##### Table of Contents





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,
    2009o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to   Commission File Number:
    814-00235
  Rand Capital
    Corporation
 (Exact name of registrant as
    specified in its charter)
  New York(State or Other Jurisdiction
    of
    Incorporation or organization)

16-0961359(IRS Employer Identification
    No.)2200 Rand Building, Buffalo, NY(Address of Principal
    executive offices)

14203(Zip Code)   (Registrants telephone number, including area code):
    (716) 853-0802
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.10 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



RAND
    CAPITAL CORPORATION
    TABLE OF CONTENTS FOR
    FORM 10-K
   
 PART IItem 1.

Business


1Item 1A.

Risk Factors


4Item 1B.

Unresolved Staff Comments


6Item 2.

Properties


6Item 3.

Legal Proceedings


6Item 4.

Submission of Matters to a Vote of Security
    Holders


6PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


7Item 6.

Selected Financial Data


9Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


10Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


24Item 8.

Financial Statements and Supplementary Data


26Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


48Item 9A(T).

Controls and Procedures


48Item 9B.

Other Information


48PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


48Item 11.

Executive Compensation


49Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


49Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


49Item 14.

Principal Accountant Fees and Services


49PART IVItem 15.

Exhibits and Financial Statement Schedules


49EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



PART I  Item 1.
    Business  Corporation
    Formation
          Form 10-K http://materials.proxyvote.com/752185. Form 10-K, Form 10-Q, Form 8-K,
  Regulation
    as a Business Development Company
       1




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##### Table of Contents



SBIC
    Subsidiary
       2




---



##### Table of Contents



Rule 17d-1
  
    Rand and Rand SBIC to engage in certain related party
    transactions that the Corporation would otherwise be permitted
    to engage in as a BDC if its component parts were organized as a
    single corporation;
    Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to
    meet asset coverage requirements for senior securities on a
    consolidated basis; and
    Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file
    Exchange Act reports on a consolidated basis as part of
    Rands Exchange Act reports.    Regulation
    of the SBIC Subsidiary
  SBA
    Lending Restrictions
  and/or
 3




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##### Table of Contents



SBA
    Leverage
      10-year
  Employees
    Item 1A.
    Risk
    Factors  The
    Corporation is Subject to Risks Created by the Valuation of its
    Portfolio Investments
    The
    Corporations Portfolio Investments are
    Illiquid
   4




---



##### Table of Contents



Investing
    in Private Companies involves a High Degree of
    Risk
      Investing
    in the Corporations Shares May be Inappropriate for
    the Investors Risk Tolerance
    The
    Corporation is Subject to Risks Created by its Regulated
    Environment
    The
    Corporation is Subject to Risks Created by Borrowing Funds from
    the SBA
    The
    Corporation is Dependent Upon Key Management Personnel for
    Future Success
   5




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##### Table of Contents



The
    Corporation Operates in a Competitive Market for Investment
    Opportunities
    The
    Corporation May be Negatively Affected by Adverse Changes in the
    General Economic Conditions of the Domestic and Global
    Markets
    Fluctuations
    of Quarterly Results
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   6




---



##### Table of Contents



Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2009 Quarter ending:

High

LowMarch 31st

$
4.00


$
3.19June 30th

$
4.15


$
2.97September 30th

$
3.95


$
3.15December 31st

$
4.05


$
3.54   2008 Quarter ending:

High

LowMarch 31st

$
4.78


$
3.55June 30th

$
4.29


$
3.25September 30th

$
4.00


$
3.25December 31st

$
4.00


$
3.11   Form 8-K
  Profit
    Sharing and Stock Option Plans
      Shareholders
    of Record
    Stock
    Repurchase Plan
   7




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##### Table of Contents



Company
    Performance Graph
    COMPARISON
    OF 5-YEAR CUMULATIVE TOTAL RETURN
    AMONG RAND CAPITAL CORP.,
    NASDAQ MARKET INDEX AND PEER GROUP INDEXES
  
  ASSUMES $100
    INVESTED ON DECEMBER 31, 2004
    ASSUMES DIVIDEND REINVESTED
    FISCAL YEAR ENDING DECEMBER 31, 2009
  COMPARISON
    OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
    COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD
    MARKETS
  FISCAL
    YEAR ENDING
  COMPANY/INDEX/MARKET


2004



2005



2006



2007



2008



2009Rand Capital Corporation


$
100.00



$
85.90



$
224.36



$
230.64



$
224.36



$
255.13NASDAQ Market Index


$
100.00



$
102.20



$
112.68



$
124.57



$
74.71



$
108.56Old Peer Group Index


$
100.00



$
93.84



$
128.44



$
90.43



$
33.49



$
54.17New Peer Group Index


$
100.00



$
90.92



$
120.24



$
86.33



$
34.72



$
61.71       8




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Balance
    Sheet Data as of December 31:
  2009

2008

2007

2006

2005Total assets

$
35,631,371


$
32,228,797


$
32,722,151


$
29,463,944


$
16,063,605Total liabilities

$
12,425,490


$
12,001,831


$
12,904,328


$
12,681,539


$
7,447,671Net assets

$
23,205,881


$
20,226,966


$
19,817,823


$
16,782,405


$
8,615,934Net asset value per outstanding share

$
3.40


$
3.54


$
3.47


$
2.93


$
1.51Common stock shares outstanding


6,818,934



5,718,934



5,718,934



5,718,934



5,718,934   Operating
    Data for the year ended December 31:
  2009

2008

2007

2006

2005Investment income

$
1,749,525


$
1,757,003


$
2,302,870


$
1,326,962


$
736,573Total expenses

$
1,850,113


$
1,721,555


$
1,650,947


$
1,519,184


$
1,265,846Net investment (loss) gain

$
(63,878
)

$
135,689


$
398,703


$
(1,264,802
)

$
(175,179
)Net realized gain (loss) on sales and dispositions of investments

$
2,007,974






$
(42,045
)

$
3,456,441


$
(382,353
)Net (decrease) increase in unrealized appreciation

$
(2,683,516
)

$
273,454


$
2,362,507


$
5,974,832


$
146,412Net (decrease) increase in net assets from operations

$
(739,420
)

