March 31,1997 / First Quarter April 18, 1997 To Our Shareholders: During the first quarter we reached an agreement to provide equity and convertible subordinated debt to BioVector, which is a medical product design and distribution company. Located in Western New York, the company provides a national and international sales organization for medical companies. This allows medical companies to concentrate their resources on product development and provides a cost efficient mechanism for them to market products. The management team for BioVector is headed by Bill Burns, founder and former CEO of Matrx Medical, and is one of the strongest we have encountered. This is the first result of our efforts to target the Health and Medical field. During the quarter we continued to work with Aria Wireless Systems, Inc. and Compass Partners to enable Aria to emerge from Chapter 11 as an operating company. The hearing date to confirm the Reorganization Plan is scheduled for May 2. The Plan calls for the court approved Debtor in Possession loan in the amount of $3,000,000 to be converted into equity equal to 80% of Reorganized Aria, with the remaining 20% distributed to certain creditors. The plan also allows for Rand to convert its existing DIP loan to equity in the Reorganized Aria as well as participate in the DIP loan described above. It is anticipated that the Reorganized Aria will be a publicly traded company when it emerges from Chapter 11. (The Plan also extinguishes the equity interests of old Aria of which Rand was an owner. Rand wrote this investment off in the first quarter of 1996) Aria is also undertaking a series of depositions with various members of senior management of Comptek Research, Inc. Aria has asserted that Comptek may not have fulfilled its financial obligations under the merger agreements and that Comptek may be liable for damages. We are closely monitoring this situation with counsel to determine Rand's legal rights as a shareholder of both Aria and Comptek. During the first quarter, we also initiated an action against Rand Pharmaceutical and Larry Artz, a former officer of that company. We are pursuing damages against him for his failure to account for the disposition of Rand Pharmaceutical's assets. Over the past six months, we have been working with ARS, Inc. to raise approximately $10 million of new subordinated debt. This money will be used to retire their current debentures, repurchase equity and provide expansion capital. Consistent with that capital plan and our valuation policy, we have increased our valuation in ARS to $1,257,820. During the first quarter, we continued to liquidate our publicly traded equity positions. Our debenture in Mobile Data Solutions, Inc. was converted into common stock and these shares were sold for a gain of $500,000. We also liquidated our holdings in Transworld Telecommunications, Inc. and sold 2,880 shares of Heartland Wireless Communications. Additionally, we wrote off our investment in Mobile Media Corporation to reflect their Chapter 11 filing. The net result of these activities was a $.02 decline in our Net Asset Value from $1.53 at December 31, 1996 to $1.51 at March 31, 1997. For the first time in 30 years Don Ross's name is not listed as a Director of Rand Capital. His contributions as a founder, Chief Executive Officer and Director were a valuable asset to Rand. We thank him for his service. Our liquidity position is at a recent all-time high with over $4 million in available funds. We are working hard to invest these funds into profitable investments. We look forward to sharing the results of these efforts in the coming year. s/Allen F. Grum ___________________ Allen F. Grum President s/Nora B. Sullivan ___________________ Nora B. Sullivan Executive Vice President
Portfolio Valuation / March 31, 1997 March 31, 1997 December 31, 1997 Per Per share share Date Company and Type of of of Acquired Business Investment Cost Value Rand Value Rand -------- ----------- --------------- ---- ----- ----- ----- ----- 6/23/95 American Tactile Convertible 150,000 150,000 0.03 150,000 0.04 Corporation debentures at 8% Medina, N.Y. due June 2000 Develops and April 2001 equipment and with detachable systems to warrants produce ADA signs for the visually impaired 8/29/91 ARS, Inc. Common stock - 125,000 314,455 0.09 250,000 0.06 Cheektowaga, NY 25 shares 375,000 943,365 0.13 750,000 0.18 Assembles and Convertible distributes debentures at 14 replacement 2/3% due August automotive 2000 products 11/6/95 BioWorks, 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 2/23/96 Clearview Cable Common stock - 55,541 55,541 0.01 55,541 0.01 TV, Inc. 400 shares New Providence, NJ Wireless cable television system operator 10/16/95 Commercial Common stock - 100,000 100,000 0.02 85,000 0.01 Maintenance 163,526 shares Organization, Inc. Coral Springs, FL Maintenance service network for retailers, restaurants, vendors 9/13/94 Comptek Research, Common stock - 693,998 283,021 0.05 246,105 0.06 Inc.* 49,221 shares^ 92,410 92,410 0.02 102,678 0.02 Buffalo, NY Term loan at Develops prime less 1%, electronic due June 1998 systems for military and non- miliary applications 3/31/94 Coral Systems, Series A 200,000 422,222 0.07 422,222 0.10 Inc. convertible 18,271 18,271 0.00 18,271 0.00 Longmont, CO preferred stock Develops fraud 99,999 shares prevention Common stock - software for the 11,938 shares wireless industry 3/18/96 HealthWay Promissory note 100,000 100,000 0.02 100,000 0.02 Products Company, at 12%, 4,667 Inc. warrants for syracuse, NY Series A Manufactures air preferred stock filters and climate control devices 2/23/96 Heartland Common Stock - 65,174 6,552 0.00 38,045 0.01 Wireless 2,880 shares^ 180,203 18,116 0.00 118,180 0.03 Communications, Common Stock - Inc.* 7,963 shares Richardson, TX Wireless cable television system operator 2/26/88 J. Giardino First mortgage 214,553 214,553 0.04 218,448 0.05 Buffalo, NY Owns at 10% and leases commercial property 5/19/94 Mobile Data Common stock - 0 0 0 0.00 465,851 0.11 solutions, Inc.* shares^ Vancouver, BC Develops mobile data software 12/31/90 MobileMedia Common stock - 67,322 0 0.00 25,461 0.01 Corporation* 50,923 shares^ 26,028 0 0.00 9,268 0.00 New York, NY Common stock - Provider of 20,369 shares paging and other wireless data services 10/4/95 Reflection Series J 500,000 500,000 0.09 500,000 0.12 Technology, Inc. convertible Waltham, MA preferred stock Develops and 443,784 shares licenses proprietary virtual display technology 1/6/95 Transworld Common stock - 0 0 0 0.00 37,058 0.01 Telecommunication shares^ s, Inc.* Salt Lake City, UT Wireless cable television systems operator 12/11/92 Ultra-Scan Common stock - 276,986 276,986 0.05 276,986 0.07 Corporation 47,583 shares 50,000 50,000 0.01 50,000 0.01 Buffalo, NY Note at 6%, due Ultrasonic September 1997 fingerprint scanning technology Other investments Other 200,060 200,060 0.04 100,060 0.02 ________ _______ ____ _______ _____ Total portfolio $3,801,552 0.67 $4,075,174 0.96 investments Cash and money 4,110,391 0.72 1,605,501 0.38 market investments Net receivables 159,309 0.02 24,174 0.01 (payables) _________ _________ Net assets $8,071,252 1.41 $5,704,849 1.35 before taxes Tax provision (559,071) (0.10) (753,687) (0.18) (benefit) Net Assets $8,630,323 $6,458,536 ========= ========= Net asset value $1.51 $1.53 per share 5,708,034 shares at March 31, 1997 and 4,225,477 shares at December 31, 1996
* Publicly owned company ^ Unrestricted securities 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 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 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: pgrum@randcap.com nsullivan@randcap.com