1998
JUNE 30
Semi-Annual Report
[LOGO]
RAND CAPITAL CORPORATION
July 16, 1998
To Our Shareholders:
For the quarter ended June 30, 1998, we increased our net assets by $31,122, or
$.01 per share. This represents the third consecutive quarter that Rand has
shown an increase, having grown the asset base by $314,000 over that time.
We increased our valuation of MINRAD, Inc. from $460,000 to $623,000 to reflect
the success in raising new capital at a higher valuation. We are pleased to
report that MINRAD has been issued patents and FDA approval for its LightSaber
technology. Sales of this product should be seen in the upcoming quarters.
We have also increased our valuation in ARS, Inc. based on the accrual of
warrants which increases the subordinating debentures yield to 18.74%. ARS is
Rand's largest portfolio company, representing $.19 per share. The largest
manufacturer in the eastern United States of heat transfer products, the company
assembles and distributes radiators and condensers for the automobile
aftermarket industry and has more than 120 employees.
We participated in bridge financing for UStec, investing $100,000 in the form of
subordinated debt. UStec is a leading provider of digital wiring networks for
the residential construction market. Finally, we revalued our holdings in
LightBridge, Inc. to reflect a lower market value for its common stock.
Management at Rand remains committed to maximizing shareholder value. We
continue to aggressively and actively pursue investment opportunities. However,
we realize that it is prudent to invest wisely rather than quickly. We look
forward to continuing to report these positive results.
I thank you for your support.
Allen F. Grum
President
STATEMENTS OF FINANCIAL POSITION
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June 30, 1998 and December 31, 1997
Unaudited
ASSETS June 30, December 31,
1998 1997
Investments at Directors' valuation $ 3,987,589 $ 4,143,541
(cost: at 6/30/98 - $4,520,536;
at 12/31/97 - $5,150,206
Cash and cash equivalents 3,354,765 3,031,391
Interest receivable (net of allowance of $57,042 53,146 103,436
at 6/30/98 and $58,042 at 12/31/97)
Deferred tax asset 1,028,400 1,028,400
Other assets 92,592 148,732
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TOTAL ASSETS $ 8,516,492 $ 8,455,500
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LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)
LIABILITIES:
Accounts payable and accrued expenses $ 86,855 $ 113,980
Income taxes payable 0 300
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Total Liabilities 86,855 114,280
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STOCKHOLDERS' EQUITY (NET ASSETS):
Common stock, $.10 par - shares authorized 10,000,000 570,804 570,804
issued and outstanding 5,708,034 at June 30, 1998
and December 31, 1997.
Capital in excess of par value 6,889,379 6,889,379
Undistributed net investment (loss) (1,674,627) (1,512,372)
Undistributed realized gain on investments 2,830,169 3,055,715
Net unrealized (depreciation) of investments (186,088) (662,306)
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Net Assets (per share 6/30/98 $1.48;
12/31/97 - $1.46) 8,429,637 8,341,220
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 8,516,492 $8,455,500
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STATEMENTS OF OPERATIONS
Six months ended June 30, 1998 and year ended December 31, 1997
Unaudited
June 30, December 31,
1998 1997
INVESTMENT INCOME:
Interest from portfolio companies $ 115,797 $ 178,695
Interest from other investments 80,703 174,193
Other income 51,375 104,626
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247,875 457,514
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EXPENSES:
Salaries 161,922 320,695
Employee benefits 35,632 34,712
Directors' fees 24,000 40,648
Legal fees 11,832 34,334
Professional fees 8,910 21,377
Stockholder and office 27,795 106,862
Insurance 26,680 94,357
Corporate development 49,082 74,434
Other operating 58,278 45,092
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404,131 772,511
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INVESTMENT (LOSS) BEFORE INCOME TAXES (156,256) (314,997)
Income taxes provision 6,000 12,000
Deferred income tax provision (benefit) - (25,248)
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INVESTMENT (LOSS) - NET (162,256) (301,749)
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REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net gain (loss) on sales and dispositions (225,546) 1,106,402
