October 8, 1998 TO OUR SHAREHOLDERS: For the quarter ended September 30, 1998, we decreased our net assets by $277,000, or $.05 per share, resulting in total net asset valuation of $8,152,410. On a positive note, we increased our valuation in MINRAD, Inc. from $623,000 to $949,512. During the quarter they entered into a strategic alliance with Wilson Greatbatch. In this transaction, MINRAD, Inc. received $1.2 million cash, personnel and inventory for a line of products in the magnetic resonating industry that will be sold through BioVector, Inc. In exchange, Wilson Greatbatch received stock and options for approximately 9% of MINRAD, Inc. Separately, BioVector, Inc. reached an exclusive sales agreement with Electro-Catheter Corp. (OTCBB:ECTH) and Cardiac Control Systems, Inc. (OTCBB:CDCS) in North America. We expect to generate revenues in October. Offsetting these positive results and leading to the net decline of $277,000, was a decline in the stock price of two of our publicly traded companies. We revalued our investment in ARIA Wireless Systems, Inc. from $610,000 to $122,000 and in Lightbridge, Inc. from $126,495 to $57,012. Management and the Board of Directors remain committed to increasing the value of Rand Capital and our stock. I thank you for your support. Allen F. Grum President PORTFOLIO VALUATION / SEPTEMBER 30, 1998
September 30, 1998 June 30, 1998 Date Per Share Per Share Company and Business Type of Investment Acquired Cost Value Rand Value Rand ARIA Wireless Systems, Inc. (OTC:AWSI)* Common stock - 488,000 shares 5/23/97 438,000 122,000 0.02 610,000 0.11 Buffalo, NY. Markets radio transmission communication equipment www.ariawireless.com ARS, Inc. Participation in subordinated 7/1/97 1,000,000 1,087,000 0.19 1,067,000 0.19 Buffalo, NY. Assembles and distributes debenture at 12% due July, replacement automotive products 2002 through April 2005 www.arsradiators.com 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 165,000 common shares 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 Option to purchase 15,000 proprietary shares methods to diagnose onset methods to diagnose onset of ovulation. of ovulation. J. Giardino First Mortgage at 12% 2/26/88 172,034 172,034 0.03 172,034 0.03 Buffalo, NY. Owns and leases commercial property 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 www.healthway.com Lightbridge, Inc. (NASDAQ: LTBG)* Common stock - 14,253 shares 3/31/94 218,271 57,012 0.01 126,495 0.02 Burlington, MA. Provides software based services for wireless telecommunications industry. www.lightbridge.com MINRAD, Inc. Common stock - 118,689 shares 8/4/97 429,000 949,512 0.17 623,000 0.11 Orchard Park, NY. Developer of laser Option to purchase 5,000 shares guided surgical devices. 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 Preferred stock - 100,000 shares Serial Storage Architecture for computer with 6% cumulative dividend industry. www.pathlight.com Reflection 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 www.reflectiontech.com UStec Common stock - 47,583 shares 6/26/98 100,000 100,000 0.02 100,000 0.02 Victor, NY. Manufactures residential Term loan at 6%, repaid digital wiring systems January 1998 www.ustecnet.com Other investments (a) Other 992,964 294,298 0.05 329,060 0.05 ----------- Total portfolio investments 4,510,269 3,741,856 0.66 3,987,589 0.70 ========= Cash and cash equivalents 3,369,044 0.59 3,354,765 0.59 Net receivables(payables) 13,110 .-- 58,883 0.01 ----------- ----------- Net assets before taxes 7,124,010 1.25 7,401,237 1.30 Tax provision(benefit) (1,028,400) (0.18) (1,028,400) (0.18) ----------- ----------- Net assets $8,152,410 $8,429,637 ========== ========== Net asset value per share $1.43 $1.48 (5,708,034 shares at September 30, 1998 and June 30, 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) 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 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 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