##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K  ☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017  ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from              to Commission File Number: 814-00235 Rand Capital Corporation (Exact name of registrant as specified in its charter)  New York

16-0961359(State or Other Jurisdiction of
Incorporation or organization)

(IRS Employer Identification No.)2200 Rand Building, Buffalo, NY

14203(Address of Principal executive offices)

(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

NASDAQ Capital Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities
Act.    Yes  ☐        No  ☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes  ☐        No  ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  ☑        No  ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes  ☐        No  ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.    ☑ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company.  Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☑

Smaller reporting company  ☐(Do not check if a smaller reporting company)Emerging growth company  ☐ If an emerging growth company, indicated by check mark if the registrant has elected not to use extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act    ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).    Yes  ☐        No  ☑ The aggregate market value of the registrants outstanding common stock held by
non-affiliates of the registrant as of June 30, 2017 was approximately $15,306,838 based upon the closing price as reported on the NASDAQ Capital Market on such date. As of March 1, 2018, there were 6,321,988 shares of the registrants common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporations definitive proxy statement for the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.




---

##### Table of Contents

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

Business


1Item 1A.

Risk Factors


5Item 1B.

Unresolved Staff Comments


8Item 2.

Properties


9Item 3.

Legal Proceedings


9Item 4.

Mine Safety Disclosures


9PART IIItem  5.

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


9Item 6.

Selected Financial Data


11Item 7.

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


11Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


26Item 8.

Financial Statements and Supplementary Data


27Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


69Item 9A.

Controls and Procedures


69Item 9B.

Other Information


69PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


69Item 11.

Executive Compensation


69Item 12.

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


70Item 13.

Certain Relationships and Related Transactions, and Director Independence


70Item 14.

Principal Accountant Fees and Services


70PART IVItem 15.

Exhibits and Financial Statement Schedules


70Item 16

Form 10-K Summary


71




---

##### Table of Contents

PART I Item 1.Business Overview of Our Business Rand Capital Corporation (Rand, we, us and our) was incorporated under the laws of New
York in February 1969. Throughout our history, our principal business has been to make venture capital investments in early or expansion stage companies, often in upstate New York and regions in close proximity. In accordance with our strategic
growth plan, we look for companies with strong leadership that are bringing to market new or unique products, technologies or services and have a high potential for growth. We invest in a mixture of debt and equity instruments. The debt securities
typically have an equity component in the form of warrants or options to acquire stock or the right to convert the debt securities into stock. We established our first small business investment company (SBIC) in 2002, Rand Capital SBIC,
Inc.(Rand SBIC), whereby we utilized funds borrowed from the Small Business Administration (SBA) combined with our capital to invest in our portfolio companies. During 2017, we established a second SBIC subsidiary, Rand
Capital SBIC II, L.P. (Rand SBIC II) and began making investments from this SBIC subsidiary. We continue to work with the SBA in determining an optimal structure within its regulatory parameters which, once completed, may result in new SBA
leverage commitments in 2018. Our Investment Objectives and Strategy Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash
flow from our debenture and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our
investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest. Our investment strategy is to partner with other investors to invest in small companies that either have a new product, service or technology they are trying to commercialize or are working to accelerate
their rate of growth. We define small companies as businesses that may not yet be generating revenue up to companies with $20 million in revenue. We have historically made an initial investment of $500,000 to $1,000,000 directly in a company through equity or in debt or loan instruments and frequently provide
follow-on investments during our investment tenure. The debt instruments we acquire generally have a maturity of not more than five years and usually are convertible or have detachable equity warrants.
Interest is either paid currently or deferred. We fund new investments and operating expenses through existing cash balances, proceeds from investment exits, and interest and principal payments from our portfolio companies. Our Investment Process Our primary business is making debt and equity investments in small companies that meet some or all of the following criteria: 1) a qualified and experienced management team; 2) a new or unique product or
service; and 3) high potential for growth in revenue and cash flow. Our management team identifies investment opportunities through a network of investment referral relationships. Investment proposals may
come to us from other sources, including unsolicited proposals from companies and referrals from accountants, bankers, lawyers and other members of the financial community. We believe that our reputation in the investment community and our
experience provide a competitive advantage in originating quality investments. In a typical private financing, our management
team will review, analyze, and confirm, through due diligence, the business plan and operations of the potential portfolio company. Additionally, we familiarize  1




---

##### Table of Contents

ourselves with the portfolio companys industry and competition and may conduct reference checks with its customers and suppliers. Following our initial investment, we may make follow-on investments in the portfolio company, if
needed. Follow-on investments may be made to take advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio company, or provide additional
funds to allow a portfolio company to fully implement its business plans, develop a new line of business or recover from unexpected business problems. Follow-on investments in a portfolio company are evaluated
individually and may be subject to SBA restrictions. Disposition of Investments We may exit investments through the maturation of a debt security or when a liquidity event takes place, such as the sale,
recapitalization, or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return. We generally expect to dispose of our equity
securities through private sales of securities to other investors or through the sale or merger of the portfolio company. We anticipate our debt investments will be repaid with interest and expect to realize further appreciation from the warrants or
other equity type instruments received in connection with the investment. Current Portfolio Companies For a description of our current portfolio company investments, see Item 7. Managements Discussion and Analysis of Financial
Conditions and Results of Operations  Composition of the Investment Portfolio. Competition We compete for quality investments with other venture capital firms, individual investors, business development companies, and investment
funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks. We believe we are able to compete with these entities primarily on the basis of our referral network, our
investing reputation and experience, our responsive, quick and efficient investment analysis and decision-making process, the investment terms we offer, and our willingness to make smaller investments. For information concerning the competitive risks we face, see Item 1A. Risk Factors. Employees As of
December 31, 2017, we had four employees, unchanged from 2016. Organization and History We completed our initial public offering in 1971 as an internally managed, closed-end,
diversified, management investment company. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC we are required to comply with
certain regulatory requirements as provided for in the 1940 Act and the rules and regulations promulgated thereunder. For instance, we generally have to invest at least 70% of our total assets in qualifying assets and provide managerial
assistance to the portfolio companies in which we invest. See Item 1. Business  Regulations, Business Development Company Regulations. We historically made the majority of our investments through Rand SBIC, an SBIC that has been licensed by the SBA since 2002. Rand SBICs predecessor was organized as a Delaware limited partnership
and was converted into a New York corporation in 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC had operated as if it were a BDC, it was registered as an investment company under the 1940 Act. In 2012, the
Securities and Exchange Commission (SEC) granted an Order of Exemption for Rand with respect to the operations of Rand SBIC and Rand SBIC then filed an election to be regulated as a BDC under the 1940 Act. Rand SBICs board of
directors is comprised of the directors of Rand, a majority of whom are not interested persons of Rand or Rand SBIC.  2




---

##### Table of Contents

We operate as an internally managed investment company whereby our officers and
employees conduct our business under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code. In this Annual Report on Form 10-K, (Annual Report), unless the context otherwise
requires, we, the Corporation, us, and our refer to Rand Corporation, Rand SBIC and Rand SBIC II. Our corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available on our website, free of charge, our annual and periodic reports, proxy statements
and other information as soon as reasonably practicable after such material is filed with the SEC. Our shares are traded on the NASDAQ Capital Market under the ticker symbol RAND. Regulations The following discussion is a general summary of the material
prohibitions and descriptions governing BDCs and SBA-licensed SBICs. It does not purport to be a complete description of all of the laws and regulations affecting BDCs and SBICs. Business Development Company Regulations We have elected to be regulated as a BDC under the 1940 Act. Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDCs. Among
other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters. The 1940 Act also prohibits a BDC from changing the
nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by a vote of the holders of a majority of its outstanding voting securities. BDCs are not required to maintain fundamental investment policies
relating to diversification and concentration of investments within a single industry. More specifically, in order to qualify as a BDC, a company must: (1) be a domestic company; (2) have registered a class of its equity securities
or have filed a registration statement with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the Exchange Act); (3) operate for the purpose of investing in the securities of certain types of companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress.
Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such companies are termed
eligible portfolio companies; (4) extend significant managerial assistance to such portfolio companies; and (5) have a majority of disinterested directors (as defined in the 1940 Act). Qualifying Assets Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. The 1940 Act prohibits BDCs from investing in certain types of companies, such as brokerage
firms, insurance companies, investment banking firms and investment companies. An eligible portfolio company is, generally, a
private domestic operating company, or a public domestic operating company whose securities are not listed on a national securities exchange. In addition, any small business investment company that is licensed by the SBA and is a wholly owned
subsidiary of a BDC is an eligible portfolio company.  3




---

##### Table of Contents

Qualifying assets include: (1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of bankrupt or insolvent companies that were eligible at the time of the BDCs initial acquisition of their securities
but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (3) securities received in exchange for or distributed on or with respect to any of the foregoing; and (4) cash items, government securities and high-quality short-term debt. The 1940
Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds
of investments may not exceed 30% of the BDCs total asset value at the time of the investment. At December 31, 2017, we were in compliance with this rule. Managerial Assistance to Portfolio Companies In order to count portfolio securities as qualifying assets for the purpose of the 70% test discussed above, a BDC must either control the issuer of the securities or must offer to make available
significant managerial assistance; except that, where the BDC purchases the securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making
available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide and, if accepted, does so provide, significant guidance and counsel concerning
the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio
companys officers or other organizational or financial guidance. Small Business Investment Company Regulations SBA Lending Restrictions SBICs are designed to stimulate the flow of private debt and/or equity capital to small businesses. The types and dollar amounts of the
loans and other investments we may make are limited by the 1940 Act, the Small Business Act (the SBA Act) and SBA regulations. Rand SBIC uses funds borrowed from the SBA that can be combined with our own capital to provide loans to, and
make equity investments in, businesses that meet the following criteria: (a) have a tangible net worth not in excess of
$19.5 million and average net income after U.S. federal income taxes for the preceding two completed fiscal years not in excess of $6.5 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which the businesses are primarily engaged. In addition, at the end of each fiscal year, an SBIC must have at least 20% (in total dollars) invested in smaller
enterprises. The SBA defines smaller enterprises as businesses that: (a) do not have a net worth in excess
of $6 million and have average net income after U.S. federal income taxes for the preceding two years no greater than $2 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which the concerns are primarily engaged. We have complied with these requirements since the inception of Rand SBIC.  4




---

##### Table of Contents

The SBA also forbids an SBIC from providing funds to small businesses with specific
characteristics, such as businesses with the majority of their employees located outside the United States, or from investing in passive or non-operating businesses, real estate, project financing, farmland,
or financial lenders. Without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBICs regulatory capital in any one company and its affiliates. The SBA places limitations on the financing terms of investments by SBICs in portfolio companies such as limiting the prepayment options,
the financing fees that can be charged to a portfolio company, the allowable interest rate on loan and debt securities that an SBIC can charge a portfolio company, and the maximum term of such financing. An SBIC may exercise control over a small
business for a period of up to seven years from the date on which the SBIC initially acquires its control position. The SBA
restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in associates. The SBA also prohibits, without prior SBA approval, a change of control of an SBIC or transfers that would result
in any person, or a group of persons acting together, owning 10% or more of a class of capital stock of a licensed SBIC. A change of control is any event which would result in the transfer of the power, direct or indirect, to direct the
management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise. Rand SBIC may invest
directly in the equity of portfolio companies, but may not become a general partner of a non-incorporated entity or otherwise become jointly or severally liable for the general obligations of a non-incorporated entity. Rand SBIC may acquire options or warrants in portfolio companies, and the options or warrants may have redemption provisions, subject to certain restrictions. Pursuant to SBA regulations,
the maximum cash which may be invested in any one portfolio company by Rand SBIC is currently $3.0 million. In addition
the SBA regulations require an examination of a licensed SBIC by an SBA examiner to determine the SBICs compliance with the relevant SBA regulations. Our annual report, submitted to the SBA, must be audited by an independent public accounting
firm. SBA Leverage The SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold to purchasers of the government guaranteed securities. The amount of funds that
the SBA may lend to SBICs is determined by annual Congressional appropriations. SBA debentures are issued with ten year
maturities. Interest only is payable semi-annually until maturity. All of our outstanding SBA debentures may be prepaid without penalty. To reserve the approved SBA debenture leverage, we paid an upfront 1% commitment fee to the SBA as a partial
prepayment of the SBAs nonrefundable 3% leverage fee. These fees are expensed over the life of the corresponding SBA debenture instruments. The SBA, as a creditor, will have a superior claim to Rand SBICs assets over our shareholders in
the event we liquidate Rand SBIC or the SBA exercises its remedies under the SBA-guaranteed debentures issued by Rand SBIC upon an event of default. At December 31, 2017, we had $8,000,000 in outstanding SBA debenture instruments. Item 1A.Risk Factors Risks related to our business and structure Our financial results will depend on our skill to manage and deploy capital effectively Our ability to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments depends on our capability to
effectively identify, invest and manage our capital. Accomplishing this investment objective effectively will be based on our
management teams handling of the investment process, starting with its ability to find investments that offer favorable terms and meet our investment objective. They will also have to monitor the portfolio companys performance and may be
called  5




---

##### Table of Contents

upon to provide managerial assistance. These demands on their time may distract them or may slow the rate of investment. Even if we are able to grow and build on our investment, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and
prospects. If we cannot successfully operate our business or implement our investment objective, it could negatively impact our stock price. We are subject to risks created by our regulated environment We are
regulated by the SBA and the SEC. Changes in the laws or regulations that govern SBICs and BDCs could significantly affect our business. Regulations and laws may be changed periodically, and the interpretations of the relevant regulations and laws
are also subject to change. Any change in the regulations and laws governing our business could have a material impact on our financial condition and our results of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place
conflicting demands on the manner in which we operate, and the resolution of those conflicts may restrict or otherwise adversely affect our operations. We are subject to risks created by borrowing funds from the SBA Our
liabilities include large amounts of debt instruments issued through the SBA which have fixed interest rates. Until and unless we are able to invest substantially all of the proceeds from debentures at annualized interest or other rates of return
that substantially exceed annualized interest rates that Rand SBIC must pay the SBA, our operating results may be adversely affected which may, in turn, depress the market price of our common stock. In addition, our outstanding $8.0 million in principal amount of SBA debentures will reach maturity and become payable between 2022
and 2025. In order to repay our outstanding SBA debentures, we will need to identify sources of additional funding if the proceeds received upon the exits of our investments are insufficient to fund our operations and repay our SBA obligations. We
cannot be assured that the proceeds to be received upon the exits from our investments will be sufficient to meet our funding needs or that, if such proceeds are insufficient, that we will be able to obtain access to the necessary funding on terms
that are acceptable to us. We are subject to risks created by the valuation of our portfolio investments At December 31, 2017, 100% of our investments are in private securities that are not publicly traded. There is
typically no public market for securities of the small privately held companies in which we invest. Investments are valued in accordance with our established valuation policy and are stated at fair value as determined in good faith by management and
approved by our Board of Directors. In the absence of a readily ascertainable market value, the estimated value of our portfolio of securities may differ significantly, favorably or unfavorably, from the values that would be placed on the portfolio
if a ready market for the securities existed. Any changes in estimated value are recorded in the consolidated statement of operations as Net increase (decrease) in unrealized depreciation or appreciation on investments. We are dependent upon key management personnel for future success We are dependent on the skill, diligence, and the network of business contacts of our executive officers for the sourcing and selection,
structuring, closing, monitoring and valuation of our investments. Our future success depends, to a significant extent, on the continued employment of these officers and their departure could materially adversely affect our ability to implement our
business strategy. We do not maintain key man life insurance or employment agreements on the officers. We operate in a
competitive market for investment opportunities We operate in a competitive market for investment opportunities. We
face competition in our investing activities from many entities including other SBICs, private venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign investors. The competition is not
limited to entities that operate in the same geographical area as we do. As a regulated BDC, we are required to disclose quarterly  6




