1999
[LOGO]
RAND CAPITAL
CORPORATION
<PAGE>
Rand Capital Corporation is a registered closed-end management investment
company investing in the securities of businesses, which offer unique
opportunities for growth. Since its formation in 1969, Rand Capital has provided
venture capital to support the growth and development of businesses in varied
industries, primarily in the Western New York and Upstate New York Region.
Rand's portfolio is comprised of such investments which include debt and/or
equity holdings in primarily privately owned companies. Rand Capital is traded
on The NASDAQ SmallCap Market tier under the symbol: RAND.
Thirty Years of Venture Capital
Since 1969, the Management and Board of Directors have received thousands of
business plans and have averaged one new investment per quarter throughout Rand
Capital Corporation's thirty year history. As typical in the venture capital
industry, not all of our investments were successful. However, several
noteworthy financial results have been achieved over the years and continue to
provide a powerful incentive to those who are drawn to the risks and rewards of
this investment capital market.
Rand Capital Investment Highlights
1969 Comax Telcom Corporation, Buffalo, NY
Comax, founded in 1968, operated local cable televisions systems. Rand
funded an initial investment of $13,000 in 1969. The company
aggressively expanded during the 1970's was renamed International Cable
and had more than 87,000 subscribers.
Rand's investment was sold in 1981 for a realized gain of $5.7 million.
1970 Astronics Corporation, Buffalo, NY
Astronics was founded in 1969 as an R&D Company to develop
electroluminescent technology. Rand acquired a 20% equity interest for
$64,000 in the company in 1970. Rand recruited a new management team in
the company,which included Kevin Keane, who remains as its current CEO.
Astronics issued shares in an initial public offering in 1972. In 1977
Rand distributed its shares of Astronics to Rand shareholders. In 1998,
Astronics announced that it had received a $30 million U.S. military
contract for use of its night-vision lighting technology in military
aircraft. Astronics, headquartered in Buffalo, is traded on the NASDAQ
stock market under the symbol ATRO and currently has a $50 million
market capitalization.
1997 Research Frontiers Incorporated (RFI), Woodbury, NY
Rand made an initial $15,000 investment in RFI in 1972, which
specialized in light control technology. Rand assisted RFI in
implementing its growth plan and provided additional financing. RFI
issued shares in an initial public offering in 1986. Rand sold its
investment in 1991, realizing a gain of $493,000. RFI is traded on the
NASDAQ stock market under the symbol REFR, and currently has an $87
million market capitalization.
1978 Aero Services International, Incorporated, Teterboro, NJ
Rand made a $200,000 investment in Aero, a private aircraft service
business, in 1978. Aero had exclusive contracts with several airports
and also provided exclusive air service at the Winter Olympics in Lake
Placid in 1980. The company issued its shares in an initial public
offering in 1981 and was traded on the NASDAQ stock exchange. Rand sold
its investment in 1985 for a realized gain of $2.1 million.
1985 Datarex Systems, Incorporated, Cheektowaga, NY
Datarex was a wholesale distributor of computer-related equipment
supplies and accessories, with the ability to provide unique "next day"
shipment. Rand invested $220,000 in equity during 1985 to help fund
sales development and expansion. Datarex was acquired by Azerty
Information Processing in 1988 (currently headquartered in Orchard
Park), and Rand realized a gain of $4.1 million.
1987 Rand Communications, New York, NY
Rand Communications provided computer databases and financial
periodicals for security traders, in addition to publishing its
Chemical Week magazine. Rand invested $400,000 in 1987 and liquidated
its investment in 1991 for a realized gain of $956,000.
1991 International Imaging Materials (IIMAK), Amherst, NY
IIMAK is a manufacturer of thermal transfer ribbons used primarily in
bar code applications. Rand acquired an equity investment in IIMAK for
$305,000 in 1991.
The investment was sold in 1995 for a realized gain of $412,000.
