January 21, 1999 To Our Shareholders: For the quarter ended December 31, 1998, we increased our assets by $84,622 and ended the year with a Net Asset Value of $1.44. In December, Auto Radiator Sales was sold to Visteon Automotive Systems (a unit of Ford Motor) and we received $1.2 million as proceeds from the sale. This ends a seven year association with ARS and we are proud to have helped the company grow from a startup to $75 million in annual sales. We wish we had more investments with management like Auto Radiator Sales. We entered into two new and one follow on investments during the Quarter. We participated by providing $420,000 in a convertible bridge loan for InfoMiners, Inc. InfoMiners, Inc. serves the healthcare market and provides data mining tools that assist decision support solutions through database systems. They are currently raising $4 million and we will have the option to convert our loan at the same terms as the new financing. In addition to the loan, we received a warrant to purchase 147,000 shares. We also participated in a financing for Dataview, LLC. Information about this company can be found at www.marketgauge.com. Dataview designs, develops and markets browser-based software products which are geared toward the financial market, enabling capitalization on the growth of Internet technology. Under the terms of our investment, our loan will convert to 2.70% of Dataview, LLC. Finally, we participated in a follow on investment with Pathlight Technology, Inc. and invested $100,000 in a Convertible Note. We end 1998 with $3.75 million in cash or $.66 per share of our Net Asset Value in cash. Our goal in 1999 is to prudently invest these funds and increase our shareholder value. I thank you for your support. Allen F. Grum President PORTFOLIO VALUATION / DECEMBER 31, 1998
December 31, 1998 September 30, 1998 Date Per Share Per Share Company and Business Type of Investment Acquired Cost Value Rand Value Rand American Tactile Corporation Convertible Debentures 6/23/95 150,000 50,000 0.01 50,000 0.01 Medina, NY. Develops at 8% due June 2000 equipment and systems to and April 2001 with produce signage. detachable warrants ARIA Wireless Systems, Inc. Common Stock - 488,000 shares 5/23/97 438,000 122,000 0.02 122,000 0.02 (OTC:AWSI)* Buffalo, NY. Markets wireless radio transmission communication equipment. www.ariawireless.com ARS, Inc. Debenture at 18.74% (repaid 12/98) - - - - 1,087,000 0.19 Buffalo, NY. Distributes replacement auto products. BioVector, Inc. Common Stock - 50,000 shares 4/17/97 50,000 125,000 0.08 125,000 0.08 Orchard Park, NY. Convertible Promissory Note at 8%, 360,000 360,000 360,000 Medical technological due April 2002 Option to purchase sales force company. 165,000 Common Shares BioWorks, Inc. Series A Convertible Preferred 11/6/95 56,000 56,000 0.01 56,000 0.01 Geneva, NY. Develops Stock - 32,000 shares and manufactures biological alternative to chemical pesticides. Clearview Cable TV, Inc. Common Stock - 400 shares 2/23/96 55,541 55,541 0.01 55,541 0.01 New Providence, NJ. Cable television operator. DataView, LLC Convertible Subordinated Note- 10/1/98 100,000 100,000 0.02 - - Mt. Kisco, N.Y. Designs, $100,000 develops and markets browser 8% Due October 15, 1999 based software for investment professionals. www.marketgauge.com Fertility Acoustics, Inc. Common Stock -150,000 shares 10/1/97 50,000 125,000 0.02 125,000 0.02 Orchard Park, NY. Option to purchase 15,000 shares Developer of proprietary methods to diagnose onset of ovulation. J. Giardino First mortgage @ 12% 2/26/88 121,112 121,112 0.02 172,034 0.03 Buffalo, NY. Commercial real estate. Hammertime, Inc. Convertible Preferred Stock - 10/1/98 100,000 100,000 0.04 - 0.01 Clarence, NY. 100,000 Shares 100,000 100,000 50,000 Exclusive Sears licensed Senior Subordinated Note at installer of kitchens 12% due October 6, 2000 and baths. HealthWay Products Promissory Note at 24%, 3/18/96 100,000 100,000 0.02 100,000 0.02 Company, Inc. due June 1996 Syracuse, NY. Manufactures 4,667 warrants for Series air filters and climate A Preferred Stock control devices. www.healthway.com InfoMiners, Inc. Bridge loan at 10% due 12/21/98 420,000 420,000 0.07 - - Amherst, NY. Data June, 1999 warehousing & decision 147,000 warrants for shares support software for of stock healthcare industries. www.infominers.com Lightbridge, Inc. Common Stock - 13,165 shares 3/31/94 218,271 72,408 0.01 57,012 0.01 (NASDAQ:LTBG)* 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 0.17 949,512 0.17 Orchard Park, NY. Developer of laser guided surgical devices. Pathlight Technology, Inc. Class A Series 1(a) 10/7/97 100,000 100,000 0.04 100,000 0.02 Ithaca, NY. Convertible Preferred Stock - 100,000 100,000 Develops high technology 100,000 shares with 6% cumulative Serial Storage Architecture dividend. Subordinated Note at for computer industry. 7.5% due December 2000 www.pathlight.com Platform Technology Two units with option for 9/24/97 8,045 60,000 0.01 50,000 0.01 Holdings, LLC two additional units Orchard Park, NY. Provides sales support and management for unique medical businesses. Reflection Technology, Inc. Series J Convertible Preferred 10/4/95 500,000 150,000 0.03 150,000 0.03 Waltham, MA. Develops Stock - 243,903 shares and licenses proprietary virtual display technology. www.reflectiontech.com UStec, Inc. Promissory Note at 12% 12/17/98 100,000 100,000 0.02 100,000 0.02 Victor, NY. due December 2003 Manufacturers & markets digital wiring systems for residential new home construction. www.ustecnet.com Other investments Other - 491,832 20,597 0.00 52,757 0.01 _______ ______ ____ ______ ____ Total portfolio investments 4,047,801 3,387,170 0.59 3,741,856 0.66 ========= Cash and Cash equivalents 3,757,399 0.66 3,369,044 0.59 Net receivables(payables) 20,583 0.00 13,110 - ______ ______ 7,165,152 1.25 7,124,010 1.25 Net Assets before Taxes (1,071,880) (0.19) (1,028,400) (0.18) ___________ __________ Tax provision (benefit) Net Assets 8,237,032 8,152,410 ========= ========= Net Asset Value per Share (5,708,034 1.44 1.43 shares outstanding during both periods)
* Publicly owned company ^ Unrestricted securities as defined in Note (a) 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. Among the factors considered by the Board of Directors in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company. 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