---

##### Table of Contents

and annually the name and business description of our portfolio companies and the value of their portfolio securities. Most of our competitors are not subject to this disclosure requirement. This
obligation to disclose this information could hinder our ability to invest in some portfolio companies. Additionally, other regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a
private venture capital fund. We are subject to cybersecurity risks and incidents that may adversely affect the
operations of our company or the companies in which we invest. A failure in our cyber security systems could impair our ability to conduct business and damage our business relationships, compromise or corrupt our confidential information and
ultimately negatively impact business, financial condition and operating results. Our operations are dependent on
secure information technology systems for data processing, storage and reporting. Increased cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-attacks pose a risk to the security of our information and the information
of our portfolio companies. These cyber-attacks could affect our computer network, our website or our service providers (such as, but not limited to, accountants, lawyers, and transfer agents) and could result in operation disruptions or information
misappropriation, which could have a material adverse effect on our business operations and the integrity and availability of our financial information. We have attempted to mitigate these cybersecurity risks by employing a number of processes,
procedures and internal controls within our company but we remain potentially vulnerable to additional known and unknown threats. We may experience fluctuations in our quarterly results Our
quarterly operating results could fluctuate significantly as a result of a number of factors. These factors include, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which
portfolio companies encounter competition in their markets, their ability to raise additional capital, if needed, and general economic conditions. As a result of these factors, results for any quarter cannot be relied upon as being indicative of
performance in future quarters or for a full year. Risks related to our investments We have a limited number of companies in our portfolio of investments, and may be subjected to greater risk if any of these
companies default Our portfolio investment values are concentrated in a small number of companies and as such, we may
experience a significant loss in our net asset value if one or more of these companies perform poorly or go out of business. The unrealized or realized depreciation in the value of the securities of any one of these companies would negatively impact
our net asset value. The lack of liquidity in our investments may adversely affect our business We invest, and will continue to invest, in portfolio companies whose securities are not publicly traded and may be subject to restrictions
on resale, and as a result will be less liquid than publicly traded securities. Most of our investments are or will be either equity securities or subordinated debt securities acquired directly from small, private companies. The illiquidity of most
of our portfolio may adversely affect our ability to dispose of the securities at times when it may be advantageous for us to liquidate investments. In addition, we may not realize the full value of these private investments if we have to liquidate
all or a part of our portfolio investment quickly, given the lack of available markets for their sale. Economic
downturns or recessions may adversely affect our portfolio companies financial performance and therefore harm our operating results The United States economy has periodically experienced periods of instability and recessions and the financial results of the small companies in which we invest could be more acutely affected negatively
by this instability and suffer deterioration in operational or financial results. This deterioration may have a negative effect on our financial performance.  7




---

##### Table of Contents

Investing in private companies involves a high degree of risk We typically invest a substantial portion of our assets in small private companies. These private businesses may be thinly capitalized,
unproven companies with risky technologies, products or services, may lack management depth, and may not have attained profitability. Because of the speculative nature and the lack of a public market for these investments, there is significantly
greater risk of loss than is the case with securities traded on a public exchange. We expect that some of our investments will become worthless and that some will appear likely to become successful but will never realize their potential. We have
been risk seeking rather than risk averse in our approach to our investments. Even if our portfolio companies are able to
develop commercially viable technologies, products or services, the market for those new technologies, products and services is likely to be highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing
efforts of the portfolio companies may not be successful. We typically are minority shareholders in companies We typically invest as a minority shareholder in our portfolio companies. As a minority shareholder we are unable to
require the company to seek or entertain liquidity events as a way to exit our investments. This may cause us to hold investments longer than planned or to seek a sale that may not reflect the full value of our investment. We may not have the funds or ability to make follow-on investments in our portfolio
companies We may not have the funds or ability to make additional investments in our portfolio companies. After our
initial investment in a company, we may be asked to participate in another round of financing to the company. There is no assurance that we will make, or have sufficient funds to make, these follow-on
investments. Any decision to not make an additional investment in our portfolio company may have a negative impact on the portfolio company in need of the capital, and have a negative impact on our ownership in the company. Risks related to our common stock Investing in our shares may be inappropriate for an investors risk tolerance Our venture capital investments, in accordance with our investment objective and principal strategies, result in a greater than average amount of risk and volatility and may result in loss of principal.
Our investments in portfolio companies are highly speculative and aggressive and, therefore, an investment in our shares may not be suitable for investors for whom such risk is inappropriate. Neither our investments nor an investment in our shares
constitutes a balanced investment program. Sales of substantial amounts of our securities may have an adverse effect on
the market price of our securities. Sales of substantial amounts of our securities, or the availability of such
securities for sale, could adversely affect the prevailing market prices for our securities. Our shares often trade at
a discount to our net asset value Shares of business development companies may trade at a market price that is less
than the net asset value that is attributable to those shares and our shares have often traded at such a discount. This characteristic of closed-end investment companies is separate and distinct from the risk
that our net asset value per share may decline. It is not possible to predict if, and when, our shares will trade at, above, or below net asset value. Item 1B.Unresolved Staff Comments Not applicable.  8




---

##### Table of Contents

Item 2.Properties We currently lease office space in Buffalo, New York for our corporate headquarters. We believe that these leased
facilities are adequate to support our current staff and expected future needs.  Item 3.Legal
Proceedings None. Item 4.Mine Safety Disclosures Not applicable. Part II  Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock (Common Stock) is traded on the NASDAQ Capital Market (NASDAQ) under the symbol RAND.
The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share of Common Stock as reported by NASDAQ:  2017 Quarter ended:

High


LowMarch 31

$
3.28


$
2.93June 30

$
3.10


$
2.76September 30

$
2.99


$
2.75December 31

$
3.30


$
2.772016 Quarter ended:

High


LowMarch 31

$
4.69


$
3.48June 30

$
4.50


$
3.65September 30

$
3.78


$
3.21December 31

$
3.61


$
3.12 We have not paid any cash dividends in the two most recent fiscal years. Issuer Purchases of Equity Securities  Period

Total numberof sharespurchased(1)


Average price paidper share(2)


Total number of sharespurchased as part ofpubliclyannounced plan(3)


Maximum number ofshares that may yetbe purchased underthe share
repurchaseplan(3)10/1  10/31/2017














458,95411/1  11/30/2017














458,95412/1  12/31/2017














458,954  (1)
There were no shares repurchased during the fourth quarter of 2017.  (2)
The average price paid per share is calculated on a settlement basis and includes commission.  (3)
On October 26, 2017, the Board of Directors extended the repurchase authorization of up to 1,000,000 shares of the Common Stock on the open market at prices no
greater than the then current net asset value through October 26, 2018.  9




---

##### Table of Contents

Shareholders of Record On March 1, 2018, we had a total of approximately 766 shareholders, which included 78 record holders of our Common Stock, and an
estimated 688 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks. Corporation Performance Graph The following graph shows a five-year comparison of cumulative total shareholder returns for our Common Stock, the NASDAQ Market Index, and our Peer Group, assuming a base index of $100 at the end of
2011. The cumulative total return for each annual period within the five years presented is measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and
(B) the difference between share prices at the end and at the beginning of the measurement period by (2) the share price at the beginning of the measurement period. Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 December 2017  LOGO Comparison of cumulative total return of one or more companies, peer groups, industry indexes and/or broad markets FISCAL YEAR ENDED DECEMBER 31,  Company/Index/Market

2012


2013


2014


2015


2016


2017Rand Capital
Corporation

$
100.00


$
131.20


$
174.79


$
161.11


$
135.04


$
129.06NASDAQ Market Index

$
100.00


$
140.12


$
160.78


$
171.97


$
187.22


$
242.71Peer Group Index

$
100.00


$
134.94


$
134.07


$
71.29


$
61.78


$
70.00 The Peer Group was comprised of the following companies: Capital Southwest Corporation (NasdaqGS: CSWC) Firsthand Technology Value Fund, Inc. (NasdaqGS: SVVC) GSV Capital Corp.
(NasdaqCM: GSVC) 180 Degree Capital Corp. (NasdaqGM: TURN)  10




---

##### Table of Contents

We selected the Peer Group because it is our belief that the four issuers in the group
have investment objectives that are similar to ours, and among the publicly traded companies, they are relatively similar in size to us. During 2017, Harris and Harris Group announced it would change its corporate name to 180 Degree Capital Corp.
and its ticker symbol on the NASDAQ stock market to TURN. The peer group is unchanged from 2016. The performance
graph information provided above will not be deemed to be soliciting material or filed with the SEC or subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act, unless in the
future we specifically request that the information be treated as soliciting material or specifically incorporate it by reference into any filing under the Securities Act or the Exchange Act. Item 6.Selected Financial Data The following table provides selected consolidated financial data for the periods indicated. You should read the selected financial data set forth below in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations, and with the consolidated financial statements and related notes appearing within Item 8 of this Annual Report. Balance Sheet Data as of December 31:  2017


2016


2015


2014


2013Total assets

$
40,133,913


$
42,418,530


$
44,562,060


$
45,525,987


$
39,750,370Total liabilities

$
8,215,228


$
9,789,167


$
10,708,400


$
13,172,546


$
11,681,038Net assets

$
31,918,685


$
32,629,363


$
33,853,660


$
32,353,441


$
28,069,332Net asset value per outstanding share

$
5.05


$
5.16


$
5.35


$
5.11


$
4.38Shares of common stock outstanding


6,321,988



6,321,988



6,328,538



6,328,538



6,411,918 Operating Data for the years ended December 31:  2017


2016


2015


2014


2013Investment income

$
1,454,782


$
1,031,858


$
2,824,337


$
2,584,475


$
2,451,036Total expenses

$
2,010,977


$
3,401,037


$
1,817,279


$
2,499,297


$
2,359,252Net investment (loss) gain, net of tax

($
19,298
)

($
1,553,268
)

$
842,902


$
21,835


$
154,478Net realized gain (loss) on sales and dispositions of investments, net of tax

$
88,684


$
8,864,653


($
27,973
)

$
4,767,484


$
4,374,354Net (decrease) increase in unrealized depreciation or appreciation on investments, net of tax

($
780,064
)

($
8,514,068
)

$
685,290


($
247,838
)

($
1,655,475
)Net (decrease) increase in net assets from operations

($
710,678
)

($
1,202,683
)

$
1,500,219


$
4,541,481


$
2,873,357 Item 7.Managements Discussion and Analysis of
Financial Condition and Results of Operations You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with the consolidated financial statements and related notes included within Item 8 of this Annual Report. FORWARD LOOKING STATEMENTS Statements included in this Managements
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Report that do not relate to present or historical conditions are forward-looking  11




---

##### Table of Contents

statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as amended.
Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with the SEC. Forward-looking statements involve risks and uncertainties that could
cause our results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements relating to our 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 United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of our portfolio companies could be traded, liquidity within the United
States 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. of this Annual Report. There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking
statement speaks only as of the date when 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. Overview We are an
internally managed investment company that lends to and invests in small companies often concurrently with other investors. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940,
as amended (the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements. We have historically made the majority of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (Rand
SBIC), which operates as a small business investment company (SBIC) and has been licensed by the U.S. Small Business Administration (SBA) since 2002. During 2017, we established a second SBIC subsidiary, Rand Capital
SBIC II, L.P. (Rand SBIC II) and began making investments from this SBIC subsidiary. We continue to work with the SBA in determining an optimal structure within its regulatory parameters which, once completed, may result in new SBA leverage
commitments in 2018. Our principal investment objective is to achieve long-term capital appreciation on our equity investments
while maintaining a current cash flow from our debenture and pass-through equity instruments to fund our operating expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment
portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest. We have historically made initial investments of $500,000 to $1,000,000 directly in companies through equity or in debt or loan
instruments and frequently provided follow-on investments during our investment tenure. The debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants.
Interest may be paid currently or deferred, based on the investment structure negotiated. We may exit investments through the
maturation of a debt security or when a liquidity event takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the
realization of maximum total return. We generally expect to dispose of our equity securities through private sales of securities to other investors or through an outright sale of the portfolio company or a merger. We anticipate our debt investments
will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment. We fund new investments and operating expenses through existing cash balances,
investment returns, and interest and principal payments from our portfolio companies  12




---

##### Table of Contents

2017 Portfolio and Investment Activity We believe the change in net asset value over time is the leading valuation metric of our performance. Exits from our portfolio holdings
are the key driver of growth in net asset value over time.  

Net asset value of our portfolio decreased to $5.05 per share, or $31.9 million, at December 31, 2017, down ($0.11) per share, or (2.1%),
compared with net asset value of $5.16 per share, or $32.6 million, at the end of the prior year.  

At year end, the estimated value of our portfolio, which included securities from 30 active companies, was $32.3 million. This value included
$4.4 million in net pre-tax unrealized depreciation.  

Approximately 58% of the portfolio was equity investments with the remainder being debt and loan investments.  

The portfolio generated approximately $1.5 million in interest, fee, dividend and other income.  

During 2017, we made $5.4 million of new investments in 8 companies, of which one was a new portfolio company. Outlook At the end of
2017, we had $6.3 million in cash available for future investments and expenses, a decrease from $12.3 million at the end of 2016. The decrease was primarily due to $5.4 million of investments originated during 2017 as well as funding
of ongoing operating expenses. We continue to work with the SBA in determining an optimal structure within its regulatory
parameters which, once completed, may result in new SBA leverage commitments in 2018. We believe the combination of cash
on hand, proceeds from portfolio exits, potential additional SBA leverage, and prospective investment income provide sufficient capital for us to continue to add new investments to our portfolio while reinvesting in existing portfolio companies that
demonstrate continued growth potential. The following short and long-term trends provide us confidence in our ability to grow Rand:  

We expect that well run businesses will require capital to grow and should be able to compete effectively given the strong macroeconomic environment
and eager reception of new technologies and service concepts.  

