1996 SEPTEMBER 30 THIRD QUARTER [LOGO] RAND CAPITAL CORPORATION October 25, 1996 To Our Shareholders: Please notice that our address, look and the content of this report all have changed. We have moved upstairs in the Rand Building to a smaller office suite to reduce our expense base. The new "look" and report content are the beginnings of an ongoing program to improve shareholder communication. We will expand the discussions of our individual portfolio companies to provide more information about their results. Look for more changes in the future. We welcome you to share your thoughts with us. In July we signed a letter of intent to provide expansion capital to Strategic Staffing Affiliates (SSA), a company formed by the owners/management of an existing temporary staffing agency in Williamsville, New York. The company's business plan is to acquire small to mid-sized temporary staffing agencies in the United States and then to provide capital, cash flow and certain back office operations while allowing each agencies to maintain its independence in the daily operations. The first acquisition was Key Resource Group, where management has 55 years of combined experience. The funds from our investment, in the form of a debenture and warrants, will be used for their next acquisition. Rand's investment reflects our new investment approach, as we outlined in our June 1996 Shareholder Report: later stage development financing with a current pay feature, solid management and geographic proximity. In the second quarter of 1996, Aria Wireless Systems, Inc. filed for bankruptcy protection under Chapter 11. Since then, Rand has provided debtor in possession financing of $100,000. We have also worked closely with Compass Partners to develop financial and operating plans that will allow Aria to emerge from bankruptcy as an operating company. Compass Partners intends to provide one million dollars in DIP financing and ultimately acquire control of the company. These plans should be finalized in early 1997. We expect all Aria shareholders interests to be eliminated under any plan. We hope to have the option of either converting our secured loan into equity or receiving all of our principal and interest. The results of these proceedings will occur during the next few quarters. During the third quarter, we made an additional investment in Ultra-Scan Corporation in the form of a $50,000 note and we purchased 23,986 common shares of Coral Systems, Inc. We received a partial distribution from Clearview Cable and liquidated 7,000 shares of Heartland Wireless Communications, Inc. in accordance with our public stock management policy. Our net asset value as of September 30,1996 was $7,034,639 or $1.66 per share, as compared to $7,425,198 or $1.76 per share as of June 30, 1996. The decline was primarily due a decline in the prices of our publicly held stocks. We encourage your participation in the re-vitalization of Rand Capital and thank you for investing in our future. Allen F. Grum Nora B. Sullivan President Executive Vice President Rand Capital Corporation Portfolio Valuation September 30, 1996
September 30, 1996 June 30, 1996 ------------------ ------------------ Per Per Date Company and Share share Acquired Business Type of Investment Cost Value of Rand Value of Rand ________ _______________ ------------------ -------- ------------------ ------------------ 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 AUTO RADIATOR Common stock - 25 125,000 SALES, INC. shares Cheektowaga, NY Subordinated 375,000 1,000,000 0.24 1,000,000 0.24 Manufactures and convertible distributes debentures at 14 replacement 2/3% automotive products 02/23/96 CLEARVIEW CABLE TV, Common stock - 400 56,000 56,000 0.01 124,000 0.03 INC. shares New Providence, NJ. Wireless cable television operator 10/16/95 COMMERCIAL Common stock - 170 85,000 85,000 0.02 85,000 0.02 MAINTENANCE 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 806,944 385,630 0.09 391,891 0.09 systems for less 1%, due June military and non- 1998 military applications 3/31/94 CORAL SYSTEMS, INC. Convertible Longmont, CO. preferred stock Develops fraud 200,000 shares prevention software Common stock - for the wireless 23,986 shares 218,271 440,493 0.10 422,222 0.10 industry 3/18/96 HEALTHWAY PRODUCTS Promissory Note, 100,000 100,000 0.02 100,000 0.02 COMPANY, INC. 15% interest, due Syracuse, NY. June 18, 1996 Manufactures air filters and climate control devices 2/23/96 HEARTLAND WIRELESS Common stock - 218,247 232,575 0.06 384,134 0.09 COMMUNICATIONS, 9,880 shares INC. Richardson, TX. Wireless cable television system operator 2/26/88 J. GIARDINO First mortgage at 220,347 220,347 0.05 223,139 0.05 Buffalo, NY. Owns 10% interest and leases commercial property 11/9/95 JAMESTOWN SAVINGS Common stock - 500,000 500,000 0.12 500,000 0.12 BANK 50,000 shares Jamestown, NY Community savings bank 5/19/94 MOBILE DATA Convertible 100,000 315,560 0.07 299,738 0.07 SOLUTIONS, INC. debenture at 7.5%, Vancouver, BC. due December 1996 Develops mobile data software 12/31/90 MOBILE MEDIA CORP. Common stock - 94,250 325,575 0.08 747,567 0.18 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 11/6/95 TGT, INC. Series A - 56,000 56,000 0.01 56,000 0.01 Geneva, NY. Convertible Develops and Preferred Stock - manufactures 32,000 shares biological alternative to chemical pesticides 1/6/95 TRANSWORLD Common stock - 131,498 139,866 0.03 112,072 0.03 TELECOMMUNICATIONS, 132,826 shares INC. Salt Lake City, UT. Wireless cable television systems operator 12/11/92 ULTRA-SCAN Common stock - 326,986 326,986 0.08 276,986 0.07 CORPORATION 47,583 shares Note Buffalo, NY at 6%, due June Ultrasonic 1997 fingerprint scanning technology OTHER INVESTMENTS Other 100,060 100,060 0.02 25,060 0.00 -------- -------- ---- ------ ---- Total portfolio $4,934,092 1.17 $5,397,809 1.28 investments Cash and money 1,105,807 0.26 1,119,448 0.26 market investments Net receivables 199,389 0.05 231,473 0.06 (payables) _______ ------- Net assets before $6,239,288 1.48 $6,748,730 1.60 taxes Tax provision (795,351) (0.19) (676,468) (0.16) (benefit) --------- --------- Net assets $7,034,639 $7,425,198 --------- --------- Net asset value $1.66 $1.76 per share (4,225,477)
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