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Net realized gain (loss) on investments 225,546 1,106,402
Deferred income tax provision 0 309,073
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NET REALIZED GAIN (LOSS) (225,546) 797,329
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UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS:
Beginning of period (1,006,665) 337,889
End of period (532,947) (1,006,665)
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Increase (decrease) in unrealized
appreciation 473,718 (1,344,554)
Deferred income tax provision (benefit) 2,501 504,392
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NET INCREASE (DECREASE) IN UNREALIZED
APPRECIATION 476,219 (840,162)
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NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 250,673 (42,833)
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NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 88,417 $ (344,582)
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Portfolio Valuation / June 30, 1998
6/30/98 3/31/98
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Date Per share Per share
Company and Business Type of Investment Acquired Cost Value of Rand Value of Rand
ARIA Wireless Systems, Common stock - 5/23/97 438,000 610,000 0.11 610,000 0.11
Inc. (OTC:AWSI)* 488,000 shares
Buffalo, NY. Markets
radio transmission
communication equipment
ARS, Inc. Participation in 7/1/97 1,000,000 1,067,000 0.19 1,047,000 0.18
Buffalo, NY. Assembles subordinated
and distributes debenture at 12%
replacement automotive due July, 2002
products through April 2005
with detachable
warrants
BioVector, Inc. Common stock - 4/17/97 50,000 125,000 0.02 125,000 0.02
Orchard Park, NY. 50,000 shares 360,000 360,000 0.06 360,000 0.06
Medical technological Convertible
sales force company promissory note at
8%, due April 2002.
Option to purchase
165,000 common
shares
Fertility Acoustics, 10/1/97 50,000 125,000 0.02 125,000 0.02
Inc. Orchard Park, NY. Common stock -
Developer of proprietary 50,000 shares
methods used to diagnose Option to purchase
onset of ovulation 15,000 shares
HealthWay Products Promissory note at 3/18/97 100,000 100,000 0.02 100,000 0.02
Company, Inc. 24%, due June 1996.
Syracuse, NY. 4,667 warrants for
Manufactures air filters Series A preferred
and climate control stock
devices
J. Giardino First mortgage at 2/26/88 172,034 172,034 0.03 174,866 0.03
Buffalo, NY. Owns and 12%
leases commercial
property
Lightbridge, Inc. Common stock - 3/31/94 218,271 126,495 0.02 218,271 0.04
(NASDAQ: LTBG)* 14,253 shares
Burlington, MA. Provides
software based services
for wireless tele-
communications industry
MINRAD, Inc. Common stock - 8/4/97 429,000 623,000 0.11 460,000 0.08
Orchard Park, NY. 118,689 shares
Developer of laser Option to purchase
guided surgical devices 5,000 shares
Pathlight Technology, Class A Series 1(a) 10/7/97 100,000 100,000 0.02 100,000 0.02
Inc. Ithaca, NY. Convertible
Develops high technology Preferred stock -
Serial Storage 100,000 shares
Architecture for with 6% cumulative
computer industry dividend
Reflection Technology, Series J 10/4/95 500,000 150,000 0.03 150,000 0.03
Inc. Waltham, MA. convertible
Develops and licenses preferred stock -
proprietary virtual 243,903 shares
display technology
UStec Promissory note @ 10% 6/26/98 100,000 100,000 0.02 - -
Victor, NY Manufactures due December 1998.
residential digital wiring Warrants for 10,000
systems common shares
Other Investments (a) Other 1,003,231 329,060 0.05 314,327 0.04
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Total portfolio investments 4,520,536 3,987,589 0.70 3,784,464 0.66
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Cash and cash equivalents 3,354,765 0.59 3,531,551 0.62
Net Receivables (payables) 58,883 0.01 54,100 0.01
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Net assets before taxes 7,401,237 1.30 7,370,115 1.29
Tax provision (benefit) (1,028,400) (0.18) (1,028,400) (0.18)
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Net assets $8,429,637 $8,398,515
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Net asset value per share $1.48 $1.47
(5,708,034 shares at June 30, 1998
and March 31, 1998)
* 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)
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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 TITLE EMail
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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
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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