We continue to manage risk by investing with other investors, when possible.  

We are actively involved with the governance and management of our portfolio companies, which enables us to support their operating and marketing
efforts and facilitate their growth.  

As our portfolio expands, we are able to better leverage our infrastructure.  

We have sufficient cash to invest in new opportunities and to repurchase shares. At year end, we had authorization to repurchase an additional 458,954
shares of our Common Stock. However, our prioritized use of cash continues to be growing our portfolio. Critical
Accounting Policies We prepare our consolidated financial statements in accordance with United States generally accepted
accounting principles, or GAAP, which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. For a summary of all significant accounting policies, including critical accounting policies, see Note 1
to the consolidated financial statements in Item 8 of this Annual Report. The increasing complexity of the business
environment and applicable authoritative accounting guidance require us to closely monitor our accounting policies and procedures. We have two critical accounting policies that require the use of significant judgment. The following summary of
critical accounting policies is intended to enhance a readers ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates.  13




---

##### Table of Contents

Valuation of Investments Investments are valued at fair value as determined in good faith by management and approved by our Board of Directors. We invest in loan,
debt, and equity instruments and there is no single standard for determining fair value of these investments. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment
while employing a consistent valuation process. We analyze and value each investment quarterly, and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or realization of the
recorded value of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that an underlying portfolio company has appreciated in value and, therefore, its equity security has also appreciated in value. These
estimated fair values may differ from the values that would have been used had a ready market for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events. Our investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value
Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Loan investments are defined as traditional loan financings with no equity features. Debt investments are defined as debt financings that
include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the
company. We utilize several approaches to determine the fair value of an investment. The main approaches are:  

Loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation
proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of the investment. A
loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.  

Equity securities may be valued using the asset approach, market approach or income approach. The asset
approach involves estimating the liquidation value of the portfolio companys assets. To the extent the value exceeds the remaining principal amount of the debt or loan securities of the portfolio company, the fair value of such securities
is generally estimated to be their cost. However, where value is less than the remaining principal amount of the loan and debt securities, the Corporation may discount the value of an equity security. The market approach uses observable prices
and other relevant information generated by similar market transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a
subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an investment. ASC 820 classifies the inputs used to measure fair value into the following hierarchy: Level 1:     Quoted prices in active markets for identical assets or liabilities, used in our valuation at the
measurement date. Level 2:     Quoted prices for similar assets or liabilities in active markets, or
quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3:     Unobservable and significant inputs to determining the fair value. Financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Any changes in estimated fair value are recorded in the statement of operations as Net (decrease) increase in unrealized depreciation or appreciation on investments.  14




---

##### Table of Contents

Under the valuation policy, we value unrestricted publicly traded companies,
categorized as Level 1 investments, at the average closing bid price for the last three trading days of the reporting period. There were no Level 1 or Level 2 investments as of December 31, 2017. In the valuation process, we value restricted securities, categorized as Level 3 investments, using information from these portfolio
companies, which may include:  

Audited and unaudited statements of operations, balance sheets and operating budgets;  

Current and projected financial, operational and technological developments of the portfolio company;  

Current and projected ability of the portfolio company to service its debt obligations;  

The current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur;  

Pending debt or capital restructuring of the portfolio company;  

Current information regarding any offers to purchase the investment, or recent fundraising transactions;  

Current ability of the portfolio company to raise additional financing if needed;  

Changes in the economic environment which may have a material impact on the operating results of the portfolio company;  

Internal circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio company;  

Qualitative assessment of key management;  

Contractual rights, obligations or restrictions associated with the investment; and  

Other factors deemed relevant by our management to assess valuation. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that
led to a reduction in valuation are overcome, the valuation may be readjusted. Equity Securities Equity Securities may include preferred stock, common stock, warrants and limited liability company membership
interests. The significant unobservable inputs used in the fair value measurement of our equity investments are earnings
before interest, taxes and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the senior equity preferences that may exist in a deemed liquidation event.
Standard industry multiples may be used when available; however, our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational
performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes to the unobservable inputs, such as variances in
financial performance from expectations, may result in a significantly higher or lower fair value measurement. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate. Another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic unrelated new investor entered into by the portfolio company. The terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us, and the impact
of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify. When appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model
requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation of minority equity positions in small private and early stage companies. Significant changes in any of these
unobservable inputs may result in a significantly higher or lower fair value estimate.  15




---

##### Table of Contents

For recent investments, we generally rely on the cost basis, which is deemed to
represent fair value, unless other fair market value inputs are identified causing us to depart from this basis. Loans and Debt Securities The significant unobservable inputs used in the fair value measurement of our loan and debt securities are the financial and operational performance of the portfolio company, similar debt with similar
terms with other portfolio companies, current market rates for underlying risks associated with the particular company, as well as the market acceptance of the portfolio companys products or services and its future performance. These inputs
will likely provide an indicator as to the probability of principal recovery of the investment. Our debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where appropriate.
Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified
causing us to depart from this basis. Revenue Recognition Interest income generally is recognized on the accrual basis except where the investment is in default or otherwise presumed to be in
doubt. In such cases, interest income is recognized at the time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate. Our SBICs interest accrual is also regulated by the SBAs Accounting Standards and Financial Reporting Requirements for Small Business Investment Companies. Under these rules,
interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial doubt about a portfolio companys ability to continue as a
going concern or the loan is in default more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of any accrued interest. We hold debt securities in our investment portfolio that contain
payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the
principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. We may receive distributions from portfolio companies that are limited liability companies or corporations. These distributions are classified as dividend income on the consolidated statement of
operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated. We hold preferred equity
securities that may contain cumulative dividend provisions. Cumulative dividends are recorded as dividend income when they are declared and deemed a contractual obligation. Any dividends in arrears are added to the balance of the preferred equity
investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed. Financial Condition Overview:  12/31/17


12/31/16


Decrease


% DecreaseTotal assets

$
40,133,913


$
42,418,530


($
2,284,617
)


(5.4
%)Total liabilities


8,215,228



9,789,167



(1,573,939
)


(16.1
%)Net assets

$
31,918,685


$
32,629,363


($
710,678
)


(2.2
%) Net asset value was $5.05 per share at December 31, 2017 versus $5.16 per share at December 31,
2016. The outstanding SBA debentures at December 31, 2017 are $8,000,000, which will mature from 2022 through 2025.  16




---

##### Table of Contents

Cash approximated 20% of net assets at December 31, 2017 compared to 38% at
December 31, 2016. Composition of the Investment Portfolio Our financial condition is dependent on the success of our portfolio holdings, which are investments in small companies. The following
summarizes our investment portfolio at the yearends indicated.  12/31/17


12/31/16


Increase(Decrease)


% Increase(Decrease)Investments, at cost

$
36,689,319


$
31,631,030


$
5,058,289



16.0
%Unrealized depreciation, net


(4,405,257
)


(4,130,549
)


(274,708
)


(6.7
%)Investments, at fair value

$
32,284,062


$
27,500,481


$
4,783,581



17.4
%Number of Active Portfolio Companies


30



33 Our total investments at fair value, as estimated by management and approved by the Board of Directors,
approximated 101% of net assets at December 31, 2017 and 84% of net assets at December 31, 2016. The change in
investments, at cost, during the year ended December 31, 2017, is comprised of the following:  Cost 
Increase(Decrease)New investments:eHealth Global Technologies, Inc. (eHealth)

$
2,000,000Tilson Technology Management, Inc. (Tilson)


1,500,000Genicon, Inc. (Genicon)


1,300,000SciAps, Inc. (Sciaps)


250,000BeetNPath, LLC (Beetnpath)


100,000Centivo Corporation (Centivo)


100,000Mercantile Adjustment Bureau, LLC (Mercantile)


100,000KnowledgeVision Systems, Inc. (Knowledge Vision)


50,000Total of new investments


5,400,000Other changes to investments:Empire Genomics, LLC (Empire Genomics) interest conversion


201,489Sciaps interest conversion


24,274Genicon OID amortization


23,779Microcision LLC (Microcision) interest conversion


22,176Beetnpath interest conversion


11,277GoNoodle, Inc. (GoNoodle) interest conversion


10,229Mercantile OID amortization


8,350Total of other changes to investments


301,574Investments repaid, sold or liquidated:Athenex Inc. (Athenex) sold shares


(143,285
)City Dining Cards, Inc. (Loupe) realized loss


(500,000
)Total investments repaid, sold or liquidated


(643,285
)Net change in investments, at cost

$
5,058,289  17




---

##### Table of Contents

Our top five portfolio companies represented 37% of total assets at December 31,
2017:  Company

Industry

Fair Value atDecember 31, 2017


% of Total Assetsat December 31,2017Genicon, Inc.

Health Care  Testing Device

$
4,023,779



10
%eHealth Global Technologies, Inc.

Health Care

$
3,500,000



9
%Rheonix, Inc.

Health Care  Testing Device

$
2,938,731



7
%Tilson Technology Management, Inc.

Professional Services

$
2,500,000



6
%Outmatch Holdings, LLC

Software

$
2,145,496



5
% Our top five portfolio companies represented 28% of total assets at December 31, 2016:  Company

Industry

Fair Value atDecember 31, 2016


% of Total Assetsat December 31,2016Rheonix, Inc.

Health Care  Testing Device

$
2,938,731



7
%Genicon, Inc.

Health Care  Testing Device

$
2,700,000



6
%Outmatch Holdings, LLC

Software

$
2,145,496



5
%Social Flow, Inc.

Software

$
2,071,300



5
%SciAps, Inc.

Manufacturing

$
2,054,710



5
% Below is the geographic breakdown of our investments at fair value as of December 31, 2017 and 2016:  Geographic Region

% of Net Asset Valueat December 31,2017


% of Net Asset Valueat December 31,2016USA  East


86
%


78
%USA  South


15
%


6
%Total investments as a % of net asset value


101
%


84
%  18




---

##### Table of Contents

As of December 31, 2017 and 2016, the investment portfolio consisted of the
following types of investments:  Cost


Percentage ofTotal Portfolio


Fair Value


Percentage ofTotal PortfolioDecember 31, 2017:Subordinated Debt and Promissory Notes

$
12,924,321



35
%

$
11,796,289



37
%Convertible Debt


1,849,955



5



1,849,955



6Equity and Membership Interests


21,640,393



59



18,482,793



57Equity Warrants


274,650



1



155,025



0Total

$
36,689,319



100
%

$
32,284,062



100
%December 31, 2016:Subordinated Debt and Promissory Notes

$
8,779,787



28
%

$
7,901,755



29
%Convertible Debt


1,998,466



6



1,998,466



7Equity and Membership Interests


20,698,127



65



17,565,235



64Equity Warrants


154,650



1



35,025



0Total

$
31,631,030



100
%

$
27,500,481



100
% Results of Operations Investment Income Our principal investment objective is to achieve
long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial instruments to provide a current
return on a portion of the investment portfolio. Comparison of the years ended December 31, 2017 and 2016  December 31,2017


December 31,2016


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
1,155,316


$
767,153


$
388,163



51
%Interest from other investments


30,761



45,139



(14,378
)


(32
%)Dividend and other investment income


243,614



192,932



50,682



26
%Fee income


25,091



26,634



(1,543
)


(6
%)Total investment income

$
1,454,782


$
1,031,858


$
422,924



41
% Investment income increased 41%, or $422,924, from $1,031,858 for the year ended December 31, 2016 to
$1,454,782 for the year ended December 31, 2017. Interest from portfolio companies  Interest from portfolio
companies was 51% higher during the year ended December 31, 2017 versus the same period in 2016 due to the fact that we have originated more income-producing debt investments in the last year. These new debt instruments were originated from
Genicon Inc. (Genicon), eHealth Global Technologies, Inc. (eHealth), Empire Genomics, LLC (Empire Genomics) and several other portfolio companies. The following investments remain on non-accrual status: G-TEC Natural Gas Systems
(G-Tec), First Wave Products Group, LLC (First Wave) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance.  19




---

##### Table of Contents

Interest from other investments  The decrease in interest from other
investments was primarily due to lower average cash balances during the year ended December 31, 2017 versus the year ended December 31, 2016. Dividend and other investment income  Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment
agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLCs profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend
income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact of new investments or divestitures. The dividend distributions for the respective periods were:  December 31,2017


December 31,2016Carolina Skiff LLC (Carolina Skiff)

$
178,532


$
131,785New Monarch Machine Tool, LLC (Monarch)


27,409



27,409Tilson Technology Management, Inc. (Tilson)


21,579



16,250Empire Genomics, LLC (Empire Genomics)


10,070



4,024SOMS Technologies, LLC (SOMS)


6,024



13,464Total dividend and other investment income

$
243,614


$
192,932 Fee income  Fee income consists of the revenue associated with the amortization of financing
fees charged to the portfolio companies upon successful closing of SBIC financings and income from portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The
unamortized fees are carried on the balance sheet under the line item Deferred revenue. The income associated with
the amortization of financing fees was $24,091 and $22,634 for the years ended December 31, 2017 and 2016, respectively. The financing fee income based on the existing portfolio is expected to be approximately $21,000 in 2018, $15,000 in 2019
and $2,000 in 2020. Fees paid for board service at the portfolio companies were $1,000 and $4,000 for the years ended
December 31, 2017 and 2016, respectively. Comparison of the years ended December 31, 2016 and 2015  December 31,2016


December 31,2015


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
767,153


$
691,109


$
76,044



11
%Interest from other investments


45,139



22,048



23,091



105
%Dividend and other investment income


192,932



2,081,847



(1,888,915
)


(91
%)Fee income


26,634



29,333



(2,699
)


(9
%)Total investment income

$
1,031,858


$
2,824,337


($
1,792,479
)


(64
%) Investment income decreased 64%, or $1,792,479, from $2,824,337 for the year ended December 31, 2015
to $1,031,858 for the year ended December 31, 2016. The net decrease was primarily attributable to a decrease in dividend income caused by the sale of a large dividend producing investment, Gemcor, II, LLC (Gemcor) during 2016. Interest from portfolio companies  Our portfolio interest income increased during 2016 due to the addition of several large
debt instruments in late 2015 and throughout 2016. The new debt instruments were originated from Genicon Inc. (Genicon), eHealth Global Technologies, Inc. (eHealth), Empire Genomics, LLC (Empire Genomics), SciAps, Inc. (Sciaps) and several other
portfolio companies.  20