$
409,143


$
2,719,165


$
8,166,471


$
(411,120
)  9




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Forward
    Looking Statements
  Statements included in this Managements Discussion
    and Analysis of Financial Condition and Results of Operations
    and elsewhere in this document that do not relate to present or
    historical conditions are forward-looking statements
    within the meaning of that term in Section 27A of the
    Securities Act of 1933, and in Section 21F of the
    Securities Exchange Act of 1934. Additional oral or written
    forward-looking statements may be made by the Corporation from
    time to time, and those statements may be included in documents
    that are filed with the Securities and Exchange Commission. Such
    forward-looking statements involve risks and uncertainties that
    could cause results or outcomes to differ materially from those
    expressed in the forward-looking statements. Forward-looking
    statements may include, without limitation, statements relating
    to the Corporations plans, strategies, objectives,
    expectations and intentions and are intended to be made pursuant
    to the safe harbor provisions of the Private Securities
    Litigation Reform Act of 1995. Words such as
    believes, forecasts,
    intends, possible, expects,
    estimates, anticipates, or
    plans and similar expressions are intended to
    identify forward-looking statements. Among the important factors
    on which such statements are based are assumptions concerning
    the state of the national economy and the local markets in which
    the Corporations portfolio companies operate, the state of
    the securities markets in which the securities of the
    Corporations portfolio company trade or could be traded,
    liquidity within the national financial markets, and inflation.
    Forward-looking statements are also subject to the risks and
    uncertainties described under the caption Risk
    Factors contained in Part I, Item 1A, which is
    incorporated herein by reference.
  There may be other factors that we have not identified
    that affect the likelihood that the forward-looking statements
    may prove to be accurate. Further, any forward-looking statement
    speaks only as of the date it is made and, except as required by
    law, we undertake no obligation to update any forward-looking
    statement to reflect events or circumstances after the date on
    which it is made or to reflect the occurrence of anticipated or
    unanticipated events or circumstances. New factors emerge from
    time to time that may cause our business not to develop as we
    expect, and we cannot predict all of them.
  Business
    Overview
           10




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##### Table of Contents



2009
    Highlights and Outlook
       11




---



##### Table of Contents



Critical
    Accounting Policies
      Valuation
    of Investments
          Level 1:
  Level 2:
  Level 3:
     12




---



##### Table of Contents



Revenue
    Recognition (Interest Income)
      Recent
    Accounting Pronouncements
    Financial
    Condition
  Overview:
  12/31/09


12/31/08


Increase


% IncreaseTotal assets

$
35,631,371


$
32,228,797


$
3,402,574



10.6
%Total liabilities


12,425,490



12,001,831



423,659



3.5
%Net assets

$
23,205,881


$
20,226,966


$
2,978,915



14.7
%            13




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##### Table of Contents



Composition
    of the Corporations Investment Portfolio
    Increase


% Increase12/31/09


12/31/08


(Decrease)


(Decrease)Investments, at cost

$
14,767,920


$
14,386,451


$
381,469



2.7
%Unrealized appreciation, net


9,528,225



13,739,831



(4,211,606
)


(30.7
)%Investments, at fair value

$
24,296,145


$
28,126,282


$
(3,830,137
)


(13.6
)%       New Investments:

AmountMicrocision LLC (Microcision)

$
650,000Carolina Skiff LLC (Carolina Skiff)


500,000Gemcor II, LLC (Gemcor)


500,000GridApp Systems, Inc. (GridApp)


350,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)


298,554Rheonix, Inc. (Rheonix)


250,000Innov-X Systems, Inc. (Innovex)


250,000SOMS Technologies, LLC (SOMS)


75,000Associates Interactive, LLC (Associates Interactive)


43,518Golden Goal, LLC (Golden Goal)


38,238Total of new investments made during the year ended
    December 31, 2009

$
2,955,310Changes to Investments:GridApp capitalized interest

$
79,267SOMS capitalized interest


29,791APF Group, Inc (APF) capitalized interest


24,212Niagara Dispensing capitalized interest


11,855Microcision capitalized payment in kind (PIK)


8,808Rheonix capitalized interest


3,000Total of changes to investments made during the year ended
    December 31, 2009

$
156,933Investments Repaid, Sold or Liquidated:Kionix, Inc. (Kionix)

$
(1,506,043
)Rocket Broadband


(715,000
)RAMSCO


(300,000
)Photonic Products Group, Inc. (Photonics)


(88,750
)Gemcor


(79,314
)EmergingMed.com, Inc. (Emerging Med)


(41,667
)Total of sales and investment repayments during the year
    ended December 31, 2009

$
(2,730,774
)Total change in investment balance, at cost, during the year
    ended December 31, 2009

$
381,469  14




---



##### Table of Contents



Fair Value at

% of Total AssetsDecember 31,

at December 31,Company

Industry

2009

2009Innov-X Systems, Inc.(Innov-X)

Manufacturing  Metals Testing Equipment

$
6,300,000



18
%Gemcor

Manufacturing  Aerospace Machinery

$
6,223,883



17
%Synacor Inc. (Synacor)

Software

$
4,168,001



12
%Carolina Skiff LLC (Carolina Skiff)

Manufacturing  Boats

$
1,500,000



4
%Ultra-Scan Corporation (Ultra-Scan)

Electronics  Hardware/Software

$
1,203,000



3
%     Fair Value at

% of Total AssetsDecember 31,

at December 31,Company

Industry

2008

2008Innov-X Systems, Inc.(Innov-X)

Manufacturing  Metals Testing Equipment

$
8,761,700



27
%Gemcor

Manufacturing  Aerospace Machinery

$
5,803,201



18
%Synacor Inc. (Synacor)

Software

$
4,168,001



13
%Kionix, Inc . (Kionix)

Manufacturing  Silicon Chips

$
2,000,000



6
%Ultra-Scan Corporation (Ultra-Scan)

Electronics  Hardware/Software

$
1,203,000



4
%     % of Net Asset Value at


% of Net Asset Value atGeographic Region

December 31, 2009


December 31, 2008USA  East


94
%


95
%USA  South


6
%


5
%100
%


100
%  15




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##### Table of Contents



Percentage of





Percentage ofCost


Total Portfolio


Fair Value


Total PortfolioDecember 31, 2009:Subordinated Debt and Promissory Notes

$
3,320,606



23
%

$
1,617,141



7
%Convertible Debt


2,661,847



18
%


2,347,674



10
%Equity and Partnership Interests


8,717,467



59
%


15,213,330



62
%Equity Warrants


68,000







5,118,000



21
%Total

$
14,767,920



100
%

$
24,296,145



100
%December 31, 2008:Subordinated Debt and Promissory Notes

$
3,240,266



23
%

$
2,111,013



8
%Convertible Debt


356,667



2
%


356,667



1
%Equity and Partnership Interests


10,721,519



75
%


17,763,561



91
%Equity Warrants


68,000







7,895,041



Total

$
14,386,452



100
%

$
28,126,282



100
%   Results
    of Operations
  Investment
    Income
    Comparison
    of the years ended December 31, 2009 and 2008
  December 31,


December 31,


(Decrease)


% (Decrease)2009


2008


Increase


IncreaseInterest from portfolio companies

$
568,524


$
608,180


$
(39,656
)


(6.5
)%Interest from other investments


17,129



90,660



(73,531
)


(81.1
)%Dividend and other investment income


1,133,102



1,027,377



105,725



10.3
%Other income


30,770



30,786



(16
)


(0.1
)%Total investment income

$
1,749,525


$
1,757,003


$
(7,478
)


(0.4
)%   Interest from portfolio companies
 16




---



##### Table of Contents



Interest

Investment

Year that InterestCompany

Rate

Cost

Accrual CeasedAPF


8
%

$
631,547



2009Associates Interactive LLC (Associates)


8
%

$
293,518



2009Golden Goal LLC


13
%

$
675,652



2009G-Tec Natural Gas Systems (G-Tec)


8
%

$
400,000



2004UStec, Inc. (Ustec)