1991/1997 Auto Radiator Sales (ARS), Buffalo, NY
In 1991, Rand invested $500,000 in Auto Radiator Sales, a manufacturer
and assembler of automotive aftermarket industry products. ARS received
$11 million in a 1997 recapitalization of the company. Rand realized a
gain of $758,000 on its investment and provided investment banking
services and invested $1 million as a high yield debt security in the
recapitalization of the company. ARS was sold to a division of the Ford
Motor Co. in 1998.
Major Dates in the History of Rand
1969 Rand founded by George F. Rand III(Chairman) and Donald A. Ross (President)
/ One of Rand's investments is Comax Cable
1971 Rand's initial public stock offering, 250,000 shares
1976 Rand SBIC founded, with $500,000 subscribed capital 1977 Rand distributes
Astronics stock to Rand Shareholders
1981 Rand issues 200,000 shares
1985 Rand stock buyback, 292,642 shares
1986 Rand stock buyback, 15,832 shares / Rand issues 29,836 shares / Rand
declares 300% stock distribution
1991 Death of George F. Rand III / Thomas R. Beecher, Jr. elected as Chairman
1992 Rand declares 25% stock distribution
1993 Rand declares 25% stock distribution
1994 Rand declares 25% stock distribution / Rand issues 530,000 shares / Rand
SBIC merged with Rand Capital Corporation
1995 Rand declares 25% stock distribution / Rand issues 40,000 shares / Donald
A. Ross retires as President
1996 Reginald B. Newman elected as Chairman / New management team of Allen
Grum and Nora Sullivan begins to develop Rand's new business model
1997 Rand issues 1,482,557 shares
1998 Death of Donald A. Ross, former President of Rand Capital
As Rand Capital Corporation enters its 30th year of business, it's
appropriate that we pause and express our sorrow for the passing of Donald A.
Ross. As founder and Chief Executive Officer for 27 years, his contributions to
Rand Capital and to the Western New York community were many. He was a "big man"
in many ways and we will miss him.
During 1998, we continued to execute on the tenants of the Business Plan
that we developed in 1996. We continued to grow our investment income and saw it
increase from $173,000 in 1995 to $593,000 in 1998. We also continued to reduce
expenses in 1998. Finally, we invested $1.3 million in six investments.
Our investments in MINRAD, Inc. and InfoMiners, Inc. bring us to a total of
six in the healthcare industry. Currently 63% of our investment portfolio is in
health care related industries. We continue to develop a core competency in this
industry and we intend to seek out additional opportunities.
During 1998 we liquidated or received distributions from four companies,
totaling $2.2 million in proceeds. We ended the year with over $3.7 million in
cash. We continue to seek opportunities to wisely invest these funds and will
report on our progress in upcoming reports. It is also appropriate that we thank
and praise the contributions of Thomas R. Beecher, Jr. After 30 years of
assisting Rand Capital as an officer, chairman and board member, Mr. Beecher
will not be seeking reelection to the Board. However, he will continue his
valued service to Rand in the capacity of Director Emeritus. His contributions
are invaluable and we look forward to continue working with him in the future.
The following pages contain detailed information about our investments and our
investment criteria. In the coming months, we will unveil our web page, which
will provide more information on Rand Capital and our portfolio investments.
Sincerely,
Reginal B. Newman II Allen F. Grum
Chairman President
<PAGE>
Portfolio of Investments December 31, 1998
American Tactile Corporation (DELTA)
Medina, NY. Develops equipment and systems to produce commercial signage.
www.americantactile.com
Type of Investment: Convertible Debentures at 8% due June 2000 and April 2001
with detachable warrants
Year Acquired: 1995
Cost: $ 150,000
Percent Equity: 11%
Value: $ 50,000
ARIA Wireless Systems, Inc. (OTC:AWSI)* (DELTA)
Buffalo, NY. Markets wireless radio transmission communication equipment.
www.ariawireless.com
Type of Investment: Common Stock - 488,000 shares
Year Acquired: 1997
Cost: $ 438,000
Percent Equity: 9%
Value: $ 122,000
BioVector, Inc. (DELTA)
Orchard Park, NY. Medical technological sales force company.
Type of Investment: (1) Common Stock - 50,000 shares. (2)Convertible Promissory
Note at 8%, due April 2002.