---

##### Table of Contents

The following investments remain on non-accrual
status: G-TEC Natural Gas Systems (G-Tec), First Wave Products Group, LLC (First Wave) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding
loan balance. Interest from other investments  The increase in interest from other investments was primarily due
to higher average cash balances during the year ended December 31, 2016 versus the year ended December 31, 2015. Dividend and other investment income  Dividend and other investment income decreased in 2016 due to the asset sale of Gemcor
II, LLC in March 2016. The dividend distributions for the respective years were:  December 31,2016


December 31,2015Carolina Skiff LLC (Carolina Skiff)

$
131,785


$
116,052New Monarch Machine Tool, LLC (Monarch)


27,409



27,409Tilson Technology Management, Inc. (Tilson)


16,250



14,417SOMS Technologies, LLC (SOMS)


13,464



4,355Empire Genomics, LLC (Empire Genomics)


4,024



Gemcor, II, LLC (Gemcor)





$
1,735,934Teleservices Solutions Holdings, LLC (Teleservices)






183,680Total dividend and other investment income

$
192,932


$
2,081,847 Fee income  The income associated with the amortization of financing fees was $22,634 and
$18,333 for the years ended December 31, 2016 and 2015, respectively. The financing fee income based on the existing portfolio is expected to be approximately $20,000 in 2017, $15,000 in 2018, $11,000 in 2019 and $300 in 2020. Fees paid for board service at the portfolio companies were $4,000 and $11,000 for the years ended December 31, 2016 and 2015,
respectively. Expenses Comparison of the years ended December 31, 2017 and 2016  December 31,2017


December 31,2016


Decrease


% DecreaseTotal expenses

$
2,010,977


$
3,401,037


($
1,390,060
)


(41
%) Operating expenses consist predominately of compensation expense, including profit sharing, and related
benefits, interest expense on outstanding SBA borrowings, and general and administrative expenses including shareholder and office expenses and professional fees. The decrease in expenses during the year ended December 31, 2017 versus the same period in 2016 was primarily caused by a decrease of $1,373,052 in bonus and profit sharing expense related to the
Gemcor II, LLC (Gemcor) exit in early 2016. Gemcor sold its assets in March 2016 and based on our ownership percentage, we received gross cash proceeds of approximately $13.8 million, excluding an escrow receivable, and realized a gain, before
income taxes, of approximately $13.2 million from the sale. As a result of this sale, we recognized $1,385,052 under our Profit Sharing Plan during the year ended December 31, 2016. There were no amounts earned pursuant to the Profit
Sharing Plan for the year ended December 31, 2017. Comparison of the years ended December 31, 2016 and 2015  December 31,2016


December 31,2015


Increase


% IncreaseTotal expenses

$
3,401,037


$
1,817,279


$
1,583,758



87
%  21




---

##### Table of Contents

The increase in operating expenses during 2016 was comprised primarily of a $1,262,552
increase in bonus and profit sharing expense, due to the Gemcor sale in 2016, and a $137,629 increase in professional fees. Our largest portfolio company, in terms of fair value, Gemcor II, LLC (Gemcor) sold its assets during March 2016 and, based on our
ownership percentage, we received gross cash proceeds of approximately $14.1 million. The realized gain from the sale, before income taxes, was $14,620,063 and included $1,100,000 that continued to be held in escrow at December 31, 2016.
The escrow holdback is recorded in Other Assets on the accompanying consolidated statement of financial position. The escrow was released during 2017. Related to this asset sale, we accrued $1,270,052 under our Profit Sharing Plan for
the year ended December 31, 2016, that is payable to our executive officers. Recording of the profit sharing expense is primarily based on net realized gains, which may be in years subsequent to when the unrealized appreciation is recognized on
the underlying investments in the financial statements. This may cause a recognition of profit sharing expense in a period later than when the appreciation is recognized, as was the case in 2016. There were no amounts earned pursuant to the Profit
Sharing Plan for the year ended December 31, 2015. Professional fees were also higher during the year ended
December 31, 2016 versus 2015 because we incurred additional expenses in connection with developing and implementing our long-term growth strategy. These expenses included external legal, tax consulting and other advisory expenses to
support refinement of our strategy, which involved assessing options relative to the complex regulatory environment in which we operate. Net Realized Gains and Losses on Investments  December 31,2017


December 31,2016


December 31,2015Net realized gain (loss) on sales and dispositions, before income tax expense (benefit)

$
138,240


$
14,138,203


($
42,469
) During the year ended December 31, 2017, one of our portfolio companies, Athenex Inc. (Athenex)
completed an initial public offering and its common stock became publicly traded on the NASDAQ Global Select Market under the symbol ATNX. We sold our shares in Athenex and recognized a net realized gain, before income taxes, of $638,240
on the sale of the 46,296 Athenex shares. In addition, during 2017, we realized a loss of $500,000 on our investment in City
Dining Cards (Loupe) when the company ceased operations. During the first quarter of 2016 our portfolio company, Gemcor II,
LLC, sold its assets, and accordingly, we received gross cash proceeds of approximately $14.1 million, excluding amounts held in escrow, and recognized a realized gain, before income taxes, of $14,620,063. The escrow holdback at
December 31, 2016 was $1,100,000 and is recorded in Other Assets on the accompanying consolidated statement of financial position. The escrow was released during 2017. In addition, we recorded a realized gain of $168,140 during the year ended December 31, 2016 from the earn out provision in
connection with the 2014 sale of QuaDPharma, LLC to Athenex Inc. We realized a loss of $650,000 on our investment in Statisfy,
Inc. (Statisfy) during the year ended December 31, 2016 when the company ceased operations. During the year ended
December 31, 2015, we recognized a net realized gain, before income taxes, of $262,925 on the sale of 301,582 shares of Synacor, Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol SYNC. As of
December 31, 2015, we did not own any shares of Synacor. We recognized a realized loss of $5,394 on an adjustment to the
BinOptics Corporation (Binoptics) escrow receivable. At December 31, 2015, the Binoptics escrow receivable was $1,504,854 and was received during 2016. We realized a loss of $300,000 on our investment in CrowdBouncer, Inc. during the year ended December 31, 2015 when the company ceased operations.  22




---

##### Table of Contents

Net (Decrease) Increase in Unrealized Depreciation or Appreciation of Investments The change in net unrealized depreciation of investments, before income taxes, for the year ended December 31, 2017 was comprised of
the following:  December 31,2017SciAps, Inc. (Sciaps)

($
554,710
)Teleservices Solutions Holdings, LLC (Teleservices)


(395,398
)Intrinsiq Materials, Inc. (Intrinsiq)


(380,000
)Athenex, Inc. (Athenex) reclass to a realized gain


(273,379
)Mercantile Adjustment Bureau, LLC (Mercantile)


(250,000
)BeetNPath, LLC (Beetnpath)


29,723ACV Auctions, Inc. (ACV)


119,356Carolina Skiff LLC (Carolina Skiff)


650,000Knoa Software, Inc. (Knoa)


779,700($
274,708
) The valuations of our investments in Intrinsiq, Mercantile and Teleservices were decreased after we
reviewed each portfolio company and its current and projected financial condition and determined that a valuation adjustment was necessary. In accordance with our valuation policy, we adjusted the value of our investments in ACV, Beetnpath and Sciaps based on a significant equity financing by a new
non-strategic outside entity, and consideration of the related affect on the liquidation preferences of our existing investment instrument in each of the companies. In addition, our investments in Carolina
Skiff and Knoa were increased based on a financial analysis of each portfolio company indicating improved performance. The
change in net unrealized depreciation of investments, before income taxes, for the year ended December 31, 2016 was comprised of the following:  December 31,2016Reclassify Gemcor II, LLC (Gemcor) to a realized gain

($
12,775,000
)Teleservices Solutions Holdings, LLC (Teleservices)


(990,680
)Knoa Software, Inc. (Knoa)


(422,800
)OnCore Golf Technology, Inc. (Oncore)


(187,500
)Athenex, Inc. (Athenex)


69,444Intrinsiq Materials, Inc. (Intrinsiq)


254,329Carolina Skiff LLC (Carolina Skiff)


500,000($
13,552,207
) During the first quarter of 2016 Gemcor II, LLC sold its assets and we received gross cash proceeds of
approximately $14.1 million. The realized gain from the sale, before income taxes, was $14,620,063 and included $1,100,000 that was held in escrow at December 31, 2016 and recorded on the accompanying consolidated statement of financial
position in Other Assets. Our investment in Teleservices was revalued after we reviewed their operations and their
current and past financial performance. This review indicated that a further deterioration of their business had occurred. If the factors that led to this reduction in valuation are overcome, the value may be restored. The portfolio company remains
in operation and is developing new business strategies. The valuation of our investment in Knoa was decreased during 2016 to
value our equity at liquidation value.  23




---

##### Table of Contents

The valuation of our investment in Oncore was decreased after we reviewed the portfolio
company and its financial condition and determined that a valuation adjustment was necessary. In accordance with our valuation
policy, we increased the value of our investment in Athenex based on a significant equity financing by a new non-strategic outside entity. This new financing used a higher valuation for Athenex than had been
used for its prior financing rounds. Intrinsiqs value was increased based on a the completion of an equity refinancing
in the third quarter of 2016. Carolina Skiffs value was increased based on a financial analysis of the portfolio company
indicating continued improved performance. The change in net unrealized appreciation of investments, before income taxes, for
the year ended December 31, 2015 was comprised of the following:  December 31,2015Gemcor II, LLC (Gemcor)

$
4,100,000SocialFlow, Inc. (SocialFlow)


321,300CrowdBouncer, Inc.(Crowdbouncer) reclass to a realized loss


300,000Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)


92,592OnCore Golf Technology, Inc. (Oncore)


(187,500
)GiveGab, Inc. (Givegab)


(191,907
)Synacor, Inc. (Synacor) reclass to a realized gain


(220,320
)Mercantile Adjustment Bureau, LLC (Mercantile)


(247,625
)KnowledgeVision Systems, Inc. (Knowledge Vision)


(250,000
)Teleservices Solutions Holdings, LLC (Teleservices)


(250,000
)Somerset Gas Transmission Company, LLC (Somerset)


(286,748
)SciAps, Inc. (Sciaps)


(500,000
)Intrinsiq Materials, Inc. (Intrinsiq)


(600,002
)First Wave Products Group, LLC (First Wave)


(750,031
)$
1,329,759 In December 2015 we entered into an asset purchase agreement under which we agreed to sell Gemcor. The
required percentage of Gemcor shareholders ratified and approved the sale in January 2016. The transaction closed in the first quarter of 2016. Based on our ownership of Gemcor, we received gross cash proceeds of approximately $14.1 million at
closing, before considering the $1.1 million held in escrow. Additionally, we incurred the related profit sharing expense in the first quarter of 2016. We valued our investment in Gemcor at December 31, 2015 based on an EBITDA multiple
which approximated our sales proceeds. In accordance with our valuation policy, we increased the value of our holdings in
Athenex and Social Flow based on significant equity financings for each during 2015 with sophisticated new non-strategic outside investors at a higher valuation for each than their prior financing round
valuation. The Crowdbouncer investment was written off after the company ceased doing business during 2015. We sold our remaining shares of Synacor during the year ended December 31, 2015. The Oncore, Givegab, Mercantile and Knowledge Vision investment values were decreased after we reviewed each of the portfolio
companys commercial progress against their business plans and their past financial performance. These reviews indicated that deterioration of their respective businesses had occurred. If the factors which led to these reductions in valuations
are overcome, the valuations may be restored. The Somerset investment value was decreased during 2015 after a review of the
companys financial performance and the overall weakness in the oil and gas sector.  24




---

##### Table of Contents

The First Wave, Intrinsiq, and Teleservices investment values were decreased during
2015 after we reviewed each of the portfolio companys progress toward commercialization and broad based acceptance of their respective business technologies and services in their respective markets. We also considered in our review the past
financial performance of the companies, their forecasted cash needs, and their fundraising plans for 2016 in determining that reductions in values were appropriate. If the factors which led to the reductions in valuations are overcome, the
valuations may be restored. The valuation of Sciaps was decreased during the year ended December 31, 2015 to revalue our
equity holdings based upon liquidation preferences of our securities and on the most recent equity round of financing. All of
these value adjustments resulted from a review by management using the guidance set forth by ASC 820 and our established valuation policy. Net (Decrease) Increase in Net Assets from Operations We account for our operations under GAAP for investment companies. The principal measure of our financial performance is net (decrease) increase in net assets from operations on our
consolidated statements of operations. During the year ended December 31, 2017, the net decrease in net assets from operations was ($710,678) as compared with net decrease of ($1,202,683) in 2016 and a net increase of $1,500,219 in 2015. Liquidity and Capital Resources Our principal objective is to achieve capital appreciation. Therefore, a significant portion of the investment portfolio is structured to maximize the potential for capital appreciation and may provide
little or no current yield in the form of dividends or interest payments. As of December 31, 2017, our total liquidity
consisted of $6,262,039 in cash. Net cash used by operating activities has averaged approximately $2,314,000 over the last
three years. The average cash used for investments in portfolio companies has averaged approximately $6,084,000 over the last three years. Our cash flow may fluctuate based on the timing of the receipt of dividend income, realized exits and the
associated income taxes paid. We will generally use cash to fund our operating expenses and to invest in companies as we build our portfolio. We anticipate that we will continue to exit investments. However, the timing of liquidation events within
the portfolio is difficult to project. As of December 31, 2017, we did not have any outstanding commitments to borrow funds from the SBA. Starting in 2022 (See Footnote 5 in the Notes to the Consolidated Financial Statements) our outstanding
SBA debt begins to reach maturity and this will require us to identify sources of future funding if liquidation of investments is not sufficient to fund operations and repay the SBA debt obligation. During 2017, we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (Rand SBIC II) and began making investments from this
SBIC subsidiary. We continue to work with the SBA in determining an optimal structure within the SBAs regulatory parameters which, once completed, may result in new SBA leverage commitments in 2018. The following table summarizes the SBA leverage at December 31, 2017 and December 31, 2016:  12/31/17


12/31/16Outstanding SBA leverage

$
8,000,000


$
8,000,000Outstanding SBA commitment






  25




---

##### Table of Contents

The following table summarizes the cash estimated to be received over the next five
years from existing portfolio companies based on contractual obligations as of December 31, 2017. This table does not include any escrow receivable amounts. These payments represent scheduled principal and interest payments that are due under
the terms of the investment securities we own in each portfolio company and are subject to change based on factors such as conversions and restructurings. It does not include any equity investments, which may provide additional proceeds upon exit of
the investment.  Cash Receipts due by year2018


