1996 DECEMBER 31 FOURTH QUARTER [LOGO] RAND CAPITAL CORPORATION 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 Rand Capital Corporation Portfolio Valuation December 31, 1996
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 ________ _______________ ------------------ -------- ------------------ ------------------ 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)
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: pgrum@randcap.com nsullivan@randcap.com