Option to purchase 165,000 Common Shares
Year Acquired: 1997
Cost: $ 50,000 (1) 360,000 (2)
Percent Equity: 9%
Value: $ 125,000 (1) 360,000 (2)
BioWorks, Inc.
Geneva, NY. Develops and manufactures biological alternative to chemical
pesticides.
www.bioworksbiocontrol.com
Type of Investment: Series A Convertible Preferred Stock - 32,000 shares
Year Acquired: 1995
Cost: $ 56,000
Percent Equity: <1%
Value: $ 56,000
Clearview Cable TV, Inc.
New Providence, NJ. Wireless Cable television system operator.
Type of Investment: Common Stock - 400 shares
Year Acquired: 1996
Cost: $ 55,541
Percent Equity: 5%
Value: $ 55,541
DataView, LLC
Mt. Kisco, NY. Designs, develops and markets browser based software for
investment professionals.
www.marketgauge.com
Type of Investment: Convertible Subordinated Note - $100,000 8% Due October 15,
1999
Year Acquired: 1998
Cost: $ 100,000
Percent Equity: 3%
Value: $ 100,000
Fertility Acoustics, Inc.
Orchard Park, NY. Developer of proprietary methods to diagnose onset of
ovulation.
Type of Investment: Common Stock -150,000 shares. Option to purchase 15,000
shares
Year Acquired: 1997
Cost: $ 50,000
Percent Equity: 8%
Value: $ 125,000
J. Giardino
Buffalo, NY. Commercial real estate.
Type of Investment: First mortgage @ 12%
Year Acquired: 1988
Cost: $ 121,112
Value: $ 121,112
Hammertime Kitchen & Bath Works, Inc. (DELTA)
Clarence, NY. Exclusive multi-state Sears licensed installer of kitchens and
baths.
Type of Investment: (1) Convertible Preferred Stock - 1,000 Shares. (2) Senior
Subordinated Note at 12% due October 6, 2000
Year Acquired: 1998
Cost: $ 100,000 (1) 100,000(2)
Percent Equity: 13%
Value: $ 100,000 (1) 100,000 (2)
HealthWay Products Company, Inc.
Syracuse, NY. Manufactures air filters and climate control devices.
www.healthway.com
Type of Investment: Promissory Note at 24%, due June 1996. 4,667 warrants for
Series A Preferred Stock
Year Acquired: 1996
Cost: $ 100,000
Percent Equity: <1%
Value: $ 100,000
InfoMiners, Inc. (DELTA) Amherst, NY. Data warehousing & decision support
software for healthcare industries.
www.infominers.com
Type of Investment:Bridge loan at 10% due June 1999. 147,000 warrants for shares
of stock
Year Acquired: 1998
Cost: $ 420,000
Percent Equity: <1%
Value: $ 420,000
Lightbridge, Inc. (NASDAQ:LTBG)*
Burlington, MA. Provides software based services for wireless telecommunications
industry.
www.lightbridge.com
Type of Investment: Common Stock - 13,165 shares
Year Acquired: 1994
Cost: $ 218,271
Percent Equity: <1%
Value: $ 72,408
MINRAD, Inc. (DELTA)
Orchard Park, NY. Developer of laser guided surgical devices.
Type of Investment: Common Stock - 118,689 shares
Year Acquired: 1997
Cost: $ 429,000
Percent Equity: <4%
Value: $ 949,512
Pathlight Technology, Inc.
Ithaca, NY. Develops high technology Serial Storage Architecture for computer
industry.
www.pathlight.com
Type of Investment: (1) Class A Series 1(a)Convertible Preferred Stock - 100,000
shares with 6% cumulative dividend. (2) Subordinated Note at 7.5% due December
2000
Year Acquired: 1997
Cost: $ 100,000 (1) 100,000 (2)
Percent Equity: 3%
Value: $ 100,000 (1) 100,000 (2)
Platform Technology Holdings, LLC (DELTA)
Charlottesville, VA. Provides sales support and management for unique device and
diagnostic businesses.
Type of Investment: Two units with option for two additional units
Year Acquired: 1997
Cost: $ 8,045
Percent Equity: <1%
Value: $ 60,000
Reflection Technology, Inc.