2019


2020


2021


2022 andbeyondScheduled cash receipts from portfolio companies

$
5,430,000


$
4,123,000


$
4,671,000


$
1,370,000


$
2,719,000 We believe that the cash on hand at December 31, 2017 and the scheduled interest payments on our
portfolio investments will be sufficient to meet our cash needs throughout 2018. We continue to pursue potential exits from portfolio companies to increase the amount of liquidity available for new investments, operating activities and future SBA
debenture obligations. Contractual Obligations The following table shows our specified contractual obligations at December 31, 2017. We do not have any capital lease obligations or other long-term liabilities reflected on our statement of
financial position.  Payments due by periodTotal


Less than1 year


1-3 years


3-5 years


More than5 yrsSBA debentures

$
8,000,000


$
0


$
0


$
3,000,000


$
5,000,000SBA interest expense

$
1,670,000


$
283,000


$
849,000


$
458,000


$
80,000Operating lease obligations (Rent of office space)

$
58,320


$
19,140


$
39,180


$
0


$
0Total

$
9,728,320


$
302,140


$
888,180


$
3,458,000


$
5,080,000 Item 7A.Quantitative and Qualitative Disclosures
about Market Risk Our investment activities contain elements of risk. The portion of our investment portfolio
consisting of equity and debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and debt securities in which we invest, the valuations of the equity interests in the portfolio
are stated at fair value as determined in good faith by our management and approved by our Board of Directors. This is in accordance with our investment valuation policy. (The discussion of valuation policy contained in Note 1- Summary of Significant Accounting PoliciesInvestments in the consolidated financial statements contained in Item 8 of this report is incorporated herein by reference.) In the absence of readily
ascertainable market values, the estimated value of the portfolio may differ significantly from the values that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated
statement of operations as Net increase (decrease) in unrealized depreciation or appreciation on investments. At
times, a portion of our portfolio may include marketable securities traded in the over-the-counter market or on stock exchange. In addition, there may be a portion of
the portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other
event occur that would not allow markets to trade in an orderly fashion, we may not be able to realize the fair value of our marketable investments or other investments in a timely manner. As of December 31, 2017, we did not have any off-balance sheet arrangements or hedging or
similar derivative financial instrument investments.  26




---

##### Table of Contents

Item 8.Financial Statements and
Supplementary Data The following consolidated financial statements and consolidated supplemental schedule of
the Corporation and report of Independent Registered Public Accounting Firm thereon are set forth below:  Statements of Financial Position as of December 31, 2017 and 2016


28Statements of Operations for the three years in the period ended
December 31, 2017


29Statements of Changes in Net Assets for the three years in the period ended December 31,
2017


30Statements of Cash Flows for the three years in the period ended
December 31, 2017


31Schedule of Portfolio Investments as of December 31, 2017


32Schedule of Portfolio Investments as of December 31, 2016


41Financial Highlights Schedule for the five years in the period ended
December 31, 2017


51Notes to the Consolidated Financial Statements


52Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31,
 2017


67Report of Independent Registered Public Accounting Firm


68  27




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31,  2017


2016ASSETSInvestments at fair value:Control investments (cost of $ 99,500)

$
99,500


$
99,500Affiliate investments (cost of $20,871,129 and $17,589,623, respectively)


17,016,795



13,605,974Non-affiliate investments (cost of $15,718,690 and $13,941,907,
respectively)


15,167,767



13,795,007Total investments, at fair value (cost of $36,689,319 and $31,631,030, respectively)


32,284,062



27,500,481Cash


6,262,039



12,280,140Interest receivable (net of allowance: $161,000)


231,048



324,237Deferred tax asset


551,863



1,165,164Prepaid income taxes


762,047



Other assets


42,854



1,148,508Total assets

$
40,133,913


$
42,418,530LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA (net of debt issuance costs)

$
7,855,173


$
7,827,773Profit sharing and bonus payable


144,000



1,270,052Income tax payable






320,008Accounts payable and accrued expenses


178,348



324,537Deferred revenue


37,707



46,797Total liabilities


8,215,228



9,789,167Commitments and contingencies (See Note 9)Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,321,988 at 12/31/17 and
12/31/16


686,304



686,304Capital in excess of par value


10,581,789



10,581,789Accumulated net investment loss


(1,597,146
)


(1,577,848
)Undistributed net realized gain on investments


27,215,738



27,127,054Net unrealized depreciation on investments


(3,498,895
)


(2,718,831
)Treasury stock, at cost: 541,046 shares


(1,469,105
)


(1,469,105
)Total stockholders equity (net assets) (per share 2017: $5.05, 2016: $5.16)


31,918,685



32,629,363Total liabilities and stockholders equity (net assets)

$
40,133,913


$
42,418,530 See accompanying notes  28




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, 2017, 2016 and 2015  2017


2016


2015Investment income:Interest from portfolio companies:Control investments

$



$
11,828


$
77,077Affiliate investments


563,708



403,850



388,135Non-Control/Non-Affiliate
investments


591,608



351,475



225,897Total interest from portfolio companies


1,155,316



767,153



691,109Interest from other investments:Non-Control/Non-Affiliate
investments


30,761



45,139



22,048Total interest from other investments


30,761



45,139



22,048Dividend and other investment income:Control investments










1,735,934Affiliate investments


233,544



188,908



345,913Non-Control/Non-Affiliate
investments


10,070



4,024



Total dividend and other investment income


243,614



192,932



2,081,847Fee income:Control investments






2,000



8,000Affiliate investments


8,416



5,862



4,666Non-Control/Non-Affiliate
investments


16,675



18,772



16,667Total fee income


25,091



26,634



29,333Total investment income


1,454,782



1,031,858



2,824,337Operating expenses:Salaries


661,650



621,749



598,220Bonus and profit sharing


12,000



1,385,052



122,500Employee benefits


160,779



174,796



117,937Directors fees


142,499



184,750



129,000Professional fees


356,936



339,823



202,194Shareholders and office operating


249,085



227,631



222,431Insurance


31,876



32,134



32,086Corporate development


65,202



64,412



62,553Other operating


20,675



21,414



23,3301,700,702



3,051,761



1,510,251Interest on SBA obligations


310,275



310,276



307,028Bad debt expense






39,000



Total expenses


2,010,977



3,401,037



1,817,279Investment (loss) gain before income taxes


(556,195
)


(2,369,179
)


1,007,058Income tax (benefit) expense


(536,897
)


(815,911
)


164,156Net investment (loss) gain


(19,298
)


(1,553,268
)


842,902Net realized gain (loss) on sales and dispositions of investments:Control investments






14,620,063



Affiliate investments






(650,000
)


(300,000
)Non-Control/Non-Affiliate
investments


138,240



168,140



257,531Net realized gain (loss) on sales and dispositions, before income tax expense (benefit)


138,240



14,138,203



(42,469
)Income tax expense (benefit)


49,556



5,273,550



(14,496
)Net realized gain (loss) on sales and dispositions of investments


88,684



8,864,653



(27,973
)Net (decrease) increase in unrealized depreciation or appreciation on investments:Control investments






(12,775,000
)


4,100,000Affiliate investments


129,315



(846,651
)


(2,429,440
)Non-Control/Non-Affiliate
investments


(404,023
)


69,444



(340,801
)Change in unrealized depreciation or appreciation before income tax expense (benefit)


(274,708
)


(13,552,207
)


1,329,759Deferred income tax expense (benefit)


505,356



(5,038,139
)


644,469Net (decrease) increase in unrealized depreciation or appreciation on investments


(780,064
)


(8,514,068
)


685,290Net realized and unrealized (loss) gain on investments


(691,380
)


350,585



657,317Net (decrease) increase in net assets from operations

($
710,678
)

($
1,202,683
)

$
1,500,219Weighted average shares outstanding


6,321,988



6,325,792



6,328,538Basic and diluted net (decrease) increase in net assets from operations per share


(0.11
)


(0.19
)

$
0.24 See accompanying notes  29




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS For The Years Ended December 31, 2017, 2016 and 2015  2017


2016


2015Net assets at beginning of year

$
32,629,363


$
33,853,660


$
32,353,441Net investment (loss) gain


(19,298
)


(1,553,268
)


842,902Net realized gain (loss) on sales and dispositions of investments


88,684



8,864,653



(27,973
)Net (decrease) increase in unrealized depreciation or appreciation on investments


(780,064
)


(8,514,068
)


685,290Net (decrease) increase in net assets from operations


(710,678
)


(1,202,683
)


1,500,219Purchase of treasury stock






(21,614
)


Total (decrease) increase in net assets


(710,678
)


(1,224,297
)


1,500,219Net assets at end of year

$
31,918,685


$
32,629,363


$
33,853,660Accumulated net investment loss

($
1,597,146
)

($
1,577,848
)

($
24,580
)    See accompanying notes.  30




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, 2017, 2016 and 2015  2017


2016


2015Cash flows from operating activities:Net (decrease) increase in net assets from operations

($
710,678
)

($
1,202,683
)

$
1,500,219Adjustments to reconcile net (decrease) increase in net assets to net cash (used in) provided by operating
activities:Investments originated


(5,400,000
)


(5,883,012
)


(6,969,008
)Proceeds from sale of portfolio investments


781,525



15,413,203



648,605Proceeds from loan repayments






416,972



1,315,829Depreciation and amortization


31,433



33,390



33,051Original issue discount accretion


(32,129
)


(9,996
)


(17,339
)Change in interest receivable allowance






39,000



(6,311
)Decrease (increase) in unrealized appreciation on investments


274,708



13,552,207



(1,329,759
)Deferred tax expense (benefit)


613,301



(3,526,350
)


522,835Net realized (gain) loss on portfolio investments


(138,240
)


(14,138,203
)


42,469Non-cash conversion of debenture interest


(269,445
)


(19,252
)


(212,426
)Changes in operating assets and liabilities:Decrease (increase) in interest receivable


93,189



(148,013
)


(43,819
)Decrease (increase) in other assets


1,101,621



450,752



(14,917
)(Increase) decrease in prepaid income taxes


(762,047
)


65,228



(65,228
)(Decrease) increase in income taxes payable


(320,008
)


320,008



(2,065,795
)(Decrease) increase in profit sharing and bonus payable


(1,126,052
)


988,052



(671,490
)(Decrease) increase in accounts payable and accrued liabilities


(146,189
)


85,626



(51,735
)(Decrease) increase in deferred revenue


(9,090
)


20,867



1,666Total adjustments


(5,307,423
)


7,660,479



(8,883,372
)Net cash (used in) provided by operating activities


(6,018,101
)


6,457,796



(7,383,153
)Cash flows from investing activities:Capital expenditures






(837
)


(2,769
)Net cash used in investing activities






(837
)


(2,769
)Cash flows from financing activities:Purchase of treasury shares






(21,614
)


Net cash used in financing activities






(21,614
)


Net (decrease) increase in cash


(6,018,101
)


6,435,345



(7,385,922
)Cash:Beginning of year


12,280,140



5,844,795



13,230,717End of year

$
6,262,039


$
12,280,140


$
5,844,795 See accompanying notes  31




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017  Company, Geographic Location, BusinessDescription,
(Industry) and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsNon-Control/Non-Affiliate Investments 
47.5% of net assets: (j)ACV Auctions, Inc.(e)(g) Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) www.acvauctions.com

1,181,160 Series A preferred shares.


8/12/16



<1
%

$
163,000


$
282,356



0.9
%Centivo Corporation(e)(n) New York, NY. Tech-enabled health solutions company that helps self-insured employers and their employees save money and have a better experience.
(Health Care)

$100,000 convertible unsecured note at 2% due February 1, 2019.


7/5/17



0
%


100,000



100,000



0.3
%eHealth Global Technologies, Inc.
Henrietta, NY. eHealth Connect® improves health care delivery through
intelligently aggregated clinical record and images for patient referrals. (Health Care) www.ehealthtechnologies.com

(g)$1,500,000 term note at 10% due September 2, 2019. (n)$2,000,000 term note at 10% due September 2, 2019.


6/28/16



0
%


1,500,000 
2,000,000



1,500,000 
2,000,000



11.0
%Total eHealth










3,500,000



3,500,000Empire Genomics, LLC(g) Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)
www.empiregenomics.com

$1,101,489 senior secured convertible term notes at 10% due April 30, 2018. $250,000 promissory note at 12% due December 31, 2019. (i) Interest receivable
$65,906.


6/13/14



0
%


1,101,489
 250,000



1,101,489
 250,000



4.2
%Total Empire










1,351,489



1,351,489GoNoodle, Inc.(g)(m) (Formerly HealthTeacher, Inc.) Nashville, TN. Student engagement education software providing core
aligned physical activity breaks. (Software) www.gonoodle.com

$1,000,000 secured note at 12% due January 31, 2020, (1% Payment in Kind (PIK)).
Warrant for 47,324 Series C Preferred shares.


2/6/15



<1
%


1,029,330
 25



1,029,330
 25



3.2
%Total GoNoodle










1,029,355



1,029,355Mercantile Adjustment Bureau, LLC(g)
Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center)
www.mercantilesolutions.com

$1,199,039 subordinated secured note at 13% (3% for the calendar year 2017) due January 31, 2018.
(e)$150,000 subordinated debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests. Option for 1.5% membership interests. (i) Interest
receivable $55,983.


10/22/12



4
%


1,199,040
 150,000
 97,625



949,040
 
 



3.0
%Total Mercantile










1,446,665



949,040Outmatch Holdings, LLC(e)(g) (Chequed Holdings, LLC) Dallas, TX. Web based predictive employee selection and reference
checking. (Software) www.outmatch.com

2,641,899 Class P1 Units.
109,788 Class C1 Units.


11/18/10



4
%


2,140,0075,489



2,140,0075,489



6.7
%Total Outmatch










2,145,496



2,145,496PostProcess Technologies LLC(e)(g)
Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing)
www.postprocess.com

$300,000 convertible promissory note at 5% due July 28, 2018.


7/25/16



0
%


300,000



300,000



0.9
%  32




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry) and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity

Cost


(d)(f)FairValue


Percentof NetAssetsRheonix, Inc.(e)
Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care)
www.rheonix.com

9,676 common shares. (g)1,839,422 Series A preferred shares. (g) 50,593 common shares. (g) 589,420 Series B preferred shares.


10/29/09


4%

$
2,099,999

702,732


$
11,0002,165,999
59,000
702,732



9.2%Total Rheonix








2,802,731



2,938,731SocialFlow, Inc.(e)(g)
New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing.
(Software) www.socialflow.com

1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares. 717,772 Series C
preferred shares.


4/5/13


4%


500,000750,000
500,000



731,431839,648
500,221



6.5
%Total Social Flow








1,750,000



2,071,300Somerset Gas Transmission Company, LLC(e) Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com

26.5337 units.


7/10/02


3%


719,097



500,000



1.6
%Other Non-Control/Non-Affiliate Investments:DataView, LLC(Software)(e)

Membership Interest.








