January 22, 1998 To Our Shareholders: During the past quarter we were pleased that seven of our investments were re-valued at higher levels. They were: 1. ARIA Wireless Systems, Inc. was increased by $50,000 to $488,000 to reflect an option we received to purchase 100,000 shares at $.50 per share. We received this option as compensation for various investment banking activities that we performed on the company's behalf. 2. Comptek Research, Inc. was increased by $50,000 to reflect a put option that we received to settle various disputes arising over the bankruptcy of ARIA. This option allows us to sell our 49,221 shares at $9.50. 3. MINRAD, Inc. was increased by $31,000 to $40,000. This was primarily caused by our receipt of 2,500 shares that were issued to Rand in conjunction with a working capital loan to MINRAD, Inc. We also received a cash fee of $21,500 for the loan. 4. Fertility Acoustics, Inc. and BioVector each increased by $75,000 to reflect their successful efforts in raising new capital at higher prices than our purchase. Each of these companies raised equity at $2.50 per share, up from our investment at $1.00 per share. 5. Platform Technology Holdings, LLC was valued at $25,000. We received these shares as compensation for our contributions to Platform Technology. 6. ARS, Inc. was increased by $18,000 to reflect the increase in the value of the warrants that were issued in conjunction with the debenture that we own. This increased value of $232,500 was augmented by a gain of $75,000 received in a settlement of a claim against an insurance carrier. The claim was for defense fees paid by Rand in the StopFire Litigation, which was dismissed earlier this year. These gains were offset by our decision to write off our investment in Ultra-Scan Corporation. In September they failed to repay a term loan that came due. We received a judgment against the company and are moving to collect on the judgment. In light of this action, we felt that it is prudent to write off our stock investment will continue to monitor the situation to insure that our interests are protected. With over $3,000,000 in liquid assets (53 cents per share), we are actively looking for new investments. Our ability to wisely invest this cash is the key to the success of Rand. We look forward to sharing these successes with you. Regards, s/Allen F. Grum s/ Nora B. Sullivan Allen F. Grum Nora B.Sullivan President Executive Vice President Portfolio Valuation / December 31, 1997 (unaudited)
12/31/97 9/30/97 Date Per Per Aquired Company & Business Type of Investment Cost Value Share Value Share Of Rand of Rand - ------- ----------------------- ------------------- -------- ------- --------- ------- -------- 5/23/97 ARIA Wireless Common stock - 438,000 488,000 0.09 438,000 0.08 Systems, Inc.* 488,000 shares Buffalo, NY. Markets radio transmission communication equipment 7/1/97 ARS, Inc. Participation in 1,000,000 1,029,000 0.18 1,011,233 0.18 Cheektowaga, NY. subordinated Assembles and debenture at 12% distributes due July, 2002 replacement through April 2005 automotive products with detachable warrants 4/1/97 BioVector, Inc. Common stock - 50,000 125,000 0.02 50,000 0.01 Orchard Park, NY. 50,000 shares 360,000 360,000 0.06 360,000 0.06 Medical technological Convertible sales promissory note at 8%, due April 2002. Option to purchase 140,000 common shares 6/29/95 Comptek Research, Common stock - 693,998 464,023 0.08 418,379 0.07 9/13/94 Inc.* 49,221 shares^ 61,607 61,607 0.01 71,875 0.01 Buffalo, NY. Term loan at prime Develops electronic less 1%, due June systems for military 1999 and non-military applications 3/31/94 Lightbridge, Inc.* Common Stock - 218,271 218,271 0.04 218,271 0.04 Burlington, MA. 14,253 shares Provides software based services for wireless telecommunications industry. Acquired former coral Systems, Inc. investment, November '97. 10/1/97 Fertility Acoustics, Common stock - 50,000 125,000 0.02 0 0.00 Inc. 50,000 shares Orchard Park, NY. Option to purchase Developer of 15,000 shares proprietary methods to diagnose onset of ovulation. 3/18/96 HealthWay Products Promissory note at 100,000 100,000 0.02 100,000 0.02 Company, Inc. 24%, due June Syracuse, NY. 1996. 4,667 Manufactures air warrants for filters and climate Series A preferred control devices stock 2/26/88 J. Giardino First mortgage at 194,921 194,921 0.03 197,797 0.03 Buffalo, NY. Owns 11% and leases commercial property 8/4/97 MINRAD Common stock - 9,000 40,000 0.01 9,000 0.00 10/3/97 Orchard Park, NY. 4,000 shares Term 420,000 420,000 0.08 0 Developer of laser loan at 12%, due guided surgical March 1998 devices. 10/7/97 Pathlight Technology, Class A Series 100,000 100,000 0.02 0 0.00 Inc. 1(a) Convertible Ithaca, NY. Develops Preferred stock - high technology 100,000 shares Serial Storage with 6% cumulative Architecture for dividend computer industry. 10/4/95 Reflection Series J 500,000 150,000 0.03 150,000 0.03 Technology, Inc. convertible Waltham, MA. preferred stock - Develops and licenses 243,903 shares proprietary virtual display technology 12/11/92 Ultra-Scan Common stock - 276,986 0 0.00 276,986 0.05 Corporation 47,583 shares Term 50,000 50,000 0.01 50,000 0.01 Buffalo, NY. loan at 6%, due Ultrasonic September 1997 fingerprint scanning technology Other investments Other 627,423 217,719 0.04 206,690 0.04 -------- ------- ---- -------- ---- Total portfolio 5,150,206 4,143,541 0.73 3,558,231 0.62 investments Cash 3,031,391 0.53 3,693,596 0.65 and cash 138,188 0.02 57,399 0.01 equivalents Net -------- --------- receivables (payables) Net assets before 7,313,120 1.28 7,309,226 1.28 taxes (1,028,100) (0.18) (806,786) (0.14) Tax provision(benefit) Net assets $8,341,220 $8,116,012 Net asset value $1.46 $1.42 per share (5,708,034 shares at December 31, 1997 and September 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 NASDAQ SmallCap Market - 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 dpenberthy@randcap.com