company in 1996, focusing on cost structure, investment strategy and investment management policy. In conjunction with the Board of Directors, management did complete such a review and formulated certain policies to ensure continued maximization of shareholder value. Expenses for 1996 are projected to be 25% below 1995 total expenses and represent permanent reductions in certain categories of our expense base. In the near term, we will focus on investing in later stage companies with instruments containing a current pay feature to generate revenue. We reviewed and refined our investment valuation and public stock management policies. For the third quarter, management, in conjunction with the Board of Directors, plans to address future capital requirements and methods to improve the quality of shareholder communications. We remain optimistic about the long term growth and appreciation of Rand's assets and thank you for continuing to invest in our future. Sincerely, Reginald B. Newman II Allen F. Grum Nora B. Sullivan Chairman President Executive Vice President 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 Continental Stock Transfer & Registrar Trust Company Stock Listing Over the Counter - NASDAQ symbol RAND STATEMENTS OF FINANCIAL POSITION June 30, 1996 and December 31, 1995 Unaudited ASSETS June 30, December 31, 1996 1995 _______________________ Investments at Directors' valuation 5,397,806 8,997,613 (cost: at 06/30/96 $4,269,678; at 12/31/95 $5,761,573) Temporary investments, at market 1,079,349 545,050 value which approximates cost Cash 40,099 162,509 Interest receivable (net of allowance 135,714 147,556 of $0 at 06/30/96 and $20,400 at 12/31/95) Deferred Taxes 679,385 - Income taxes receivable - 4,187 Other assets 271,398 51,144 _________ _______ 7,603,751 9,908,059 ========= ========= LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS) Liabilities: Accounts payable and accrued expenses 175,639 226,808 Income taxes payable 2,917 - Deferred taxes - 343,759 __________ ________ 178,556 570,567 Stockholder's equity (net assets): Common stock, $.10 par - authorized 422,548 422,548 7,000,000 shares; issued and outstanding 4,225,477 shares Capital in excess of par value 4,810,369 4,810,369 Undistributed net investment (loss) (1,116,448) (812,838) Undistributed realized gain on 2,676,581 2,867,302 investments Net unrealized appreciation of 632,145 2,045,924 investments __________ __________ Net assets (per share 06/30/96 $1.76; 7,425,195 9,333,305 12/31/95 - $2.21) _________ _________ 7,603,751 9,903,872 ========= ========= STATEMENTS OF OPERATIONS Six months ended June 30, 1996 and year ended December 31, 1995 Unaudited June 30, December 31, 1996 1995 __________________________ Investment Income: Interest from portfolio companies 66,720 225,042 Interest from other investments 9,873 85,896 Other income 12,853 37,266 _______ _______ 89,446 348,204 Expenses: Salaries 134,538 469,985 Employee benefits 20,486 166,412 Directors' fees 23,886 17,750 Legal fees 39,924 82,612 Auditing and accounting 7,050 14,715 Consulting fees 9,500 3,447 Stockholder and office expenses 33,411 31,808 Occupancy 11,040 20,560 Insurance 44,277 35,942 Travel 37,967 27,140 Other operating expenses 18,538 119,324 _______ ________ 380,617 989,695 Investment (loss) before income taxes (291,171) (641,491) Income taxes provision 12,439 14,100 Deferred income tax (benefit) - (245,660) _________ _________ Net investment (loss) (303,610) (409,931) Realized and unrealized gain (loss) on investments: Realized gain (loss) on investments Cost of sales and dispositions (458,219) (65,416) _________ ________ Realized (loss) before income tax (458,219) (65,416) Deferred income tax provision 267,497 30,003 _________ _______ Net realized (loss) (190,722) (95,419) Unrealized appreciation on investments: Balance at beginning of period 3,236,040 9,064,200 Balance at end of period 1,066,715 3,236,040 _________ __________ Decrease in unrealized appreciation (2,169,325) (5,828,160) before income taxes Deferred income tax provision 755,547 2,229,884 _________ __________ Net decrease in unrealized (1,413,778) (3,598,276) appreciation Net realized and unrealized (1,604,500) (3,693,695) (loss) on investments ____________ ___________ Net decrease in net assets from (1,908,110) (4,103,626) operations ============ ===========