Waltham, MA. Develops and licenses proprietary virtual display technology.
www.reflectiontech.com
Type of Investment: Series J Convertible Preferred Stock - 243,903 shares
Year Acquired: 1995
Cost: $ 500,000
Percent Equity: <1%
Value: $ 150,000
UStec, Inc.
Victor, NY. Manufacturers & markets digital wiring systems for residential new
home construction. 50,000 warrants for common stock.
www.ustecnet.com
Type of Investment: Promissory Note at 12% due December 2003
Year Acquired: 1998
Cost: $ 100,000
Value: $ 100,000
Other 491,831 20,597
------- ------
Total portfolio investments 4,047,800 3,387,170
========= =========
(Cost Basis) (Valuation)
* Publicly-owned Company
(DELTA) Indicates those companies which Rand has Board Seat.
<PAGE>
Notes to Portfolio of Investments
(a) Unrestricted securities are freely marketable securities having readily
available market quotations. All other securities are restricted securities
which are subject to one or more restrictions on resale and are not freely
marketable. At December 31, 1998, restricted securities represented 98% of the
value of the investment portfolio. (b) The Year Acquired line indicates the year
in which the Corporation acquired its first investment in the company or a
predecessor company. (c) The equity percentages express the percent of
outstanding voting securities held by the Corporation or the potential
percentage of voting securities held by the Corporation or the potential
percentage of voting securities held by the Corporation upon exercise of its
warrants or conversion of debentures. The symbol "<1%" indicates that the
Corporation holds equity interest of less than one percent. (d) Under the
valuation policy of the Corporation, unrestricted securities are valued at the
closing price for publicly held securities for the last three days of the month.
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.
Changes in Investments at Cost & Realized Loss Year Ended December 31,1998
<TABLE>
<CAPTION>
Cost Increase Realized
(Decrease) Gain (Loss)
-------- -----------
<S> <C> <C>
New and Additions to Previous Investments:
Dataview, Inc. $ 100,000
Hammertime Kitchen and Bath Works, Inc. 200,000
InfoMiners, Inc. 420,000
Minrad, Inc. 429,000
Pathlight, Inc. 100,000
UStec, Inc. 100,000
---------
1,349,000
Investments Sold/Exchanged:
ARS, Inc. (1,000,000) $ 79,400
Comptek Research, Inc. (693,998) (225,546)
Minrad, Inc. (420,000) -
Heartland Wireless Systems (171,277) (170,413)
---------- -------
(2,285,275) (316,559)
--------- -------
Other Changes:
Debenture repayments and distributions (166,131) 0
------- ---
Net Change in Investments at Cost and Realized Gain $ (1,102,406) $ (316,559)
========= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Financial Position Years Ended December 31, 1998 & 1997
1998 1997
---- ----
<S> <C> <C>
Assets
Investments at Directors' valuation
(identified cost: 1998 - $4,047,800;
1997 - $5,150,206) (Note 1) $ 3,387,170 $ 4,143,541
Cash and cash equivalents 3,757,399 3,031,391
Interest receivable
(net of allowance of $13,167 in 1998 65,616 103,436
and $58,042 in 1997)
Deferred tax asset (Note 2) 1,071,880 1,028,400
Other assets 23,973 148,732
--------- ---------
Total Assets $ 8,306,038 $ 8,455,500
========= =========
Liabilities and Stockholders' Equity (Net Assets)
Liabilities
Accounts payable and accrued expenses
(Notes 4 and 5) $ 67,306 $ 113,980
Income taxes payable 1,700 300
------ ---
Total Liabilities 69,006 114,280
------ -------
Stockholders' Equity (Net Assets) (Note 3)
Common stock, $.10 par -
shares authorized 10,000,000; issued and
outstanding 5,708,034 shares in 1998 and 1997 570,804 570,804
Capital in excess of par value 6,889,379 6,889,379
Undistributed net investment (loss) (1,568,711) (1,512,372)
Undistributed net realized gain on investments 2,739,156 3,055,715
Net unrealized (depreciation) on investments (393,596) (662,306)
------- -------
Net assets (per share 1998-$1.44; 1997-$1.46) 8,237,032 8,341,220
--------- ---------
Total Liabilities and Stockholders' Equity $ 8,306,038 $ 8,455,500