5
%


100,000



2006WineIsIt.com (Wineisit)


10
%


801,918



2005   Interest from other investments
  Dividend and other investment income
    Other income
    Comparison
    of the years ended December 31, 2008 and 2007
  December 31,


December 31,2008


2007


(Decrease)


% (Decrease)Interest from portfolio companies

$
608,180


$
618,430


$
(10,250
)


(1.7
)%Interest from other investments


90,660



173,664



(83,004
)


(47.8
)%Dividend and other investment income


1,027,377



1,469,864



(442,487
)


(30.1
)%Other income


30,786



40,912



(10,126
)


(24.8
)%Total investment income

$
1,757,003


$
2,302,870


$
(545,867
)


(23.7
)%   Interest from portfolio companies
 17




---



##### Table of Contents



Interest

Investment

Year that InterestCompany

Rate

Cost

Accrual CeasedG-Tec


8
%

$
400,000



2004Rocket Broadband


11.25
%


35,000



2008UStec


5
%


100,000



2006WineIsIt.com (Wineisit)


10
%


801,918



2005   Interest from other investments
  Dividend and other investment income
  Other income
  Operating
    Expenses
  Comparison
    of the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

Increase

% IncreaseTotal expenses

$
1,850,113


$
1,721,555


$
128,558



7.5
%      18




---



##### Table of Contents



Comparison
    of the years ended December 31, 2008 and 2007
  December 31,

December 31,2008

2007

Increase

% IncreaseTotal expenses

$
1,721,555


$
1,650,947


$
70,608



4.3
%         Realized
    Gains and Losses on Investments
  Comparison
    of the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

ChangeRealized Gain

$
3,161,913






$
3,161,913      19




---



##### Table of Contents



Comparison
    of the years ended December 31, 2008 and 2007
  December 31,

December 31,2008

2007

ChangeRealized (Loss)





$
(68,748
)

$
68,748                 Change in
    Unrealized Appreciation of Investments
  For
    the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

Decrease

% DecreaseChange in Unrealized Appreciation

$
(4,211,605
)

$
601,985


$
(4,813,590
)


(800
)%  20




---



##### Table of Contents



ValuationChangePortfolio Company

during 2009Reclass Rocket Broadband to a realized loss

$
715,000Rheonix Inc. (Rheonix)


136,000Photonics Products Group, Inc (Photonics)


7,250Adampluseve


(65,341
)G-Tec Natural Gas Systems (Gtec)


(98,000
)Associates Interactive, LLC (Associates)


(293,518
)GridApp Systems, Inc. (GridApp)


(295,935
)APF Group, Inc. (APF)


(324,213
)Niagara Dispensing Technologies, Inc. (Niagara Dispensing)


(367,951
)Golden Goal, LLC (Golden Goal)


(419,238
)Reclass Kionix, Inc. (Kionix) appreciation to realized gain


(493,959
)Innov-X Systems, Inc. (Innovex)


(2,711,700
)Total Change in Unrealized Appreciation during the year ended
    December 31, 2009

$
(4,211,605
)                  21




---



##### Table of Contents



For
    the years ended December 31, 2008 and 2007
  December 31,

December 31,2008

2007

Decrease

% DecreaseChange in Unrealized Appreciation

$
601,985


$
3,521,821


$
(2,919,836
)


(82.9
)%     ValuationChangePortfolio Company

during 2008Gemcor II, LLC (Gemcor)

$
1,700,000Kionix


778,432Bioworks, Inc. (Bioworks)


(28,000
)Wineisit


(100,000
)Niagara Dispensing


(111,000
)Photonics


(150,700
)Carolina Skiff LLC (Carolina Skiff)


(227,000
)Golden Goal


(237,413
)APF


(307,334
)Rocket Broadband


(715,000
)Total Change in Unrealized Appreciation during the year ended
    December 31, 2008

$
601,985                     S-1 S-1 S-1
 22




---



##### Table of Contents



S-1
    Net
    Increase (Decrease) in Net Assets from Operations
      Liquidity
    and Capital Resources
           23




---



##### Table of Contents



Cash Receipts due by year2014 and2010

2011

2012

2013

beyondScheduled Cash Receipts from Portfolio Companies

$
2,837,000


$
798,000


$
496,000


$
962,000


$
1,525,000             Disclosure
    of Contractual Obligations
    Payments due by periodLess than

1-3

3-5

MoreTotal

1 year

years

years

than 5 yrsSBA Debentures

$
9,100,000


$
0


$
0


$
3,500,000


$
5,600,000Operating Lease Obligations (Rent of office space)

$
16,440


$
16,440


$
0


$
0


$
0Total

$
9,116,440


$
16,440


$
0


$
3,500,000


$
5,600,000   Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk  Note 1-
 24




---



##### Table of Contents



over-the-counter
   25




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data     
 Statements of Financial Position as of
    December 31, 2009 and 2008


27Statements of Operations for the three years in
    the period ended December 31, 2009


28Statements of Changes in Net Assets for the three
    years in the period ended December 31, 2009


29Statements of Cash Flows for the three years in
    the period ended December 31, 2009


30Schedule of Portfolio Investments as of
    December 31, 2009


31Schedules of Selected Per Share Data and Ratios
    for the five years in the period ended December 31, 2009


34Notes to the Consolidated Financial Statements


35Supplemental Schedule of Consolidated Changes in
    Investments at Cost and Realized Gain for the year ended
    December 31, 2009


46Report of Independent Registered Public
    Accounting Firm


47  26




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONDecember 31,
  2009


2008AssetsInvestments at fair value (identified cost: 2009 
    $14,767,920,
    2008  $14,386,451)

$
24,296,145


$
28,126,282Cash and cash equivalents


9,417,236



2,757,653Interest receivable (net of allowance 2009  $209,089,
    2008  $122,817)


1,192,118



1,013,888Other assets


725,872



330,974Total assets

$
35,631,371


$
32,228,797Liabilities and Stockholders Equity (net assets)Liabilities:Debentures guaranteed by the SBA

$
9,100,000


$
8,100,000Deferred tax liability


1,809,000



3,490,000Income taxes payable


1,082,646



98,723Accounts payable and accrued expenses


431,233



292,731Deferred revenue


2,611



20,377Total liabilities


12,425,490



12,001,831Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000;
    shares issued (12/31/09, 6,863,034; 12/31/08 
    5,763,034)


686,304



576,304Capital in excess of par value


10,581,789



6,973,454Accumulated net investment (loss)


(4,961,725
)


(3,743,908
)Undistributed net realized gain on investments


10,897,390



7,735,477Net unrealized appreciation on investments


6,049,329



8,732,845Treasury stock, at cost, 44,100 shares


(47,206
)


(47,206
)Net assets (per share 2009  $3.40, 2008 
    $3.54)


23,205,881



20,226,966Total liabilities and stockholders equity (net
    assets)

$
35,631,371


$
32,228,797    27




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor The Years Ended December 31, 2009, 2008 and
    2007
  2009


