October 16, 1997 To Our Shareholders: Our third quarter can be characterized by positive events that could have happened. Unfortunately they did not materialize during this quarter and I am disappointed to report that the net result was a decrease in our Net Asset Value of nine cents per share. An inability to execute on their Business Plans and disappointing financial results have led us to reduce our valuations in Reflection Technology, Inc., American Tactile Corp. and Commercial Maintenance Organization, Inc. This was offset in part by small increases in our valuations of Comptek Research, Inc. and the warrants that we received with our investment in ARS, Inc. We anticipated that ARIA Wireless Systems, Inc. would have begun trading in the public market during the third quarter. Various factors prevented this from happening. ARIA has recently completed the necessary NASDAQ filings and we hope that their stock will begin to trade in the fourth quarter. On a positive note, we received a put option for our shares of Comptek stock to settle various disputes associated with the bankruptcy of ARIA. During the quarter, we agreed to provide $430,000 in a working capital loan for MINRAD and exercised an option to purchase $50,000 of shares in Fertility Acoustics, Inc. Both of these medical device companies use BioVector to distribute its products. The funds for these transactions will be disbursed in the fourth quarter. We were successful in our litigation against Rand Pharmaceutical and the CEO, Larry Artz. We obtained a judgment against the company and him for violating various terms of our investment agreement. I am pleased to report that the Rand Annual Report was recognized by the American Business Communicators by awarding Rand the First Place Award for Financial Content and two Second Place Awards for Cover Design and Letter to Shareholders. We continue to execute the business strategy that we outlined in our previous communications to you and believe that this will result in maximizing shareholder value. We appreciate your continued support. Regards, Allen F. Grum Nora B. Sullivan President Executive Vice President PORTFOLIO VALUATION / SEPTEMBER 30, 1997
September June 30, 30, 1997 1997 Date Type of Per share Per share Acquired Company and Business Investment Cost Value of Rand Value of Rand -------- -------------------- ---------- ---- ----- --------- ----- ------- 6/23/95 American Tactile Convertible 150,000 50,000 0.01 150,000 0.03 Corporation debentures at Medina, NY. Develops 8%, due June equipment and 2000 and systems to produce April 2001 ADA signs for the with visually impaired detachable warrants 5/23/97 ARIA Wireless Common stock 438,000 438,000 0.08 438,000 0.08 Systems, Inc.* - 438,000 Orchard Park, NY. shares Markets radio transmission communication equipment 8/29/91 ARS, Inc. Common stock 125,000 0 0.00 507,820 0.09 Cheektowaga, NY. - 25 shares Assembles and Subordinated 375,000 0 0.00 750,000 0.13 distributes convertible replacement debentures at automotive products 14-2/3%, due August 2000. Investment redeemed July, 1997 7/1/97 ARS, Inc. Participation 1,000,000 1,011,233 0.18 0 0.00 Cheektowaga, NY. in Assembles and subordinated distributes debentures at replacement 12% due July, automotive products 2002 through April 2005 with detachable warrants 4/17/97 BioVector, Inc. Common stock 50,000 50,000 0.01 50,000 0.00 Orchard Park, NY. - 50,000 Medical shares 360,000 360,000 0.06 360,000 0.06 technological sales Convertible promissory note at 8%, due April 2002. Option to purchase 100,000 common shares 10/16/95 Commercial Common stock 100,000 20,000 0.00 100,000 0.02 Maintenance - 163,256 Organization, Inc. shares Coral Springs, FL. Maintenance service network for retailers, restaurants, vendors 6/29/95 Comptek Research, Common stock 693,998 418,379 0.07 375,556 0.06 Inc.* - 49,221 Buffalo, NY. shares^ 9/13/94 Develops electronic Term loan at 71,875 71,875 0.01 82,143 0.01 systems for military prime less and non-military 1%, due June applications 1999 3/31/94 Coral Systems, Inc. Series A 200,000 200,000 0.04 422,222 0.07 Longmont, CO. convertible Develops fraud preferred prevention software stock for the wireless 200,000 18,271 18,271 0.00 18,271 0.00 industry shares Common stock - 11,938 3/18/96 HealthWay Products Promissory 100,000 100,000 0.02 100,000 0.02 Company, Inc. note at 15%, Syracuse, NY. 4,667 Manufactures air warrants for filters and climate Series A control devices preferred stock 2/26/88 J. Giardino First 197,797 197,797 0.03 211,545 0.04 Buffalo, NY. Owns mortgage at and leases 11% commercial property 10/4/95 Reflection Series J 500,000 150,000 0.03 500,000 0.09 Technology, Inc. convertible Waltham, MA. preferred Develops and stock - licenses propriety 243,903 virtual display shares technology 12/11/92 Ultra-Scan Common stock 276,986 276,986 0.05 276,986 0.05 Corporation - 47,583 Buffalo, NY. shares Ultrasonic Term loan at 50,000 50,000 0.01 50,000 0.01 fingerprint scanning 6%, due technology September 1997 Other investments Other 400,340 145,690 0.02 283,335 0.05 ----------------------------------------------- Total $3,558,231 0.62 $4,675,878 0.81 portfolio investment Cash and cash 3,693,596 0.65 3,293,126 0.58 equivalents Net 57,399 0.01 118,786 0.02 receivables ------ ------- (payables) Net assets 7,309,226 1.28 8,087,790 1.41 before taxes Tax provision (806,786) (0.14) (542,942) (0.10) (benefit) Net Assets $8,116,012 $8,630,732 ========== ========== Net asset $1.42 $1.51 value per ===== ===== share (5,708,034 shares at September 30, 1997 and June 30, 1997) * 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 a, c, g Jayne K. Rand 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 Daniel P. 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 Deloitte & Touche LLP Accountants 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