310,357







0.0
%UStec/Wi3 (Manufacturing)(e)

Common Stock.








100,500







0.0
%Subtotal Non-Control/Non-Affiliate Investments









$
15,718,690


$
15,167,767Affiliate Investments  53.3% of net assets(k)BeetNPath, LLC (Grainful)(e)(g) Ithaca, NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com

1,119,024 Series A-2 Preferred Membership Units.
1,032,918 Series B Preferred Membership Units.


10/20/14


9%

$
359,000
 261,277


$
359,000
 291,000



2.0
%Total BeetNPath








620,277



650,000Carolina Skiff LLC(g)
Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com

6.0825% Class A common membership interest.


1/30/04


7%


15,000



1,750,000



5.5
%ClearView Social, Inc.(e)(g) Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software)
www.clearviewsocial.com

312,500 Series seed plus preferred shares.


1/4/16


6%


200,000



200,000



0.6
%First Wave Products Group, LLC(e)(g) Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health Care)
www.firstwaveproducts.com

$500,000 senior term notes at 10% due July 31, 2017. $280,000 junior term notes at 10% due July 31, 2017. Warrant for 41,619 capital
securities.


4/19/12


7%


661,563 
316,469 
22,000



250,000 
 




0.8
%Total First Wave








1,000,032



250,000Genicon, Inc. Winter
Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care) www.geniconendo.com

(g)1,586,902 Series B preferred shares. (g)$2,000,000 promissory note at 8% due May 1, 2020. (g)Warrant for 250,000
common shares. (n)$1,000,000 promissory note at 8% due May 1, 2020. (n)Warrant for 125,000 common shares.


4/10/15


6%


1,000,000 
1,936,002
80,000 
967,777
40,000



1,000,000 
1,936,002
80,000 
967,777
40,000



12.6%Total Genicon








4,023,779



4,023,779  33




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry) and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsGiveGab, Inc.(e)(g)
Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations.
(Software) www.givegab.com

5,084,329 Series Seed preferred shares.


3/13/13



6%


$
616,221


$
424,314



1.3
%G-TEC Natural Gas Systems(e) Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing) www.gas-tec.com

16.639% Class A membership interest. 8% cumulative dividend.


8/31/99



17%



400,000



100,000



0.3
%Intrinsiq Materials, Inc.(e)(g) Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)
www.intrinsiqmaterials.com

4,161,747 Series A preferred shares.


9/19/13



12%



1,125,673



400,000



1.3
%Knoa Software, Inc.(g)
New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software) www.knoa.com

973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares. $48,466
convertible promissory note at 8% due May 9, 2018.


11/20/12



7%



750,000 
479,155 
48,466



750,000 
479,155 
48,466



4.0
%Total Knoa










1,277,621



1,277,621KnowledgeVision Systems, Inc.(e)(g) Lincoln, MA. Online presentation and training software. (Software)
www.knowledgevision.com

200,000 Series A-1 preferred shares. 214,285 Series A-2
preferred shares. 129,033 Series A-3 preferred shares.
Warrant for 46,743 Series A-3 shares. $50,000 subordinated promissory note at 8% payable on demand of majority of noteholders after August 31, 2017.


11/13/13



7%



250,000300,000
165,001
35,000 
 50,000



300,000
165,001
35,000 
 50,000



1.7
%Total KnowledgeVision










800,001



550,001Mezmeriz, Inc.(e)(g)
Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics
Developer) www.mezmeriz.com

1,554,565 Series Seed preferred shares.


1/9/08



14%



742,850



351,477



1.1
%Microcision LLC(g)(m)
Pennsauken Township, NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing)
www.microcision.com

$1,500,000 subordinated promissory note at 12% (1% PIK) due December 31, 2024.
15% Class A common membership interest.


9/24/09



15%



1,914,140




1,914,140




6.0
%Total Microcision










1,914,140



1,914,140New Monarch Machine Tool, Inc.(g) Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com

22.84 common shares.


9/24/03



15%



22,841



22,841



0.1
%OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Maker of patented golf balls. (Consumer Product) www.oncoregolf.com

150,000 Series AA preferred shares. $300,000 subordinated convertible promissory notes at 6% (10% for calendar year 2017) due January 24, 2018. (i) Interest receivable $50,342.


12/31/14



9
%


375,000 
 300,000



 
 300,000



0.9
%Total OnCore










675,000



300,000SciAps, Inc.(e)(g) Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com

187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371
Series B convertible preferred shares. 113,636 Series C preferred shares. 369,698 Series C-1 preferred shares.


7/12/13



8
%


1,500,000
 504,710
 250,000
175,000
399,274



700,000
 250,000
 250,000
175,000
399,274



5.6
%Total SciAps










2,828,984



1,774,274  34




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry) and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsSOMS Technologies, LLC(e)(g) Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com

5,959,490 Series B membership interests.


12/2/08



9
%

$
472,632


$
528,348



1.7
%Teleservices Solutions Holdings, LLC(e)(g)(m)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)
www.ipacesetters.com

250,000 Class B preferred units. 1,000,000 Class C preferred units. 80,000 Class D preferred units. 104,198 Class E
preferred units. PIK dividend for Series C and D at 12% and 14%, respectively.


5/30/14



6
%


250,0001,190,680
91,200 
 104,198




 
 



0.0
%Total Teleservices










1,636,078



Tilson Technology Management, Inc
Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com

(g)120,000 Series B preferred shares. 21,391 Series C convertible preferred shares. (g)$200,000 subordinated promissory note at
8% due September 28, 2021. (n)65,790 Series D preferred shares. (n)$750,000 subordinated promissory note at 8% due December 1, 2022.


1/20/15



11
%


600,000 
200,000 
200,000
750,000 
750,000



600,000 
200,000 
200,000
750,000 
750,000



7.8
%Total Tilson










2,500,000



2,500,000Subtotal Affiliate Investments











$
20,871,129


$
17,016,795Control Investments  0.3% of net assets(l)Advantage 24/7 LLC(e)(g)
Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company)
www.advantage24-7.com

53% Membership interest.


12/30/10



53
%

$
99,500


$
99,500



0.3
%Subtotal Control Investments











$
99,500


$
99,500TOTAL INVESTMENTS  101.1%











$
36,689,319


$
32,284,062OTHER ASSETS IN EXCESS OF LIABILITIES  (1.1%)
















(365,377
)NET ASSETS  100%















$
31,918,685  35




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2017, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more
restrictions on resale and are not freely marketable.  (b)
The Date Acquired column indicates the year in which the Corporation first acquired an investment in the company or a predecessor company.  (c)
Each equity percentage estimates the Corporations ownership interest in the applicable 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. If applicable, the symbol
<1% indicates that the Corporation holds an equity interest of less than one percent.  (d)
The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value Measurements and
Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2017, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the valuation policy
of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities 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 that 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 (see Note 2 Investments to the Consolidated
Financial Statements).  (e)
These investments are non-income producing. All other investments are income producing.
Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or are
not expected to do so going forward.  (f)
As of December 31, 2017, the total cost of investment securities was approximately $36.7 million. Net unrealized depreciation was approximately ($4.4)
million, which was comprised of $2.4 million of unrealized appreciation of investment securities and ($6.8) million of unrealized depreciation of investment securities. At December 31, 2017, the aggregate gross unrealized gain for federal
income tax purposes was $2.8 million and the aggregate gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized loss for federal income tax purposes was ($1.6) million based on a tax cost of
$33.9 million.  (g)
Rand Capital SBIC, Inc. investment.  (h)
Reduction in cost and value from previously reported balances reflects current principal repayment. There were no principal repayments during the year ended
December 31, 2017.  (i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporations Statement of Financial Position.  (j)
Non-Control/Non-Affiliate Investments are investments that are neither Control
Investments nor Affiliate Investments.  (k)
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 by the Corporation.  (l)
Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where
greater than 50% of the board representation is maintained.  (m)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.  (n)
Rand Capital SBIC II, L.P. investment.  36




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Investments in and Advances to Affiliates  Company

Type of Investment

December 31,2016 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2017 FairValue


NetRealizedGains(Losses)


Amount 
ofInterest/Dividend/FeeIncome(3)Control Investments:Advantage 24/7 LLC

53% Membership interest.

$
99,500


$



$



$
99,500


$



$
Total Control Investments

$
99,500


$
0


$
0


$
99,500






$
0Affiliate Investments:BeetNPath, LLC

1,119,024 Series A-2 Preferred Membership Units.
1,032,918 Series B Preferred Membership Units $150,000 convertible promissory note at 8%.

$
359,000
 
 150,000


$
291,000
 
 


$

 
 (150,000
)

$
359,000
 291,000
 0




 
 


$

 
 4,800Total BeetNPath


509,000



291,000



(150,000
)


650,000







4,800Carolina Skiff LLC

6.0825% Class A common membership interest.


1,100,000



650,000







1,750,000







178,532ClearView Social, Inc.

312,500 Series seed plus preferred shares.


200,000











200,000







First Wave Products
Group, LLC

$500,000 senior term notes at 10%. $280,000 junior term notes at 10%. Warrant for 41,619 capital securities.


250,000














250,000










Total First Wave


250,000











250,000







Genicon, Inc.

1,586,902 Series B preferred shares. $1,100,000 senior term loans at 12%. $600,000 term loan at 14%.
$2,000,000 promissory note at 8% $1,000,000
promissory note at 8% Warrant for 250,000 common shares Warrant for 125,000 common shares


1,000,0001,100,000
600,000









2,016,002
1,007,777
80,000
40,000



(1,100,000
(600,000
(80,000
(40,000


)
) )
)


1,000,000

1,936,002
967,777
80,000
40,000












50,234
32,200
129,752
60,860
Total Genicon


2,700,000



3,143,779



(1,820,000
)


4,023,779







273,046GiveGab, Inc.

5,084,329 Series Seed preferred shares.


424,314











424,314







G-TEC Natural Gas
Systems

16.639% Class A membership interest. 8% cumulative dividend


100,000











100,000







Intrinsiq Materials,
Inc.

4,161,747 Series A preferred shares.


780,000







(380,000
)


400,000







Knoa Software, Inc.

973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares. $48,466
convertible promissory note at 8%.



449,455 
48,466



750,000 29,700  




 




750,000
479,155 
48,466




 





 
3,877Total Knoa


497,921



779,700







1,277,621







3,877KnowledgeVision
Systems, Inc.

200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares. 129,033 Series A-3 preferred shares. $50,000 subordinated promissory note at 8%
Warrant for 46,743 Series A-3 shares.


300,000
165,001 

35,000




 
50,000





 





300,000
165,001 
50,000
35,000




 






 
3,748
Total Knowledge Vision


500,001



50,000







550,001







3,748  37




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company

Type of Investment

December 31,2016 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2017 FairValue


NetRealizedGains(Losses)


Amount 
ofInterest/Dividend/FeeIncome(3)Mezmeriz, Inc.

1,554,565 Series seed preferred shares.


351,477











351,477







Microcision LLC

$1,500,000 subordinated promissory note at 11%.


1,891,964



22,176







1,914,140







228,239New Monarch
Machine Tool, Inc.

22.84 common shares.


22,841











22,841







28,409OnCore Golf
Technology, Inc.

150,000 Series AA preferred shares. $300,000 subordinated convertible promissory notes at 6%.


 
300,000



 




 




 
300,000



 




 
29,211Total OnCore


300,000











300,000







29,211SciAps, Inc.

187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371
Series B convertible preferred shares. 113,636 Series C preferred shares. 369,698 Series C-1 preferred shares. $200,000 subordinated
promissory note at 10%. $100,000 secured subordinated convertible note at 10%.


1,000,000 
504,710
250,000

 
200,000 
100,000



 


175,000
399,274 
 




(300,000 
(254,710


 
(200,000 
(100,000
)  )   
 )
 )


700,000 
250,000
250,000
175,000
399,274 
 




 



 
 




 



 
4,731 
2,376Total SciAps


2,054,710



574,274



(854,710
)


1,774,274







7,107SOMS Technologies, LLC

5,959,490 Series B membership interests.


528,348











528,348







6,024Teleservices
Solutions Holdings, LLC

250,000 Class B shares.
1,000,000 Class C shares. 80,000
Class D preferred units. 104,198 Class E preferred units.


200,000
91,200
104,198









(200,000
( 91,200
(104,198
)
) )
















Total Teleservices


395,398







(395,398
)










Tilson Technology
Management, Inc.

120,000 Series B preferred shares. 21,391 Series C convertible preferred shares. $200,000 subordinated promissory note at
8%. 65,790 Series D preferred shares.
$750,000 subordinated promissory note at 8%.


600,000200,000
200,000







750,000
750,000








600,000200,000
200,000
750,000
750,000









20,000
16,000
1,579
5,096Total Tilson


1,000,000



1,500,000







2,500,000







42,675Total Affiliate Investments

$
13,605,974


$
7,010,929


($
3,600,108
)

$
17,016,795






$
805,668Total Control and Affiliate Investments

$
13,705,474


$
7,010,929


($
3,600,108
)

$
17,116,295






$
805,668 This schedule should be read in conjunction with the Corporations Consolidated Financial
Statements, including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.  (1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments, capitalized interest and the
accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.  38




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  (2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized
depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.  (3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate
categories, respectively.  39




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Industry Classification

Percentage of TotalInvestments (at fair value)as of December 31,
2017Healthcare


37.7
%Software


24.7Manufacturing


19.4Professional Services


7.7Consumer Product


4.6Contact Center


2.9Oil and Gas


1.6Electronics


1.1Marketing


0.3Total Investments


100
%  40




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016  (a) Company, Geographic Location, Business Description,
(Industry) and Website

Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsNon-Control/Non-Affiliate Investments 42.3% of net
assets:(j)ACV Auctions, Inc.(e)(g) Buffalo, NY. Live mobile auctions for new and used cars.
(Software) www.acvauctions.com

118,116 Series A preferred shares.


8/12/16



1
%

$
163,000


$
163,000



0.5
%Athenex, Inc.(e)(g)
(Formerly Kinex Pharmaceuticals, Inc.) Buffalo, NY. Specialty pharmaceutical and drug development. (Health Care)
www.athenex.com

46,296 common shares.


9/8/14



<1
%


143,285



416,664



1.3
%City Dining Cards, Inc. (Loupe)(e)(g)
Buffalo, NY. Customer loyalty technology company that helps businesses attract and retain customers. (Software)
www.loupeapp.io

9,525.25 Series B preferred shares.


9/1/15



4
%


500,000



500,000



1.5
%eHealth Global Technologies, Inc.(g)
Henrietta, NY. eHealth Connect® improves health care delivery through
intelligently aggregated clinical record and images for patient referrals. (Health Care) www.ehealthtechnologies.com

$1,500,000 term note at 9% due September 2, 2019.