2008


2007Investment income:Interest from portfolio companies

$
568,524


$
608,180


$
618,430Interest from other investments


17,129



90,660



173,664Dividend and other investment income


1,133,102



1,027,377



1,469,864Other income


30,770



30,786



40,9121,749,525



1,757,003



2,302,870Operating expenses:Salaries


623,765



440,337



460,917Employee benefits


126,046



121,659



112,147Directors fees


76,750



77,250



77,750Professional fees


227,415



248,667



212,822Stockholders and office operating


140,554



120,260



122,332Insurance


49,988



41,489



43,674Corporate development


55,749



65,042



66,854Other operating


(34,718
)


83,972



51,3891,265,549



1,198,676



1,147,885Interest on SBA obligations


497,475



522,062



503,062Bad debt expense


87,089



817



Total expenses


1,850,113



1,721,555



1,650,947Investment (loss) gain before income taxes


(100,588
)


35,448



651,923Income tax (benefit) expense


(36,710
)


(100,241
)


253,220Net investment (loss) gain


(63,878
)


135,689



398,703Realized and unrealized gain (loss) on investments:Realized gain (loss) on sales and dispositions


3,161,913







(68,748
)Income tax expense (benefit)


1,153,939







(26,703
)Net realized gain (loss) on investments


2,007,974







(42,045
)Unrealized appreciation on investments:Beginning of year


13,739,831



13,137,846



9,616,025End of year


9,528,226



13,739,831



13,137,846Change in unrealized appreciation before income taxes


(4,211,605
)


601,985



3,521,821Deferred income tax (benefit) expense


(1,528,089
)


328,531



1,159,314Net (decrease) increase in unrealized appreciation


(2,683,516
)


273,454



2,362,507Net realized and unrealized (loss) gain on investments


(675,542
)


273,454



2,320,462Net (decrease) increase in net assets from operations

$
(739,420
)

$
409,143


$
2,719,165Weighted average shares outstanding


6,115,081



5,718,934



5,718,934Basic and diluted net (decrease) increase in net assets from
    operations per share

$
(0.12
)

$
0.07


$
0.48    28




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor The Years Ended December 31, 2009, 2008 and
    2007
  2009


2008


2007Net assets at beginning of period

$
20,226,966


$
19,817,823


$
16,782,405Net investment (loss) gain


(63,878
)


135,689



398,703Net realized gain (loss) on sales and dispositions of investments


2,007,974







(42,045
)Net (decrease) increase in unrealized appreciation


(2,683,516
)


273,454



2,362,507Net (decrease) increase in net assets from operations


(739,420
)


409,143



2,719,165Issuance of common stock


3,718,335







Cumulative effect adjustment for uncertain tax
    positions  
    ASC 740










316,253Subtotal


3,718,335







316,253Net assets at end of period

$
23,205,881


$
20,226,966


$
19,817,823    29




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 For The
    Years Ended December 31, 2009, 2008 and 2007
  2009


2008


2007Cash flows from operating activities:Net (decrease) increase in net assets from operations

$
(739,420
)

$
409,143


$
2,719,165Adjustments to reconcile net increase in net assets to net cash
    used in operating activities:Depreciation and amortization


36,218



52,230



33,598Original issue discount accretion










(62,333
)Change in interest receivable allowance


86,272



817



Decrease (increase) in unrealized appreciation of investments


4,211,605



(601,985
)


(3,521,821
)Deferred tax (benefit) expense


(1,681,000
)


(465,000
)


484,453Realized (gain) loss on portfolio investments


(3,161,913
)






68,748Payment in kind, interest accrued


(115,334
)


(15,380
)


Non-cash conversion of debenture interest


(41,599
)


(67,235
)


(50,000
)Changes in operating assets and liabilities:(Increase) in interest receivable


(264,502
)


(367,704
)


(139,759
)Decrease (increase) in other assets


137,059



779,083



(35,229
)Increase (decrease) in income taxes payable


983,923



(375,742
)


63,890Increase (decrease) in accounts payable and accrued liabilities


138,502



(28,479
)


(17,350
)(Decrease) increase in deferred revenue


(17,766
)


(33,276
)


8,048Total adjustments


311,465



(1,122,671
)


(3,167,755
)Net cash used in operating activities


(427,955
)


(713,528
)


(448,590
)Cash flows from investing activities:Investments originated


(2,955,309
)


(1,626,657
)


(2,165,266
)Proceeds from sale of portfolio investments


4,946,781







255,440Proceeds from loan repayments


420,981



713,465



2,456,509Capital expenditures






(12,222
)


(1,350
)Net cash provided by (used in) investing activities


2,412,453



(925,414
)


545,333Cash flows from financing activities:Issuance of common stock, net


3,718,335







Proceeds from SBA debenture


1,000,000







Origination costs to SBA


(43,250
)






Net cash provided by financing activities


4,675,085







Net increase (decrease) in cash and cash equivalents


6,659,583



(1,638,942
)


96,743Cash and cash equivalents:Beginning of year


2,757,653



4,396,595



4,299,852End of year

$
9,417,236


$
2,757,653


$
4,396,595    30




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2009
  (b)










PerCompany, Geographic Location, Business Description,
    (Industry)



Date

(c)





(d)(f)


Shareand Website

Type of Investment

Acquired

Equity


Cost


Value


of RandNon-Control/Non-Affiliate Investments: (k)Mezmeriz, Inc. (g)Ithaca, NY. Developer of micro mirror technology that
    replaces silicon with carbon fibers in micro-electronic
    mechanical systems (MEMS) enabling efficient, wide-angle, Pico
    projectors to be embedded in mobile devices. (Electronics
    Developer) www.mezmeriz.com

$100,000 convertible note at 9% due January 9, 2010.


1/9/08







100,000



100,000



.01Rheonix, Inc.Ithaca, NY. Developer of microfluidic testing devices
    including channels, pumps, reaction vessels, & diagnostic
    chambers, for testing of small volumes of chemicals and
    biological fluids. (Manufacturing) www.rheonix.com

9,676 common shares. (g) 268,845 Series A preferred shares.
    50,593 common shares.


10/29/09



2
%


253,000



389,000



.06Somerset Gas Transmission Company, LLC (e)Columbus, OH. Natural gas transportation company. (Oil and
    Gas) www.somersetgas.com

26.5337 units.


7/10/02



2
%


719,097



786,748



.12Synacor Inc. (g)Buffalo, NY. Develops provisioning platforms for aggregation
    and delivery of content and services across multiple digital
    devices. (Software) www.synacor.com

234,558 Series A preferred shares.  600,000 Series B preferred
    shares.  240,378 Series C preferred shares.  897,438 common
    shares.


11/18/02



4
%


1,349,479



4,168,001



.61Subtotal Non-Control/
    Non-Affiliate Investments











$
2,421,576


$
5,443,749


$
0.80Affiliate Investments: (l)Carolina Skiff LLC (e) (g)Waycross, GA. Manufacturer of fresh water, ocean fishing and
    pleasure boats. (Manufacturing) www.carolinaskiff.com

$985,000 Class A preferred membership interest at 7.5%.
    Redeemable January 31, 2010.  $500,000 subordinated promissory
    note at 14% due December 31, 2016.  6.0825% Class A common
    membership interest. (j) Interest receivable $714,519.