PORTFOLIO VALUATION June 30, 1996 and December 31, 1995 June 30, 1996 December 31, 1995 Per Per Date Share Share of Acquired Company and Business Type of Investment Cost Value of Rand Value Rand 10/29/91 ARIA Wireless Systems, CI A stock - Inc. 1,800 shares $ - $ - $ - $ 198,000 $ 0.05 Buffalo, NY. Manufactures and CI B stock - markets radio 1,798,200 transmission communication equipment 06/23/95 American Tactile Corp. Convertible Medina, NY. Develops debentures at 8% equipment and systems due June 2000 and to produce ADA signs June 2001 with for the visually detachable impaired warrants 150,000 150,000 0.04 100,000 0.02 08/29/91 Auto Radiator Sales, Common stock - Inc. 25 shares 125,000 250,000 Cheektowaga, NY. Subordinated Manufactures and convertible distributes debentures at replacement automotive 14 2/3% interest, products due August 2000 375,000 750,000 0.18 1,000,000 0.24 04/28/89 Bydatel Corporation Common stock - Buffalo, NY. Licensor 219,262 shares 0 0 0.00 33,000 0.01 of telecommunication Demand loans with technology warrants 0 0 0.00 0 0.00 10/06/95 CAI Wireless Systems, Common stock - Inc. 0 shares 0 0 0.00 467,447 0.11 Albany, NY. Wireless cable television systems operator 10/17/95 CableMaxx, Inc. Common stock - Austin, TX. Wireless 0 shares 0 0 0.00 114,400 0.03 cable television systems operator 09/30/88 Chem Pub LP Limited New York, NY. Limited partnership partnership invested interest 0 0 0.00 183,775 0.04 in "Chemical Week" Magazine 02/23/96 Clearview Cable TV, Common stock - Inc. 400 shares 124,000 124,000 0.03 0 0.00 New Providence, NJ. Wireless cable television systems operator 10/16/95 Commercial Maintenance Capital stock - Organization, Inc. 170 shares 85,000 85,000 0.02 80,000 0.02 Coral Springs, FL. Maintenance service network for retailers, restaurants, vendors. 09/13/94 Comptek Research, Inc. Common stock - Buffalo, NY. Develops 49,221 shares 693,998 258,409 0.06 238,307 0.06 electronic systems for Term loan at prime military and non- less 1%, due June military applications 1998 133,482 133,482 0.03 154,017 0.04 03/31/94 Coral Systems, Inc. Convertible Longmont, CO. preferred stock - Develops fraud 200,000 shares 200,000 422,222 0.10 200,000 0.05 prevention software for the wireless industry 03/18/96 HealthWay Products Debenture, 15% Company, Inc. interest, due Syracuse, NY. June 18, 1996 100,000 100,000 0.02 0 0.00 Manufactures air filters and climate control devices 02/23/96 Heartland Wireless Common stock - Communications, Inc. 16,880 shares 376,265 384,134 0.09 0 0.00 Richardson, TX. Wireless cable television systems operator 02/26/88 J. Giardino First mortgage at Buffalo, NY. Own and 10% interest 223,139 223,139 0.05 228,516 0.05 leases commercial property 11/09/95 Jamestown Savings Bank Common stock - Jamestown, NY. 50,000 shares 500,000 500,000 0.12 500,000 0.12 Community savings bank 05/24/94 Mobile Data Solutions Convertible Inc. debenture at 7.5%, Vancouver, BC. due December 1996 100,000 299,738 0.07 197,800 0.05 Develops mobile data software 12/31/90 MobileMedia Corp. Common stock - New York, NY. 71,292 shares 94,250 747,587 0.18 1,586,200 0.38 Provider of paging and other wireless data services 06/08/94 Phoenix Data Convertible Communications Corp. preferred stock - Warwick, RI. Develops 4,000 shares 0 0 0.00 100,000 0.02 computer networking and multi-protocol software. 10/04/95 Reflection Technology, Series J Inc. convertible Waltham, MA. Develops preferred stock - and licenses 243,902 shares 500,000 500,000 0.12 500,000 0.12 proprietary virtual display technology. 11/06/95 TGT, Inc. Series A Geneva, NY. Develops convertible and manufactures preferred stock biological alternative 32,000 shares 56,000 56,000 0.01 56,000 0.01 to chemical pesticides. 02/26/87 Three Sixty Corp. Common stock - New Providence, NJ. 0 shares 0 0 0.00 600,000 0.14 Acquires and manages Convertible cable television debenture at 8% 0 0 0.00 200,000 0.05 properties. Convertible debenture at 15% 0 0 0.00 451,306 0.11 01/06/95 Transworld Common stock - Telecommunications, 132,826 shares 131,498 112,072 0.03 136,998 0.03 Inc. Salt Lake City, UT. Wireless cable television systems operator 12/11/92 Ultra-Scan Corporation Common stock - Buffalo, NY. 47,583 shares 276,986 276,986 0.07 1,665,386 0.39 Ultrasonic fingerprint scanning technology. Other investments Other 25,060 25,057 0.01 6,461 0.00 _______ ____ ________ ____ Total portfolio investments 5,397,806 1.28 8,997,613 2.13 Cash and money market investments 1,119,448 0.26 707,559 0.17 Net receivables (payables) 231,473 0.06 (28,109) (0.01) _________ ________ Net assets before taxes 6,748,727 1.60 9,677,063 2.29 Tax provision (benefit) (676,468) 0.16 343,759 0.08 _________ _________ Net assets 7,425,195 9,333,304 ========= ========= Net asset value per share (4,225,477 shares) $1.76 $2.21 ==== ====