6/28/16



0
%


1,500,000



1,500,000



4.6
%Empire Genomics, LLC(e)(g) Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)
www.empiregenomics.com

$900,000 senior secured convertible term notes at 10% due April 1, 2017. $250,000 promissory note at 12% due December 31, 2019. (i) Interest receivable
$200,339.


6/13/14



0
%


900,000
 250,000



900,000
 250,000



3.5
%Total Empire










1,150,000



1,150,000GoNoodle, Inc.(g) (Formerly HealthTeacher, Inc.) Nashville, TN. Student engagement education software
providing core aligned physical activity breaks. (Software) www.gonoodle.com

$1,000,000 secured note at 12% due January 31, 2020, (1% Payment in Kind (PIK)).
Warrant for 47,324 Series C Preferred shares.


2/6/15



<1
%


1,019,101 
25



1,019,101 
25



3.1
%Total GoNoodle










1,019,126



1,019,126Mercantile Adjustment Bureau, LLC(g)
Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center)
www.mercantilesolutions.com

$1,099,039 subordinated secured note at 13% (3% for the calendar year 2016) due October 30, 2017.
(e)$150,000 subordinated debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests. Option for 1.5% membership interests.


10/22/12



4
%


1,090,690
 150,000
 97,625



1,090,690
 0
 0



3.3
%Total Mercantile










1,338,315



1,090,690Outmatch Holdings, LLC(e)(g) (Chequed Holdings, LLC) Dallas, TX. Web based predictive employee selection and reference
checking. (Software) www.outmatch.com

2,446,199 Class P1 Units.
109,788 Class C1 Units.


11/18/10



4
%


2,140,0075,489



2,140,0075,489



6.6
%Total Outmatch










2,145,496



2,145,496PostProcess Technologies LLC(e)(g)
Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing)
www.postprocess.com

$300,000 convertible promissory note at 5% due July 28, 2018.


7/25/16



0
%


300,000



300,000



0.9
%  41




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  (a) Company, Geographic Location, Business Description,
(Industry) and Website

Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsRheonix, Inc.(e) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com

9,676 common shares. (g)1,839,422 Series A preferred shares. (g) 50,593 common shares. (g) 589,420 Series B preferred shares.


10/29/09



4
%

$
2,099,999

702,732


$
11,0002,165,999
59,000
702,732



9.0
%Total Rheonix










2,802,731



2,938,731SocialFlow, Inc.(e)(g) New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)
www.socialflow.com

1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares. 717,772 Series C
preferred shares.


4/5/13



4
%


500,000750,000
500,000



731,431839,648
500,221



6.3
%Total Social Flow










1,750,000



2,071,300Somerset Gas Transmission Company, LLC(e) Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com

26.5337 units.


7/10/02



3
%


719,097



500,000



1.5
%Other Non-Control/Non-Affiliate
Investments:DataView, LLC(Software)(e)

Membership Interest.










310,357







0.0
%UStec/Wi3 (Manufacturing)(e)

Common Stock.










100,500







0.0
%Subtotal Non-Control/Non-Affiliate
Investments











$
13,941,907


$
13,795,007Affiliate Investments  41.7% of net assets(k)BeetNPath, LLC (Grainful)(e)(g) Ithaca, NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com

1,119,024 Series A-2 Preferred Membership Units.
$150,000 convertible promissory note at 8% due September 1, 2017.


10/20/14



9
%


359,000
 150,000



359,000
 150,000



1.6
%Total BeetNPath










509,000



509,000Carolina Skiff LLC(g) Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats.
(Manufacturing)
www.carolinaskiff.com

6.0825% Class A common membership interest.


1/30/04



7
%


15,000



1,100,000



3.4
%ClearView Social, Inc.(e)(g) Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software)
www.clearviewsocial.com

312,500 Series seed plus preferred shares.


1/4/16



6
%


200,000



200,000



0.6
%First Wave Products Group, LLC(e)(g)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health
Care) www.firstwaveproducts.com

$500,000 senior term notes at 10% due January 31, 2017. $280,000 junior term notes at 10% due January 31, 2017. Warrant for 41,619 capital
securities.


4/19/12



7
%


661,563
 316,469
22,000



250,000
 0
0



0.8
%Total First Wave










1,000,032



250,000  42




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  (a) Company, Geographic Location, Business Description,
(Industry) and Website

Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsGenicon, Inc.(g) Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care)
www.geniconendo.com

1,586,902 Series B preferred shares. $1,100,000 promissory note at 12% due April 1, 2019. $600,000 promissory note at 14% due
March 31, 2018.


4/10/15



6
%

$
1,000,000 
1,100,000 
600,000


$
1,000,000 
1,100,000 
600,000



8.3
%Total Genicon










2,700,000



2,700,000GiveGab, Inc.(e)(g) Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)
www.givegab.com

5,084,329 Series Seed preferred shares.


3/13/13



7
%


616,221



424,314



1.3
%G-TEC Natural Gas Systems(e)
Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)
www.gas-tec.com

16.930% Class A membership interest. 8% cumulative dividend.


8/31/99



18
%


400,000



100,000



0.3
%Intrinsiq Materials, Inc.(e)(g) Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)
www.intrinsiqmaterials.com

4,161,747 Series A preferred shares.


9/19/13



12
%


1,125,673



780,000



2.4
%Knoa Software, Inc.(e)(g) New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software) www.knoa.com

973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares. $48,466
convertible promissory note at 8% due May 9, 2018.


11/20/12



7
%


750,000
479,155 
48,466



0
449,455 
48,466



1.5
%Total Knoa










1,277,621



497,921KnowledgeVision Systems, Inc.(e)(g)
Lincoln, MA. Online presentation and training software. (Software) www.knowledgevision.com

200,000 Series A-1 preferred shares. 214,285 Series A-2
preferred shares. 129,033 Series A-3 preferred shares.
Warrant for 46,743 Series A-3 shares.


11/13/13



7
%


250,000300,000
165,001
35,000



0300,000
165,001
35,000



1.5
%Total KnowledgeVision










750,001



500,001Mezmeriz, Inc.(e)(g) Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)
www.mezmeriz.com

1,554,565 Series Seed preferred shares.


1/9/08



14
%


742,850



351,477



1.1
%Microcision LLC(g) Pennsauken Township, NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing) www.microcision.com

$1,500,000 subordinated promissory note at 12% (1% PIK) due December 31, 2024.
15% Class A common membership interest.


9/24/09



15
%


1,891,964




1,891,964




5.8
%Total Microcision










1,891,964



1,891,964  43




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  (a) Company, Geographic Location, Business Description,
(Industry) and Website

Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsNew Monarch Machine Tool, Inc.(g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing) www.monarchmt.com

22.84 common shares.


9/24/03



15
%

$
22,841


$
22,841



0.1
%OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product) www.oncoregolf.com

150,000 Series AA preferred shares. $300,000 subordinated convertible promissory notes at 6% due January 24, 2017.


12/31/14



7
%


375,000300,000



0300,000



0.9
%Total OnCore










675,000



300,000SciAps, Inc.(e)(g) Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com

187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371
Series B convertible preferred shares. $200,000 subordinated convertible note at 10% due April 8, 2017.
$100,000 secured subordinated convertible note at 10% due December 31, 2017.


7/12/13



9
%


1,500,000
 504,710
 250,000
 200,000
  100,000



1,000,000
 504,710
 250,000
 200,000
  100,000



6.3
%Total SciAps










2,554,710



2,054,710SOMS Technologies, LLC(g) Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com

5,959,490 Series B membership interests.


12/2/08



9
%


472,632



528,348



1.6
%Teleservices Solutions Holdings, LLC(e)(g)(m)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)
www.ipacesetters.com

250,000 Class B preferred units. 1,000,000 Class C preferred units. 80,000 Class D preferred units.
104,198 Class E preferred units. PIK
dividend for Series C and D at 12% and 14%, respectively.


5/30/14



6
%


250,0001,190,680
91,200
104,198



0200,000
91,200
104,198



1.2
%Total Teleservices










1,636,078



395,398Tilson Technology Management, Inc.(g)
Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com

120,000 Series B preferred shares. 21,391 Series C convertible preferred shares. $200,000 subordinated promissory note at 8% due
September 28, 2021.


1/20/15



8
%


600,000 
200,000 
200,000



600,000 
200,000 
200,000



3.1
%Total Tilson










1,000,000



1,000,000Subtotal Affiliate Investments











$
17,589,623


$
13,605,974  44




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  (a) Company, Geographic Location, Business Description,
(Industry) and Website

Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsControl Investments  0.3% of net assets(l)Advantage 24/7 LLC(e)(g) Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com

53% Membership interest.


12/30/10



53
%

$
99,500


$
99,500



0.3
%Subtotal Control Investments











$
99,500


$
99,500TOTAL INVESTMENTS  84.3%











$
31,631,030


$
27,500,481OTHER ASSETS IN EXCESS OF LIABILITIES  15.7%
















5,128,882NET ASSETS  100%















$
32,629,363  45




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2016, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more
restrictions on resale and are not freely marketable.  (b)
The Date Acquired column indicates the year in which the Corporation first acquired an investment in the company or a predecessor company.  (c)
Each equity percentage estimates the Corporations ownership interest in the applicable 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. If applicable, the symbol
<1% indicates that the Corporation holds an equity interest of less than one percent.  (d)
The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value Measurements and
Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2016, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the valuation policy
of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the month. Restricted securities 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 that 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 (see Note 2 Investments to the Consolidated Financial
Statements).  (e)
These investments are non-income producing. All other investments are income producing.
Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or are
not expected to do so going forward.  (f)
As of December 31, 2016, the total cost of investment securities was approximately $31.6 million. Net unrealized depreciation was approximately ($4.1)
million, which was comprised of $1.9 million of unrealized appreciation of investment securities and ($6.0) million of unrealized depreciation of investment securities. At December 31, 2016, the aggregate gross unrealized gain for federal
income tax purposes was $2.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($5.4) million. The net unrealized loss for federal income tax purposes was ($3.3) million based on a tax cost of
$30.8 million.  (g)
Rand Capital SBIC, Inc. investment.  (h)
Reduction in cost and value from previously reported balances reflects current principal repayment. There were no principal repayments during the three months ended
December 31, 2016.  (i)
Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable on the Corporations Statement of Financial
Position.  (j)
Non-Control/Non-Affiliate Investments are investments that are neither Control
Investments nor Affiliate Investments.  (k)
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 by the Corporation.  (l)
Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where
greater than 50% of the board representation is maintained.  (m)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.  46




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  Investments in and Advances to Affiliates  Company

Type of Investment

December 31,2015 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2016 FairValue


Amount 
ofInterest/Dividend/Fee Income(3)Control Investments:Advantage 24/7 LLC

53% Membership interest.

$
99,500


$



$



$
99,500


$
Gemcor II, LLC

$1,000,000 subordinated promissory note at 15%. 31.25 membership units. Escrow receivable due from sale of business.


416,97213,400,000









(416,972(13,400,000

))







11,8282,000
Total Gemcor


13,816,972







(13,816,972
)






13,828Total Control Investments

$
13,916,472


$
0


($
13,816,972
)

$
99,500


$
13,828Affiliate Investments:BeetNPath, LLC

1,119,024 Series A-2 Preferred Membership Units.
$150,000 convertible promissory note at 8%.

$
359,000


$
150,000


$



$
359,000150,000


$
6,477Total BeetNPath


359,000



150,000







509,000



6,477Carolina Skiff LLC

6.0825% Class A common membership interest.


600,000



500,000







1,100,000



131,785ClearView Social, Inc.

312,500 Series seed plus preferred shares.






200,000







200,000



First Wave Products Group, LLC

$500,000 senior term notes at 10%. $280,000 junior term notes at 10%. Warrant for 41,619 capital securities.


250,000














250,000




834
Total First Wave


250,000











250,000



834Genicon, Inc.

1,586,902 Series B preferred shares. $1,100,000 senior term loans at 12%. $600,000 term loan at 14%.


1,000,000




1,100,000
600,000








1,000,0001,100,000
600,000



3,028109,700
28,700Total Genicon


1,000,000



1,700,000







2,700,000



141,428GiveGab, Inc.

5,084,329 Series Seed preferred shares.


424,314











424,314



G-TEC Natural Gas Systems

17.845% Class A membership interest. 8% cumulative dividend.


100,000











100,000



Intrinsiq Materials, Inc.

4,161,747 Series A preferred shares. $95,000 convertible promissory note at 8%.


95,000



780,000



(95,000
)


780,000



6,689Total Intrinsiq


95,000



780,000



(95,000
)


780,000



6,689Knoa Software, Inc.

973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares. $48,466
convertible promissory note at 8%.


381,503490,752





48,466



(381,503( 41,297

))


449,455
48,466




2,499Total Knoa


872,255



48,466



(422,800
)


497,921



2,499  47




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  Company

Type of Investment

December 31,2015 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2016 FairValue


Amount 
ofInterest/Dividend/Fee Income(3)Affiliate Investments:KnowledgeVision Systems, Inc.

200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares. 129,033 Series A-3 preferred shares. Warrant for 46,743 Series A-3
shares.


300,000
165,001
35,000















300,000
165,001
35,000





Total Knowledge Vision


500,001











500,001



Mezmeriz, Inc.

1,554,565 Series seed preferred shares.


351,477











351,477



Microcision LLC

$1,500,000 subordinated promissory note at 11%. 15% Class A common membership interest.


1,891,964











1,891,964



211,269Total Microcision


1,891,964











1,891,964



211,269New MonarchMachine Tool, Inc.

22.84 common shares.


22,841











22,841



29,409OnCore GolfTechnology, Inc.

150,000 Series AA preferred shares. $300,000 subordinated convertible promissory notes at 6%.


187,500150,000



150,000



(187,500
)


300,000



17,186Total OnCore


337,500



150,000



(187,500
)


300,000



17,186Rheonix, Inc.

9,676 common shares. 1,839,422
Series A preferred shares. 50,593 common shares. 589,420 Series B preferred shares.


11,0002,165,999
59,000
702,732









(11,000(2,165,999
(59,000
(702,732
))
) )










Total Rheonix


2,938,731







(2,938,731
)






SciAps, Inc.

187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371
Series B preferred shares. $200,000 subordinated promissory note at 10%. $100,000 secured subordinated convertible note at 10%.


1,000,000504,710
250,000







200,000
100,000










1,000,000504,710
250,000
200,000
100,000





14,611
2,555Total SciAps


1,754,710



300,000







2,054,710



17,166SOMS Technologies, LLC

5,959,490 Series B membership interests.


528,348











528,348



13,464Statisfy, Inc.

65,000 Series seed preferred shares. Warrant for 1,950,000 Series seed preferred shares.