1/30/04



6
%


1,500,000



1,500,000



.22EmergingMed.com, Inc. (g) (h)New York, NY. Cancer clinical trial matching and referral
    service. (Software) www.emergingmed.com

$500,000 senior subordinated note at 10% due December 19, 2010.
    Warrants for 7.0% of common stock. (j) Interest receivable
    $201,667.


12/19/05



7
%


458,333



458,333



.07GridApp Systems, Inc. (e) (g)New York, NY. Provider of database automation software that
    helps businesses gain control of their heterogeneous database
    applications through a centralized software console.
    (Software)
    www.gridapp.com

$957,000 term notes at 4% simple interest, 8% deferred interest
    (PIK) due January 4, 2012.  $6,667 convertible note at 4% due
    November 28, 2018.  $3,000 convertible note at 4% due September
    25, 2019.  $50,000 demand promissory note at 14% due December
    22, 2011.


11/25/08



15
%

$
1,095,935


$
800,000



.12 31




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2009  (Continued)
  (b)










PerCompany, Geographic Location, Business Description,
    (Industry)



Date

(c)





(d)(f)


Shareand Website

Type of Investment

Acquired

Equity


Cost


Value


of RandInnov-X Systems, Inc. (g)Woburn, MA. Manufactures portable x-ray fluorescence (XRF)
    analyzers used in metals/alloy analysis. (Manufacturing) 
    www.innovxsys.com

(e)$250,000 note at 11% due March 31, 2017. 2,642 Series A
    preferred stock.  8% cumulative dividend. Warrants for 21,924
    common shares. (j) Interest receivable $242,411.


9/27/04



9
%


1,250,000



6,300,000



.92Microcision LLC (g)Philadelphia, PA. Custom manufacturer of medical and dental
    implants. (Manufacturing) www.microcision.com

$650,000 subordinated promissory notes at 5%, 6% deferred
    interest (PIK) due December 31, 2013.  7.5% class A common
    membership interest.


9/24/09



7.5
%


658,808



658,808



.10Niagara Dispensing Technologies, Inc.Amherst, NY. Beverage dispensing technology development and
    products manufacturer, specializing in rapid pour beer
    dispensing systems for high volume stadium and concession
    operations. (Manufacturing) www.niagaradispensing.com

202,081 Series B preferred stock. (g) 463,691 Series A
    preferred stock. 518,752 Series B preferred stock.
    (e) $300,000 promissory note at 6%, 8% deferred interest
    (PIK) due July 30, 2011. Warrants for 190,561 class A common
    stock.


3/8/06



14
%


1,592,193



1,113,242



.17SOMS Technologies, LLC (g)Valhalla, NY. Produces and markets the microGreen Extended
    Performance Oil Filter. (Auto Parts Developer)
    www.microgreenfilter.com

$250,000 secured convertible note at 10% due December 2, 2010.
    $75,000 secured convertible note at 10% due October 29, 2011.


12/2/08







354,791



354,791



.05Ultra  Scan CorporationAmherst, NY. Biometrics application developer of ultrasonic
    fingerprint technology. (Electronics Hardware/Software) 
    www.ultra-scan.com

536,596 common shares. 107,104 Series A-1 preferred shares.
    (g) 95,284 Series A-1 preferred shares.


12/11/92



4
%


938,164



1,203,000



.18Subtotal Affiliate Investments











$
7,848,224


$
12,388,174


$
1.83Control Investments(m)
    Gemcor II, LLC (e) (g) (h)West Seneca, NY. Designs and sells automatic riveting
    machines used in the assembly of aircraft components.
    (Manufacturing)
    www.gemcor.com

$250,000 subordinated note at 8% due June 28, 2010 with warrant
    to purchase 6.25 membership units. $500,000 subordinated
    promissory note at 15% due December 1, 2014. 25 membership units.


6/28/04



31
%


1,023,884



6,223,883



.91G-TEC Natural Gas SystemsBuffalo, NY. Manufactures and distributes systems that allow
    natural gas to be used as an alternative fuel to gases.
    (Manufacturing) 
    www.gas-tec.com

28.925% Class A membership interest. 8% cumulative dividend.


8/31/99



29
%


400,000



100,000



.01Subtotal Control Investments











$
1,423,884


$
6,323,883


$
0.92Other Investments (a) (i)

Various









$
3,074,236


$
140,339



.01Total portfolio investments (f)









$
14,767,920


$
24,296,145


$
3.56  32




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2009  (Continued)
  Notes to
    Consolidated Schedule of Portfolio 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, 2009 restricted securities represented 99% of
    the value of the investment portfolio. Freed Maxick &
    Battaglia, CPAs PC has not examined the business
    descriptions of the portfolio companies. Securities with an
    individual value <$100,000 are included in Other
    Investments.(b)
    
    The Date Acquired column indicates the year in which the
    Corporation acquired its first investment in the company or a
    predecessor company.(c)
    
    The equity percentages estimate the Corporations ownership
    interest in the portfolio investment. The estimated ownership is
    calculated based on the percent of outstanding voting securities
    held by the Corporation or the potential percentage of voting
    securities held by the Corporation upon exercise of warrants or
    conversion of debentures, or other available data. Freed
    Maxick & Battaglia, CPAs, PC has not audited the
    equity percentages of the portfolio companies. The symbol
    <1% indicates that the Corporation holds an
    equity interest of less than one percent.(d)
    
    The Corporation has adopted the SBAs valuation guidelines
    for SBICs which describes the policies and procedures used
    in valuing investments. 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-held companies, are subject to restrictions on resale,
    and are valued at fair value as determined by the management of
    the Corporation and submitted to the Board of Directors for
    approval. Fair value is considered to be the amount which the
    Corporation may reasonably expect to receive for portfolio
    securities when 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 and these favorable or
    unfavorable differences could be material. Among the factors
    considered 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. On January 1, 2008 the Corporation
    adopted Accounting Standards Codification (ASC) 820 (formerly
    FAS No. 157) Fair Value Measurements
    which defines fair value and establishes guidelines for
    measuring fair value. ASC 820 designates the Corporations
    investments primarily as Level 3 assets due to
    their privately held restricted nature.(e)
    
    These investments are income producing. All other investments
    are non-income producing. Income producing investments have
    generated cash payments of interest or dividends within the last
    twelve months.(f)
    
    Income Tax Information  As of December 31, 2009,
    the total cost of investment securities approximated
    $14.8 million. Net unrealized appreciation was
    approximately $9.5 million, which was comprised of
    $13.5 million of unrealized appreciation of investment
    securities and $4.0 million related to unrealized
    depreciation of investment securities(g)
    
    Rand Capital SBIC, Inc. investment.(h)
    
    Reduction in cost and value from previously reported balances
    reflects current principal repayment.(i)
    
    Included in Other Investments is 30,500 shares
    OTC: PHPG.OB, a publicly owned company.(j)
    