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations Years Ended December 31, 1998 & 1997
1998 1997
---- ----
<S> <C> <C>
Investment Income:
Interest from portfolio companies $ 327,592 $ 178,695
Interest from other investments 156,920 174,193
Other income 108,574 104,626
------- -------
593,086 457,514
------- -------
Expenses:
Salaries 341,886 320,695
Employee benefits 45,460 34,712
Directors' fees 37,500 40,648
Legal fees 35,648 34,334
Professional fees 17,953 21,377
Shareholders and office 97,033 106,862
Insurance 49,180 94,357
Corporate development 92,473 74,434
Other operating 41,497 45,092
------ ------
758,630 772,511
------- -------
Investment (loss) before income taxes (165,544) (314,997)
Income tax provision (Note 2) 11,600 12,000
Deferred income tax (benefit) (Note 2) (120,805) (25,248)
------- ------
Investment (loss) - net (56,339) (301,749)
------ -------
Realized and unrealized gain (loss) on investments:
Net (loss) gain on sales and dispositions (316,559) 1,106,402
------- ---------
Net realized (loss) gain on investments (316,559) 1,106,402
Deferred income tax provision 309,073
Net realized (loss) gain (316,559) 797,329
------- -------
Unrealized appreciation (depreciation) on investments:
Beginning of period (1,006,665) 337,889
End of period (660,630) (1,006,665)
------- ---------
(Decrease) in unrealized appreciation
before income taxes 346,035 (1,344,554)
Deferred income tax (benefit) (Note 2) 77,325 (504,392)
------ -------
Net increase (decrease) in unrealized appreciation 268,710 (840,162)
Net realized and unrealized (loss) on investments (47,849) (42,833)
------ ------
Net (decrease) in net assets from operations $ (104,188) $ (344,582)
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets Years Ended December 31, 1998 & 1997
1998 1997
---- ----
<S> <C> <C>
Net assets at beginning of period
(includes undistributed net investment loss
of $1,512,372 and $1,210,623 respectively) $ 8,341,220 $ 6,458,536
--------- ---------
Operations:
Net investment loss (56,339) (301,749)
Net realized (loss) gain on investments (316,559) 797,329
Net increase (decrease) in unrealized
appreciation of investments 268,710 (840,162)
------- -------
Net (decrease) in net assets from operations (104,188) (344,582)
Net proceeds of private offering - 2,227,266
--- ---------
Net assets at end of period (including undistributed
net investment loss of $1,568,711
and $1,512,372 respectively) $ 8,237,032 $ 8,341,180
========= =========
</TABLE>
<PAGE>
Notes to Financial Statements Years Ended December 31, 1998 and 1997
1. Summary Of Significant Accounting Policies
The Corporation operates as a closed-end management investment company
registered under the Investment Company Act of 1940. It is a publicly held
venture capital Corporation listed on the NASDAQ Small Cap Market under the
symbol "RAND." The Corporation was founded in 1969 and is headquartered in
Buffalo, New York. The Corporation's investment strategy is to provide expansion
capital and investment, as well as investment banking and financial advisory
services, to companies both inside and outside of the Western New York
community.
Investments are stated at fair value as determined in good faith by the
Board of Directors, as described in the Notes to Schedule of Portfolio
Investments on page 7. Certain investments have been determined by the Board of
Directors in the absence of readily ascertainable fair values. The estimated
valuations are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities, and
these differences could be material.
Amounts reported as realized gains and losses are measured by the
difference between the proceeds of sale or exchange and the cost basis of the
investment without regard to unrealized gains or losses reported in prior
periods. The cost of securities that have, in the Directors' judgment, become
worthless, are written off and reported as realized losses.
Temporary cash investments having a maturity of three months or less
when purchased are considered to be cash equivalents.
