1998 March 31 First Quarter [LOGO] RAND CAPITAL CORPORATION April 14, 1998 During the first quarter, the Net Asset Value for Rand Capital Corporation (Rand) has increased from $1.46 to $1.47. This represents the second consecutive quarter, and three out of the previous four quarters, Rand has shown an increase in its Net Assets. This growth, and consistency in growth, can be attributed to the successful execution of our business plan. During the quarter, ARIA Wireless Systems, Inc. (ARIA) began to trade under the symbol of AWSI on the OTC Bulletin Board System. This strategic initiative has increased the liquidity of our stock and has been well received by the investment community. Based on the recent appreciation of the stock, we increased our valuation in ARIA, from $488,000 to $610,000, or 25%. Rand has also reached an agreement with Hammertime Kitchen and BathWorks, Inc. (Hammertime) to provide $200,000 of expansion capital. Hammertime is a licensee of Sears Home Central and will provide kitchen and bath remodeling services in Western New York and Northwestern Pennsylvania. The capital and business plan contemplate expansion throughout the Eastern United States. During the quarter we purchased $420,000 of common stock in MINRAD, Inc. The company has developed a patented laser guided surgical device which is sold throughout the world. MINRAD has received over $2 million in orders and recently entered into a European distribution agreement with MediCert, which provides for $82 million in sales over 10 years. The company received the Health Care Industries Association Best New Technology award in 1997. We continued to restructure our portfolio by selling our stock in Comptek Research, Inc. Our valuation of ARS, Inc. was increased to reflect the value of our warrants and we received full payment on our loan to UltraScan, Corp. Over the last twelve months we increased our shareholder base by 18%. I welcome the new shareholders and look forward to sharing positive results in the future. Regards, Allen F. Grum President Portfolio Valuation / March 31, 1998
March 31, 1998 December 31, 1997 ------------------------- ----------------- Per Per Date share share Company and Business Type of Investment Acquired Cost Value of Rand Value of Rand ARIA Wireless Systems, Inc. (OTC:AWSI)* Common stock - 488,000 shares 5/23/97 438,000 610,000 0.11 488,000 0.09 Buffalo, NY. Markets radio transmission communication equipment ARS, Inc. Participation in subordinated 7/1/97 1,000,000 1,047,000 0.18 1,029,000 0.18 Buffalo, NY. Assembles and distributes debenture at 12% due July, replacement automotive products 2002 through April 2005 with detachable warrants BioVector, Inc. Common stock - 50,000 shares 4/17/97 50,000 125,000 0.02 125,000 0.02 Orchard Park, NY. Convertible promissory note at 360,000 360,000 0.06 360,000 0.06 Medical technological 8%, due April 2002. Option to sales force company purchase 140,000 common shares Comptek Research, Inc. (AMEX: CTK)* Common stock - 49,221 shares^ 9/13/94 - - - 464,023 0.08 Buffalo, NY. Develops electronic systems sold March 1998. Term loan at 51,339 51,339 0.01 61,607 0.01 for military and non-military applications prime less 1%, due June 1999 Fertility Acoustics, Inc. Common stock - 50,000 shares 10/1/97 50,000 125,000 0.02 125,000 0.02 Orchard Park, NY. Developer of proprietary Option to purchase 15,000 shares methods to diagnose onset of ovulation. HealthWay Products Company, Inc. Promissory note at 24%, due 3/18/97 100,000 100,000 0.02 100,000 0.02 Syracuse, NY. Manufactures air filters June 1996. 4,667 warrants for and climate control devices Series A preferred stock J. Giardino First mortgage at 12% 2/26/88 174,866 174,866 0.03 194,921 0.03 Buffalo, NY. Owns and leases commercial property Lightbridge, Inc. (NASDAQ: LTBG)* Common stock - 14,253 shares 3/31/94 218,271 218,271 0.04 218,271 0.04 Burlington, MA. Provides software based services for wireless telecommunications industry. MINRAD, Inc. Common stock - 39,563 shares 8/4/97 429,000 460,000 0.08 40,000 0.01 Orchard Park, NY. Developer of laser Term loan at 12%, matured 10/3/97 - - - 420,000 0.08 guided surgical devices. March 1998 Pathlight Technology, Inc. Class A Series 1(a)Convertible 10/7/97 100,000 100,000 0.02 100,000 0.02 Ithaca, NY. Develops high technology Serial Preferred stock - 100,000 shares Storage Architecture for computer industry. with 6% cumulative dividend vReflection Technology, Inc. Series J convertible preferred 10/4/97 500,000 150,000 0.03 150,000 0.03 Waltham, MA. Develops and licenses stock - 243,903 shares proprietary virtual display technology Ultra-Scan Corporation Common stock - 47,583 shares 12/11/92 276,986 0 0 0 0 Amherst, NY. Ultrasonic fingerprint Term loan at 6%, repaid - - - 50,000 0.01 scanning technology January 1998 Other Investment(a) Other - ----------------------------------------------------------------------------------------------------------------------------------- Total portfolio investments 4,425,885 3,784,464 0.66 4,143,541 0.73 ========= Cash and cash equivalents 3,531,551 0.62 3,031,391 0.53 Net receivables(payables) 54,100 0.01 138,188 0.02 ------ ------- Net assets before taxes 7,370,115 1.29 7,313,120 1.28 Tax provision(benefit) (1,028,400) (0.18) (1,028,100) (0.18) ---------- ----------- Net assets $8,398,515 $8,341,220 ========== ========== Net asset value per share $1.47 $1.46 (5,708,034 shares at March 31, 1998 and December 31, 1997)
* Publicly owned company ^ Unrestricted securities (a) Includes Investments with valuation less than $100,000 during both periods Note: Restricted securities, including securities of publicly-owned companies which are subject to restrictions on resale, are valued at fair value as determined by the Board of Directors. Fair value is considered to be the amount which the Corporation may reasonably expect to receive for portfolio securities if such securities were sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities. RAND CAPITAL CORPORATION BOARD OF DIRECTORS (Elected by Shareholders April 14, 1998) - ------------------------------------------------------------------------------ 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 Allen F. Grum President, Chief Executive Officer pgrum@randcap.com Nora B. Sullivan Executive Vice President nsullivan@randcap.com Daniel P. Penberthy Chief Financial Officer dpenberthy@randcap.com 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 Number of Shareholders 1,087 (as of March 10, 1998) Rand is actively seeking good business opportunities for investment consideration. If you are aware of such businesses which may need Rand's support and assistance, please feel free to contact us. Rand Capital Corporation 2200 Rand Building Buffalo, NY 14203 Tel: 716-853-0802 Fax: 716-854-8480