    Represents interest due (amounts over $50,000 net of
    reserves) from investment included as interest receivable on the
    Corporations Balance Sheet.(k)
    
    Non-Control/Non-Affiliate investments are investments that are
    neither Control Investments or Affiliated Investments.(l)
    
    Affiliate investments are defined by the Investment Company Act
    of 1940, as amended (1940 Act), as those Non-Control
    investments in companies in which between 5% and 25% of the
    voting securities are owned or Rand holds a Board seat.(m)
    
    Control investments are defined by the 1940 Act as investments
    in companies in which more than 25% of the voting securities are
    owned or where greater than 50% of the board representation is
    maintained. 33




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  SCHEDULES
    OF SELECTED PER SHARE DATA AND RATIOS
 For the
    Five Years Ended December 31, 2009, 2008, 2007, 2006 and
    2005
    Year Ended December 31,2009


2008


2007


2006


2005Income from investment operations(1):Investment income

$
0.28


$
0.31


$
0.40


$
0.23


$
0.13Expenses


0.30



0.30



0.29



0.26



0.22Investment (loss) gain before income taxes


(0.02
)


0.01



0.11



(0.03
)


(0.09
)Income tax (benefit) expense


(0.01
)


(0.01
)


0.04



0.19



(0.06
)Net investment (loss)gain


(0.01
)


0.02



0.07



(0.22
)


(0.03
)Issuance of common stock


0.61



0.00



0.00



0.00



0.00Cumulative effect adjustments for uncertain tax
    positions  ASC 740


0.00



0.00



0.06



0.00



0.00Net realized and unrealized (loss) gain on investments


(0.11
)


0.05



0.41



1.65



(0.04
)Increase (decrease) in net asset value


0.49



0.07



0.54



1.43



(0.07
)Net asset value, beginning of year based on weighted average
    shares


3.54



3.47



2.93



1.51



1.58Net asset value, end of year based on weighted average shares

$
4.03


$
3.54


$
3.47


$
2.93


$
1.51Per share market value, end of year

$
3.98


$
3.50


$
3.60


$
3.50


$
1.34Total return based on market value


13.71
%


(2.78
)%


2.86
%


161.2
%


(14.1
)%Total return based on net asset value


(3.74
)%


2.1
%


18.1
%


94.8
%


(4.6
)%Supplemental data:Ratio of expenses before income taxes to average net assets


8.52
%


8.60
%


9.02
%


11.96
%


14.35
%Ratio of expenses including taxes to average net assets


8.35
%


9.10
%


10.41
%


20.41
%


10.34
%Ratio of net investment (loss) gain to average net assets


(0.29
)%


0.68
%


2.18
%


(9.96
)%


(1.99
)%Portfolio turnover


11.3
%


6.0
%


8.6
%


18.1
%


21.6
%Net assets end of year

$
23,205,881


$
20,226,966


$
19,817,823


$
16,782,405


$
8,615,934Weighted average shares outstanding at end of year


6,115,081



5,718,934



5,718,934



5,718,934



5,718,934     (1)
    
    Per share data are based on weighted average shares outstanding
    and results are rounded. 34




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS
  Note 1. 
    Summary
    of Significant Accounting Policies  Nature of Business
      Principles of Consolidation
  Reclassifications
  Investments
      Level 1:
  Level 2:
  Level 3:
 35




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Assets
    Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at Reported Date UsingQuoted Prices in

Significant

Other SignificantActive Markets for

Observable

UnobservableDecember 31,

Identical Assets

Inputs

InputsDescription

2008

(Level 1)

(Level 2)

(Level 3)Venture Capital Investments

$
28,126,282


$
112,000


$
0


$
28,014,282   Quoted Prices in

Significant

Other SignificantActive Markets for

Observable

UnobservableDecember 31,

Identical Assets

Inputs

InputsDescription

2009

(Level 1)

(Level 2)

(Level 3)Venture Capital Investments

$
24,296,145


$
30,498


$
0


$
24,265,647   Assets
    Measured at Fair Value on a Recurring Basis Using Significant
    Unobservable Inputs (Level 3)
  Fair Value MeasurementsUsing SignificantUnobservable Inputs (Level 3)Venture  Capital InvestmentsBeginning Balance, December 31, 2007, of Level 3
    Assets





$
26,265,790Realized Gains or Losses included in net change in net assets
    from operations






Unrealized gains or losses included in net change in net assets
    from operationsAPF Group, Inc

$
(307,334
)BioWorks, Inc.


(28,000
)Carolina Skiff LLC


(227,000
)Gemcor LLC


1,700,000Golden Goal LLC


(237,413
)Kionix, Inc


778,432Rocket Broadband Networks, Inc.


(715,000
)Niagara Dispensing Technologies, Inc


(111,000
)Wineisit.com


(100,000
)

$
752,685Purchases of SecuritiesAssociates Interactive, LLC

$
200,000APF Group, Inc. capitalized Payment in Kind and interest
    conversion


40,832GripApp Systems, Inc.


666,667Mezmeriz, Inc.


100,000Niagara Dispensing Technologies, Inc.


374,990Niagara Dispensing Technologies, Inc interest conversion


41,783Rocket Broadband Networks, Inc.


35,000SOMS Technologies, LLC


250,000


$
1,709,272Repayments of SecuritiesNew Monarch Machine Tool, Inc.

$
(520,147
)Contract Staffing


(131,065
)Gemcor II, LLC


(62,253
)

$
(713,465
)Transfers in or out of Level 3






Ending Balance, December 31, 2008, of Level 3
    Assets





$
28,014,282Realized Gains or Losses included in net change in net assets
    from operationsKionix, Inc. (Kionix)

$
3,743,245Rocket Broadband

$
(705,030
)Ramsco

$
155,000


$
3,193,215Unrealized gains or losses included in net change in net assets
    from operationsAdampluseve, Inc. (Adampluseve)

$
(65,341
)APF Group, Inc. (APF)

$
(324,213
)Associates Interactive, LLC (Associates)

$
(293,518
)Golden Goal LLC (Golden Goal)

$
(419,238
)GridApp Systems, Inc. (Gripapp)

$
(295,935
) 36




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair Value MeasurementsUsing SignificantUnobservable Inputs (Level 3)Venture  Capital InvestmentsG-TEC Natural Gas Systems (G-Tec)

$
(98,000
)Innov-X Systems, Inc. (Innovex)

$
(2,711,700
)Kionix, Inc. (Kionix)

$
(493,959
)Niagara Dispensing Technologies, Inc. (Niagara Dispensing)

$
(367,951
)Rheonix, Inc. (Rheonix)

$
136,000Rocket Broadband realized loss

$
715,000


$
(4,218,855
)Purchases of SecuritiesAssociates

$
43,517APF

$
24,212Carolina Skiff LLC (Carolina Skiff)

$
500,000Gemcor II, LLC (Gemcor)

$
500,000Golden Goal

$
38,238GridApp Systems Inc. (GridApp)

$
429,267Innovex

$
250,000Microcision LLC (Microcision)

$
658,808Niagara Dispensing

$
310,408Rheonix, Inc. (Rheonix)

$
253,000SOMS Technologies, LLC (Soms)

$
104,790


$
3,112,240Repayments of SecuritiesEmergingMed.com, Inc.