Interest income generally is recorded on the accrual basis except where
the investment is valued at less than cost to reflect risk of loss. In such
cases, interest is recorded at the time of receipt. A reserve for possible
losses on interest receivable is maintained when appropriate.
Net assets per share are based on the number of shares of common stock
outstanding during the respective year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reporting amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences
between the financial statement and tax bases of assets and liabilities using
the currently enacted tax rate expected to be in effect when the taxes are
actually paid or recovered.
The net deferred tax asset presented in the Statements of Financial
Position includes the following:
1998 1997
---- ----
Deferred tax asset - current $ 1,143,920 $ 1,108,096
Deferred tax liability - current 72,040 79,696
------ ------
Deferred tax asset, net $ 1,071,880 $ 1,028,400
========= =========
The tax effect of the major temporary difference and carryforwards that give
rise to the Corporation's net deferred tax asset are as follows:
1998 1997
---- ----
Operations $ (7,634) $ (7,634)
Investments 244,235 321,560
Net operating loss carryforwards 835,279 714,474
Capital loss carryforwards 0 0
--- ---
Deferred tax asset, net $ 1,071,880 $ 1,028,400
========= =========
The components of income tax expense (benefit) reported in the statement of
operations are as follows:
1998 1997
---- ----
Current:
State $ 11,600 $ 12,000
------ ------
Deferred:
(Benefit) on change in
unrealized appreciation:
Federal (25,670) (189,091)
State (17,810) (31,476)
------ ------
(43,480) (220,567)
------ -------
Total $ (31,880) $ (208,567)
====== =======
A reconciliation of the benefit for the income taxes at the federal statutory
rate to the benefit reported is as follows:
1998 1997
---- ----
Net investment (loss) and realized (loss)
before income taxes (benefit) $ (136,068) $ (553,149)
------- -------
Expected tax (benefit)
at statutory rate of 34% (34,513) $ (188,071)
State - net of federal effect (4,099) (12,854)
Other 6,732 (7,642)
----- -----
Total $ (31,880) $ (208,567)
====== =======
Deferred income tax (benefit) of approximately $(308,000) and
$(393,600) at December 31, 1998 and 1997, respectively, relate to net unrealized
(depreciation) appreciation of investments. Such (depreciation) appreciation is
not included in taxable income until realized.
Included in deferred taxes on the accompanying statements of financial
position is approximately $64,000 and $72,000 at December 31, 1998 and 1997,
respectively, applicable to a gain being reported under the installment method
for income tax purposes. This amount will be reduced in future periods as
payments are received.
At December 31, 1998, the Corporation had a federal and state net operating
loss carry forward of approximately $2,090,000 and $2,000,000, respectively,
which expire commencing in 2007.
The Corporation believes it is more likely than not that the deferred tax
asset will be realized and, accordingly, no valuation has been provided.
3. Stockholders' Equity
In February 1997, the Corporation completed the sale of 1,482,557 shares of
common stock at $1.55 per share via a private placement. The price of the shares
sold was equal to the then current net asset value, making it a non-dilutive
transaction.
At December 31, 1998 and 1997, there were 500,000 shares of $10 par value
preferred stock authorized and unissued. Summary of change in capital accounts:
<TABLE>
<CAPTION>
Undistributed Net Undistributed Realized Gain Net Unrealized
Investment Loss (Loss) on Investment Appreciation (Depreciation)
--------------- Realized Gain on Investment
------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ (1,210,623) $ 2,258,386 $ 177,856
Net (decrease) increase in
net assets from operations (301,749) 797,329 (840,162)
------- ------- -------
Balance, December 31, 1997
Net (decrease) in net assets
from operations $ (1,512,372) $ 3,055,715 $ (662,306)
Balance, December 31, 1998
(56,339) (316,559) 268,710
------ ------- -------
$ (1,568,711) $ 2,739,156 $ (393,596)
========= ========= =======
Common Stock Common Stock Capital
Shares Amount Excess of Par
------ ------ -------------
Balance, December 31, 1998 and $ 5,708,034 $ 570,804 $6,889,379
December 31, 1997 ========= ======= =========
</TABLE>
4. Commitments and Contingencies
The Corporation has a deferred compensation agreement which includes health
and dental benefits with a former officer of the Corporation and his spouse.