$
(41,667
)Gemcor II, LLC (Gemcor)

$
(79,314
)Kionix

$
(5,249,284
)RAMSCO (Ramsco)

$
(455,000
)Rocket Broadband

$
(9,970
)

$
(5,835,235
)Transfers in or out of Level 3






Ending Balance, December 31, 2009, of Level 3
    Assets

$
24,265,647The amount of total gains or losses for the period included
    in changes in net assets attributable to the change in
    unrealized gains or losses relating to assets still held at the
    reporting date

$
(4,439,896
)Gains and losses (realized and unrealized) included in net
    decrease in net assets from operations for the period above are
    reported as follows:Gain (Loss) on Sales and Dispositions

$
3,193,215Change in unrealized gains or losses relating to assets still
    held at reporting date

$
(1,246,681
)          37




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Realized Gain or Loss and Unrealized Appreciation or
    Depreciation of Investments
  Investment Classification
  Cash and Cash Equivalents
  Revenue Recognition
    Original Issue Discount
  Deferred Debenture Costs
  Deferred Revenue
 38




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Net Assets Per Share
  Supplemental Cash Flow Information
  Concentration of Credit and Market
    Risk
    Income Taxes
  Accounting Estimates
  Recent
    Accounting Pronouncements
  The FASB Accounting Standards Codification (ASC) and the
    Hierarchy of Generally Accepted Accounting Principles
    (Codification) 
  Subsequent Events
 39




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair Value Measurements and Disclosure 2010-06
  Note 2. 
    Other
    Assets    2009


2008Escrow receivable from Kionix, Inc.

$
524,926



Deferred debenture costs


187,286


$
172,446Escrow receivable from Allworx






140,048Escrow receivable from USTec


22,199



69,421Property, plant and equipment (net)


7,794



15,604Prepaid expense


4,374



Operating receivables


1,492



2,876Reserve for uncollectible USTec escrow


(22,199
)


(69,421
)Total other assets

$
725,872


$
330,974         Note 3. 
    Income
    Taxes      2009


2008Operations

$
1,502,000


$
1,349,000Investments


(3,479,000
)


(5,007,000
)Tax credit carryforwards


168,000



168,000Deferred tax liability, net

$
(1,809,000
)

$
(3,490,000
)  40




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      2009


2008


2007Current:Federal

$
1,200,502


$
677,635


$
837,752State


69,638



(5,345
)


63,7591,270,140



672,290



901,511Deferred:Federal


(1,528,770
)


(427,692
)


472,266State


(152,230
)


(16,308
)


12,054(1,681,000
)


(444,000
)


484,320Total

$
(410,860
)

$
228,290


$
1,385,831     2009


2008


2007Net investment gain and realized gain before income tax expense

$
(1,150,280
)

$
648,757


$
4,104,996Expected tax expense at statutory rate

$
(391,095
)

$
241,577


$
1,395,699State  net of federal effect


(54,511
)


15,016



87,430Pass-through benefit from Portfolio Investment


(44,052
)


(42,500
)


Non-deductible restructuring costs


43,439







Other


35,359



14,197



(97,298
)Total

$
(410,860
)

$
228,290


$
1,385,831      41




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Balance at January 1, 2007  adoption of ASC 740

$
(295,053
)Increases for positions taken in current year


316,253Increases for positions taken in prior year


Decreases in positions taken in prior year


(12,700
)Decreases for settlements with taxing authorities


Decrease for lapses in the applicable statute of limitations


Balance at December 31, 2007


8,500Increases for positions taken in current year


Increases for positions taken in prior year


21,000Decreases in positions taken in prior year


Decreases for settlements with taxing authorities


Decrease for lapses in the applicable statute of limitations


Balance at December 31, 2008


29,500Increases for positions taken in current yearIncreases for positions taken in prior year


66,000Decreases in positions taken in prior year


Decreases for settlements with taxing authorities


Decrease for lapses in the applicable statute of limitations


Balance at December 31, 2009

$
95,500       Note 4. 
    SBA
    Debenture Obligations   42




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Note 5. 
    Stockholders
    Equity (Net Assets)        Accumulated


UndistributedNet


Net Realized


Net UnrealizedInvestment


Gain (Loss) on


AppreciationLoss


Investments


on InvestmentsBalance, December 31, 2007

$
(3,940,409
)

$
7,796,289


$
8,459,391Net increase (decrease) in net assets from operations


196,501



(60,812
)


273,454Balance, December 31, 2008

$
(3,743,908
)

$
7,735,477


$
8,732,845Net (decrease) increase in net assets from operations


(1,217,817
)


3,161,913



(2,683,516
)Balance, December 31, 2009

$
(4,961,725
)

$
10,897,390


$
6,049,329   Note 6. 
    Stock
    Option Plans    Note 7. 
    Employee
    Benefit Plans     43




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Note 8. 
    Commitments
    and Contingencies      Note 9. 
    Subsequent
    Events      Note 10. 
    Quarterly
    Operations and Earnings Data  Unaudited  4th

3rd

2nd

1stQuarter

Quarter

Quarter

Quarter2009Investment income

$
751,656


$
298,615


$
320,995


$
378,259Net increase (decrease) in net assets from operations


(94,157
)


33,394



(657,418
)


(21,239
)Basic and diluted net increase (decrease) in net assets from
    operations per share


(0.01
)


0.00



(0.11
)


(0.00
)2008Investment income

$
472,327


$
424,043


$
482,268


$
378,365Net increase (decrease) in net assets from operations


855,573



(337,383
)


(17,231
)


(91,816
)Basic and diluted net increase (decrease) in net assets from
    operations per share


0.15



(0.06
)


(0.00
)


(0.02
)  44




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 11. 
    Allowance for Doubtful Accounts    2009


2008


2007Balance at beginning of year

($
122,817
)

$
(122,000
)

$
(122,000
)Provision for losses


(87,089
)


(817
)


Recoveries/Sales


817







Balance at end of year

($
209,089
)

$
(122,817
)

$
(122,000
)  45




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESSCHEDULE OF CONSOLIDATED CHANGES IN
    INVESTMENTS AT
    COST AND REALIZED GAIN
    For the Year Ended December 31, 2009
  CostIncrease


Realized(Decrease)


Gain (Loss)New and additions to previous investmentsMicrocision LLC

$
658,808Carolina Skiff LLC


500,000Gemcor II, LLC


500,000GridApp Systems, Inc.


429,267Niagara Dispensing Technologies, Inc.


310,408Rheonix, Inc.


253,000Innov-X Systems, Inc.