Payments under this agreement are expected to be paid through September 30,
1999. Total accrued deferred compensation under this agreement at December 31,
1998 and 1997 was $59,270 and $95,977, respectively.
5. Pension Expense
The Corporation has a defined contribution 401(k) plan. The Plan provides a
base contribution of 1% for eligible employees and also provides up to 5%
matching contribution. Pension Plan expense was $17,492 and $16,289 in 1998 and
1997 respectively.
<TABLE>
<CAPTION>
Schedules of Selected Per Share Data and Ratios Five Years Ended December 31, 1998
Selected data for each share of capital stock outstanding throughout the five
most current years is as follows:
Year ended December 31, 1998 1997 1996 1995* 1994*
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Investment income $0.07 $0.08 $0.04 $0.09 $0.07
Expenses .09 0.14 0.18 0.23 0.17
--- ---- ---- ---- ----
Investment (loss) before income taxes (.02) (0.06) (0.14) (0.14) (0.10)
(Benefit) for income taxes (Note 2) - - (0.05) (0.05) (0.03)
------ ------ ------
Net investment (loss) (.02) (0.06) (0.09) (0.09) (0.07)
Net realized and unrealized - (0.01) (0.59) (0.89) 0.18
gain (loss) on investments ------ ------ ------ ----
Increase (decrease) in net asset value (.02) (0.07) (0.68) (0.98) 0.11
Net asset value - beginning of year 1.46 1.53 2.21 3.19 3.07
1.46
1.53
2.21
3.19
3.07
Net proceeds from private placement 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Net asset value - end of year $1.44 $1.46 $1.53 $2.21 $3.19
===== ===== ===== ===== =====
Ratio of expense to average net assets 9.15% 9.26% 9.75% 8.73% 6.13%
9.15%
9.26%
9.75%
8.73%
6.13%
Ratio of net investment (loss) (1.00)% (3.62)% (5.04)% (3.48)% (2.32)%
to average net assets
Number of shares outstanding 5,708,034 5,708,034 4,225,477 4,225,477 4,185,477
at end of period
</TABLE>
*Per share data presented has been restated from prior years to reflect the 25%
stock distributions of the Corporation occurring in 1995 and 1994.
<PAGE>
Independent Auditors Report Deloitte & Touche llp
To the Board of Directors and Stockholders
Rand Capital Corporation
Buffalo, New York
We have audited the accompanying statements of financial position of Rand
Capital Corporation, (the "Corporation") as of December 31, 1998 and 1997,
including the schedule of portfolio investments as of December 31, 1998, and the
related statements of operations and changes in net assets for the years then
ended, and the selected per share data and ratios for each of the five years in
the period then ended. These financial statements and the selected per share
data and ratios are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and the
selected per share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included examination or confirmation of securities
owned as of December 31, 1998 and 1997. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and
ratios referred to above present fairly, in all material respects, the financial
position of Rand Capital Corporation as of December 31, 1998 and 1997, the
results of its operations and changes in its net assets for the years then ended
and the selected per share data and ratios for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include securities valued
at $3,387,170 (41% of net assets), and $4,143,541 (50% of net assets) at
December 31, 1998 and 1997, respectively, whose values have been estimated by
the Board of Directors in the absence of readily ascertainable market values. We
have reviewed the procedures used by the Board of Directors in arriving at its
estimate of fair value of such securities and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. The estimated valuations, however,
are not necessarily indicative of amounts which may ultimately be realized as a
result of future sales or other dispositions of securities, and these
differences could be material.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
changes in investments at cost and realized gain on page 8 for the year ended
December 31, 1998 is presented for the purpose of additional analysis and is not
a required part of the basic financial statements. This schedule is the
responsibility of the Corporation's management. Such schedule has been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
January 22, 1999
Buffalo, NY
<PAGE>
Shareholder Information Years Ended December 31, 1998 and 1997
Transfer Agent
For information on ownership, lost/missing shares or other information
regarding Rand stock certificates please contact our transfer agent. If you need
additional assistance please contact Rand Capital directly.