250,000SOMS Technologies, LLC


104,791Associates Interactive, LLC


43,518Golden Goal, LLC


38,238APF Group, Inc


24,2123,112,242Investments repaid, sold or liquidatedKionix, Inc. repayment


(1,506,042
)

$
3,743,215Rocket Broadband Networks, Inc. realized loss


(715,000
)


(705,030
)Ramsco repayment


(300,000
)


155,000Photonic Products Group, Inc. sale


(88,750
)


(31,272
)Gemcor LLC repayment


(79,314
)


EmergingMed.com, Inc. repayment


(41,667
)


(2,730,773
)

$
3,161,913Net change in investments

$
381,469


$
3,161,913  46




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders

Rand Capital Corporation and Subsidiaries



We have audited the accompanying consolidated statements of
    financial position of Rand Capital Corporation and Subsidiaries
    (the Corporation) as of December 31, 2009 and
    2008, including the consolidated schedule of portfolio
    investments as of December 31, 2009, and the related
    consolidated statements of operations, cash flows and changes in
    net assets for each of the three years in the period ended
    December 31, 2009, and the selected per share data and
    ratios for each of the five years in the period then ended.
    These consolidated 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 consolidated financial statements and
    selected per share data and ratios based on our audits.



We conducted our audits in accordance with the standards of the
    Public Company Accounting Oversight Board (United States). Those
    standards require that we plan and perform the audit to obtain
    reasonable assurance about whether the financial statements and
    selected per share data and ratios are free of material
    misstatement. The Company is not required to have, nor were we
    engaged to perform, an audit of its internal control over
    financial reporting. Our audits included consideration of
    internal control over financial reporting as a basis for
    designing audit procedures that are appropriate in the
    circumstances, but not for the purpose of expressing an opinion
    on the effectiveness of the Companys internal control over
    financial reporting. Accordingly, we express no such opinion. 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, 2009 and 2008. 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 consolidated financial statements and
    selected per share data and ratios referred to above present
    fairly, in all material respects, the financial position of the
    Corporation as of December 31, 2009 and 2008, the results
    of their operations, their cash flows and the changes in their
    net assets for each of the three years in the period ended
    December 31, 2009, and the selected per share data and
    ratios for each of the five years in the period then ended, in
    conformity with U.S. generally accepted accounting
    principles.



As discussed in Note 1, the investment securities included
    in the consolidated financial statements valued at $24,296,145
    (105% of net assets) and $28,126,282 (139% of net assets) as of
    December 31, 2009 and 2008, respectively, include
    securities valued at $24,265,647 and $28,014,282, respectively,
    whose fair values have been estimated by management in the
    absence of readily ascertainable market value. The fair value
    estimates are then approved by the Board of Directors. We have
    reviewed the procedures used by management in preparing the
    valuations of investment securities and have inspected the
    underlying documentation, and in the circumstances we believe
    the procedures are reasonable and the documentation appropriate.
    Those estimated values may differ from the values that would
    have been used had a ready market for the investments existed.



Our audits were made for the purpose of forming an opinion on
    the basic consolidated financial statements taken as a whole.
    The supplementary schedule of consolidated changes in
    investments at cost and realized loss for the year ended
    December 31, 2009 is presented for purposes of additional
    analysis and is not a required part of the basic consolidated
    financial statements. The supplemental schedule is the
    responsibility of Corporations management. Such schedule
    has been subjected to the auditing procedures applied in the
    audits of the basic consolidated financial statements and, in
    our opinion, is fairly stated in all material respects in
    relation to the basic consolidated financial statements taken as
    a whole.



/s/  Freed
    Maxick & Battaglia, CPAs, PC



Buffalo, New York

March 18, 2010


47




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  Management report on Internal Control Over Financial
    Reporting.
          Changes in Internal Control over Financial
    Reporting.
  Item 9B.
    Other
    Information   Part III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance     48




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##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules                            (b)
    The following exhibits are filed with this report or are
    incorporated herein by reference to a prior filing, in
    accordance with
    Rule 12b-32
    under the Securities Exchange Act of 1934. 49




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##### Table of Contents



(3)(i)
    Certificate of Incorporation of the Corporation, incorporated by
    reference to Exhibit (a)(1) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (3)(ii)
    By-laws of the Corporation incorporated by reference to Exhibit
    (b) of Form N-2 filed with the Securities Exchange
    Commission on April 22, 1997.  (4)
    Specimen certificate of common stock certificate, incorporated
    by reference to Exhibit (b) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (10.1)
    Employee Stock Option Plan  incorporated by reference
    Appendix B to the Corporations definitive Proxy
    Statement filed on June 1, 2002.*(10.3)
    Agreement of Limited Partnership for Rand Capital SBIC,
    L.P.  incorporated by reference to Exhibit 10.3
    to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.4)
    Certificate of Formation of Rand Capital SBIC, L.P. 
    incorporated by reference to Exhibit 10.3 to the
    Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.5)
    Limited Liability Corporation Agreement of Rand Capital
    Management, LLC - incorporated by reference to Exhibit 10.3
    to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.6)
    Certificate of Formation of Rand Capital Management,
    LLC  incorporated by reference to Exhibit 10.3
    to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.7)
    Certificate of Incorporation of Rand Merger Corporation as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(a) to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.8)
    By-laws of Rand Capital SBIC, Inc.  incorporated by
    reference to Exhibit 2 to Registration Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.9)
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand
    Capital Management, LLC into Rand Merger Corporation, as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(b) to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.  (10.10)
    Rand Capital Corporation Amended and Restated Profit Sharing
    Plan applicable to Rand Capital SBIC, Inc. 
    incorporated by reference to Exhibit 7 to Registration Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.*  (31.1)
    Certification of Principal Executive Officer Pursuant to Rules
    13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as amended-filed
    herewith(31.2)
    Certification of Principal Financial Officer Pursuant to Rules
    13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as
    amended  filed herewith(32.1)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital Corporation 
    furnished herewith(32.2)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital SBIC, Inc. 
    furnished herewith  *
    
    Management contract or compensatory plan. 50




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##### Table of Contents



SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of
    Securities Exchange Act of 1934, the registrant has duly caused
    this Report on
    Form 10-K
    to be signed on its behalf by the undersigned thereunto duly
    authorized.
     By:
    /s/  Allen
    F. Grum    Pursuant to the requirements of the Securities Exchange Act
    of 1934, this Report on
    Form 10-K
    has been signed below by the following persons on behalf of the
    Corporation in the capacities and on the date indicated.
   Signature

Title(i) Principal Executive Officer:/s/  Allen
    F. GrumAllen
    F. Grum

President

March 18, 2010(ii) Principal Accounting & Financial Officer:/s/  Daniel
    P. PenberthyDaniel
    P. Penberthy

Treasurer

March 18, 2010(iii) Directors:/s/  Allen
    F. GrumAllen
    F. Grum

Director

March 18, 2010/s/  Erland
    E. KailbourneErland
    E. Kailbourne

Director

March 18, 2010/s/  Ross
    B. KenzieRoss
    B. Kenzie

Director

March 18, 2010/s/  Willis
    S. McLeeseWillis
    S. McLeese

Director

March 18, 2010/s/  Reginald
    B. Newman IIReginald
    B. Newman II

Director

March 18, 2010/s/  Jayne
    K. RandJayne
    K. Rand

Director

March 18, 2010/s/  Robert
    M. ZakRobert
    M. Zak

Director

March 18, 2010  51