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
Phone: 212-509-4000
www.continentalstock.com
Shareholders
The Corporation had an estimated total of 786 shareholders, which included
approximately 216 record holders of its common stock, and an estimated 570
shareholders with shares held under beneficial ownership in nominee name or
within clearinghouse positions of brokerage firms or banks.
Market Prices
The common stock of Rand Capital is traded on The NASDAQ SmallCap Market
tier of The NASDAQ Stock Market under the symbol: RAND. The following high and
low selling prices for the shares during each quarter of the last two years were
taken from quotations provided to the Corporation by the National Association of
Securities Dealers, Inc.
Stock Selling Price Data
Quarter 1998 High 1998 Low 1997 High 1997 Low
- ------- --------- -------- --------- --------
1st 1 1/2 7/8 2 1 7/16
- ---
2nd 1 3/8 1 1/16 2 1
- ---
3rd 1 1/4 1 3/16 1 9/16 1 3/16
- ---
4th 1 1/16 3/4 1 13/32 7/8
- ---
Notice of Annual Meeting
The Annual Meeting of Shareholders of Rand Capital Corporation will be held
on Tuesday, April 27, 1999 at 10:00 am at the Rand Building, Room 602, 14
LaFayette Square, Buffalo, New York. All shareholders are encouraged to attend.
Directors
Reginald B. Newman II, / President, NOCO Energy Corp.Chairman, Rand Capital
Corp. Buffalo, NY
Allen F. Grum / President, Rand Capital Corp / Buffalo, NY
Luiz F. Kahl / President, The Vector Group, LLC / Buffalo, NY
Erland E. Kailbourne(nominated) / Chief Executive Officer & President, John R.
Oishei Foundation / Buffalo, NY
Ross B. Kenzie / Retired / Buffalo, NY
Willis S. McLeese / Chairman, Colmac Holdings Ltd./ Toronto, Canada
Jayne K. Rand / Vice President, M&T Bank / Buffalo, NY
Officers
Allen F. Grum President
Nora B. Sullivan Executive Vice President
Daniel P. Penberthy Treasurer/Secretary
Corporate Counsel Independent Accountants
Hodgson, Russ, Andrews,Woods & Goodyear, LLP Deloitte & Touche LLP
1800 One M&T Plaza KeyBank Tower
Buffalo, NY 14203 50 Fountain Plaza, Suite 250
www.hodgsonruss.com Buffalo, NY 14202
www.us.deloitte.com
Rand Capital Corporation
2200 Rand Building Email: [email protected]
Buffalo, New York 14203 [email protected]
Tel: 716-853-0802 [email protected]
Fax: 716-854-8480 www.randcap.com (Spring 1999)
ShareholderInformation: [email protected]
<PAGE>
How to Apply for Funds
To help applicants for investment funds, we are pleased to reprint in full the
eight subjects we would prefer to be included in investment applications. Please
send this information to us so that we may study it before arranging a personal
meeting to discuss the investment:
1. History of company, nature of business or service and main products;
Standard Industrial Classification (SIC) number of the industry; number
of employees.
2. Biographical sketches of all executives, key personnel, directors and
major stockholders; signed personal statement of net worth for each
principal.
3. Personal, business and technical references.
4. Projected and historical financial statement for five years including
balance sheets, income statements and cash flows,preferable audited.
5. Amount requested, and proposed use of funds; growth projections.
6. Names of principal suppliers and customers.
7. Analysis of the market and industry, method of distribution, and
competition.
8. Samples of promotional or descriptive literature on products or services
offered.
The above information should be forwarded to:
Mr. Allen F. Grum
c/o New Investment Proposals
2200 Rand Building
Buffalo, New York 14203
Rand Capital Corporation believes in the future of Western New York and is
actively seeking out investment opportunities. If you are currently seeking
financing for your business, or are aware of a business that is, please contact
us. Together, we can continue to make Western New York prosper.
2200 Rand Building / Buffalo, New York 14203 / 716-853-0802
Traded on NASDAQ - Symbol: "RAND"