20,968629,032







(20,968(629,032
))






Total Statisfy


650,000







(650,000
)






Teleservices Solutions Holdings, LLC

250,000 Class B shares.
1,000,000 Class C shares. 80,000
Class D preferred units. 104,198 Class E preferred units.


1,190,680
91,200
104,198









(990,680


)


200,000
91,200
104,198




Total Teleservices


1,386,078







(990,680
)


395,398



  48




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  Company

Type of Investment

December 31,2015 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2016 FairValue


Amount 
ofInterest/Dividend/Fee Income(3)Tilson TechnologyManagement, Inc.

12 Series B preferred shares.
21,390 Series C convertible preferred shares.
$200,000 subordinated promissory note at 8%.


600,000




200,000
200,000








600,000200,000
200,000



16,250
4,164Total Tilson


600,000



400,000







1,000,000



20,414Total Affiliate Investments

$
14,662,219


$
4,228,466


($
5,284,711
)

$
13,605,974


$
598,620Total Control and Affiliate Investments

$
28,578,691


$
4,228,466


($
19,101,683
)

$
13,705,474


$
612,448 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.  (1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investment, follow on investments, capitalized interest and the
accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.  (2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net increases in unrealized
depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.  (3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in Control or Affiliate
categories, respectively.  49




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 (Continued)  Industry Classification

Percentage of TotalInvestments (at fair value)as of December 31,
2016Healthcare


32.6
%Software


27.3Manufacturing


22.7Contact Center


5.4Consumer Product


4.9Professional Services


3.6Oil and Gas


1.8Electronics


1.3Marketing


0.4Total Investments


100
%  50




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS SCHEDULE For the Five Years Ended December 31, 2017, 2016, 2015, 2014 and 2013 The following is a schedule of financial highlights for the years ended December 31, 2017, 2016, 2015, 2014 and 2013:  2017


2016


2015


2014


2013Per Share Data:Income from investment operations(1):Investment income

$
0.23


$
0.16


$
0.45


$
0.40


$
0.38Expenses


0.32



0.54



0.29



0.39



0.37Investment (loss) gain before income taxes


(0.09
)


(0.38
)


0.16



0.01



0.01Income tax (benefit) expense


(0.09
)


(0.13
)


0.02



0.01



(0.01
)Net investment (loss) gain


(0.00
)


(0.25
)


0.14



0.00



0.02Purchase of treasury stock(2)


0.00



0.00



0.00



0.02



0.04Net realized and unrealized (loss) gain on investments


(0.11
)


0.06



0.10



0.71



0.42(Decrease) increase in net asset value


(0.11
)


(0.19
)


0.24



0.73



0.48Net asset value, beginning of year, based on weighted average shares


5.16



5.35



5.11



4.38



3.90Net asset value, end of year, based on weighted average shares

$
5.05


$
5.16


$
5.35


$
5.11


$
4.38Per share market value, end of year

$
3.02


$
3.16


$
3.77


$
4.09


$
3.07Total return based on market value


(4.43
%)


(16.1
%)


(7.8
%)


33.2
%


31.2
%Total return based on net asset value


(2.18
%)


(3.62
%)


4.64
%


15.26
%


8.87
%Supplemental Data:Ratio of expenses before income taxes to average net assets


6.23
%


10.23
%


5.49
%


8.27
%


8.76
%Ratio of expenses including taxes to average net assets


6.29
%


8.48
%


7.89
%


16.28
%


14.03
%Ratio of net investment (loss) gain to average net assets


(0.06
%)


(3.62
%)


2.55
%


0.07
%


0.57
%Portfolio turnover


18.1
%


18.4
%


21.4
%


21.5
%


17.9
%Net assets end of year

$
31,918,685


$
32,629,363


$
33,853,660


$
32,353,441


$
28,069,332Weighted average shares outstanding, end of year


6,321,988



6,325,792



6,328,538



6,391,175



6,513,385  (1)
Per share data are based on shares outstanding and results are rounded.  (2)
Net increase is due to purchase of common stock at prices less than beginning of period net asset value per share.  51




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Rand Capital Corporation (Rand) was incorporated under the laws of New York
in 1969. Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was registered under Section 8 of the Investment Company Act of 1940 (the 1940
Act). In 2001, Rand elected to be treated as a business development company (BDC) under the 1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the purpose of operating it as a small business investment company
(SBIC) licensed by the U.S. Small Business Administration (SBA). The subsidiary received an SBA license to operate as an SBIC in 2002. The subsidiary, which had been organized as a Delaware limited partnership, was converted
into a New York corporation on December 31, 2008, at which time its operations as a licensed SBIC were continued by the newly formed corporation under the name of Rand Capital SBIC, Inc. (Rand SBIC). In 2012, the SEC granted an
Order of Exemption for Rand with respect to the operations of Rand SBIC. At that time, although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. Upon Rands receipt of the order granting
the exemptions, Rand SBIC filed an election to be regulated as a BDC under the 1940 Act. During 2017, we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (Rand SBIC II) and began making investments from this SBIC subsidiary. The
following discussion describes the operations of Rand and its wholly-owned subsidiaries Rand SBIC and Rand SBIC II (collectively, the Corporation). Principles of Consolidation  The consolidated financial statements include the accounts of Rand and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. Fair Value of Financial Instruments  The carrying amounts
reported in the consolidated statement of financial position of cash, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Fair Value of SBA Debentures  In September 2017, the SBIC Funding Corporation completed a pooling of SBA
debentures that have a coupon rate of 2.518%, excluding a mandatory SBA annual charge estimated to be 0.804%, resulting in a total estimated fixed rate for ten years of 3.322%. The carrying value of Rands SBA debentures is a reasonable
estimate of fair value because their stated interest rates approximate current interest rates that are available for debt with similar terms Investment Classification In accordance with the provisions of the 1940 Act, the Corporation classifies its investments by level of control. Under the 1940 Act Control
Investments are investments in companies that the Corporation is deemed to Control if it owns more than 25% of the voting securities of the company or has greater than 50% representation on the companys board. Affiliate
Investments are companies in which the Corporation owns between 5% and 25% of the voting securities. Non-Control/Non-Affiliate Investments are those
companies that are neither Control Investments nor Affiliate Investments. Investments  Investments are valued at fair value as determined in good faith by the management of the
Corporation and approved by the Board of Directors. The Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining fair value in good faith. As a result, determining fair value
requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistent valuation process. The Corporation analyzes and values each investment quarterly, and records unrealized depreciation
for an investment that it believes has become impaired, including where collection of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if
it believes that an underlying portfolio company has appreciated in value and, therefore, its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been used had a ready market for
the investments existed and these differences could be material if the Corporations assumptions and judgments differ from results of actual liquidation events. See Note 2 Investments.  52




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Qualifying Assets All of the Corporations
investments have been made in privately held small business enterprises, that were not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act. Revenue Recognition Interest Income  Interest income is recognized on the
accrual basis except where the investment is in default or otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate. Rand SBICs interest accrual is also regulated by the SBAs Accounting Standards and Financial Reporting
Requirements for Small Business Investment Companies. Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there
is substantial doubt about a portfolio companys ability to continue as a going concern or a loan is in default for more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio
investment and the collectability of any accrued interest. The following investments remain on
non-accrual status: G-TEC Natural Gas Systems (G-Tec), First Wave Products Group, LLC (First Wave) and a portion of the
Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance. The Corporation holds debt securities in its
investment portfolio that contain payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement,
is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Revenue Recognition  Dividend Income The Corporation may receive distributions from
portfolio companies that are limited liability companies or corporations and these distributions are classified as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be
reasonably estimated. The Corporation holds preferred equity securities that contain cumulative dividend provisions.
Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred
equity is redeemed. Revenue Recognition  Fee Income Consists of the revenue
associated with the amortization of financing fees charged to the portfolio companies upon successful closing of SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of
financing fees was $24,091, $22,634 and $18,333 for the years ended December 31, 2017, 2016 and 2015, respectively and is estimated to be approximately $21,000 in 2018, $15,000 in 2019 and $2,000 in 2020. The board fees were $1,000, $4,000 and
$11,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Realized Gain or Loss and Unrealized
Appreciation or Depreciation of Investments Amounts reported as realized gains and losses are measured by the difference between the proceeds from the sale or exchange and the cost basis of the investment without regard to
unrealized gains or losses recorded in prior periods. Proceeds held in escrow are reported in other assets. The cost of securities that have, in managements judgment, become worthless are written off and reported as realized losses when
appropriate. Unrealized appreciation or depreciation reflects the difference between the valuation of the investments and the cost basis of the investments. Original Issue Discount  Investments may include original issue discount, or OID, income. This occurs, for example, when the Corporation purchases a warrant and a
note from a portfolio company simultaneously, which requires an allocation of a portion of the purchase price to the warrant and reduces the purchase price allocated to the note by an equal amount in the form of a note discount or OID. The note is
reported net of the  53




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  OID and the OID is accreted into interest income over the life of the loan. The Corporation recognized $32,129, $9,996 and $17,339 in OID income for the years ended December 31, 2017, 2016
and 2015, respectively. OID income is estimated to be approximately $41,000 for 2018. Deferred Debenture
Costs  SBA debenture origination and commitment costs, which are netted against the debenture obligation (See Note 5 SBA Debenture Obligations), will be amortized ratably over the terms of the SBA debentures.
Amortization expense was $27,400 for each of the years ended December 31, 2017, 2016 and 2015, respectively. Amortization expense on currently outstanding debentures for the next five years is estimated to average $26,000 per year. Net Assets Per ShareNet assets per share are based on the number of shares of common stock
outstanding. There are no common stock equivalents outstanding. Supplemental Cash Flow
Information  Income taxes paid during the years ended December 31, 2017, 2016 and 2015 amounted to $486,769, $2,560,614 and $2,402,317, respectively. Interest paid during the years ended December 31, 2017, 2016 and
2015 was $282,875, $283,650 and $269,066, respectively. During 2017, 2016 and 2015, the Corporation converted $269,445, $19,252 and $212,426, respectively, of interest receivable and
payment-in-kind (PIK) interest into debt investments. During the year ended December 31, 2016, the Corporation recorded one escrow receivable for $1,100,000 from
the sale of Gemcor II LLC, which was collected during 2017. During the year ended December 31, 2016, the Corporation collected $1,510,248 in escrow receivable from BinOptics Corporation. During 2015, the Corporation collected $32,962 in escrow
receivable from Ultra-Scan Corporation. Concentration of Credit and Market Risk  The
Corporations financial instruments potentially subject it to concentrations of credit risk. Cash is invested with banks in amounts which, at times, exceed insured limits. Management does not anticipate
non-performance by the banks. As of December 31, 2017, 47% of the
Corporations total investment value was held in debt and equity securities of five portfolio companies. As of December 31, 2016, 43% of the Corporations total investment value was held in debt and equity securities in five portfolio
companies. Income Taxes The Corporation reviews the tax positions it has taken to determine if
they meet the more likely than not threshold for the benefit of the tax position to be recognized in the financial statements. A tax position that fails to meet the more likely than not recognition threshold will result in either a
reduction of a current or deferred tax asset or receivable, or the recording of a current or deferred tax liability. See Note 4 Income Taxes. Accounting Estimates  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported 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. SBA
Debenture The Corporation had $8,000,000 in outstanding SBA debentures at December 31, 2017 and December 31, 2016 with a weighted average interest rate of 3.54% as of December 31, 2017. The $8,000,000 in
outstanding SBA debentures matures from 2022 through 2025.  54




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  As a requirement of being licensed the SBA, Rand SBIC has accepted the SBAs
standard default language which states that Rand SBIC has consented to the exercise by the SBA of all rights of the SBA under 13 C.F.R. 107.1810(i) SBA remedies for automatic events of default and has agreed to take all actions that the
SBA may so require, which may include automatic consent to the appointment of the SBA or its designee as receiver under Section 311(c) of the Small Business Investment Act of 1958. NOTE 2.  INVESTMENTS The Corporations investments are carried
at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. Loan investments are defined as traditional loan financings with no equity features. Debt investments are
defined as debt financings that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A financing may also be categorized as a debt financing if it is accompanied by the direct
purchase of an equity interest in the company. The Corporation uses several approaches to determine the fair value of an
investment. The main approaches are:  

Loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation
proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of the investment. A
loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.  

Equity securities may be valued using the asset approach, market approach or income approach. The asset
approach involves estimating the liquidation value of the portfolio companys assets. To the extent the value exceeds the remaining principal amount of the debt or loan securities of the portfolio company, the fair value of such securities
is generally estimated to be their cost. However, where value is less than the remaining principal amount of the loan and debt securities, the Corporation may discount the value of an equity security. The market approach uses observable prices
and other relevant information generated by similar market transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a
subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an investment. ASC 820 classifies the inputs used to measure fair value into the following hierarchy: Level 1:    Quoted prices in active markets for identical assets or liabilities, used in the Corporations
valuation at the measurement date. Level 2:    Quoted prices for similar assets or liabilities in
active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3:    Unobservable and significant inputs to determining the fair value. Financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Any changes in estimated fair value are recorded in the statement of operations as Net (decrease) increase in unrealized depreciation or appreciation on investments.  55




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Under the valuation policy, the Corporation values unrestricted publicly traded
companies, categorized as Level 1 investments, at the average closing bid price for the last three trading days of the reporting period. There were no Level 1 investments as of December 31, 2017. In the valuation process, the Corporation values restricted securities, categorized as Level 3 investments, using information from
these portfolio companies, which may include:  

Audited and unaudited statements of operations, balance sheets and operating budgets;  

Current and projected financial, operational and technological developments of the portfolio company;  

Current and projected ability of the portfolio company to service its debt obligations;  

The current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur;  

Pending debt or capital restructuring of the portfolio company;  

Current information regarding any offers to purchase the investment, or recent fundraising transactions;  

Current ability of the portfolio company to raise additional financing if needed;  

Changes in the economic environment which may have a material impact on the operating results of the portfolio company;  

Internal circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio company;  

Qualitative assessment of key management;  

Contractual rights, obligations or restrictions associated with the investment; and  

Other factors deemed relevant by the Corporations management to assess valuation. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that
led to a reduction in valuation are overcome, the valuation may be readjusted. Equity Securities Equity Securities may include preferred stock, common stock, warrants and limited liability company membership
interests. The significant unobservable inputs used in the fair value measurement of the Corporations equity investments
are earnings before interest, tax and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the debt and senior equity preferences that may exist in a deemed
liquidation event. Standard industry multiples may be used when available; however, the Corporations portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match
the specific financial and operational performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes in any of
these unobservable inputs may result in a significantly higher or lower fair value estimate. Another key factor used in
valuing equity investments is a significant recent arms-length equity transaction entered into by the portfolio company with a sophisticated, non-strategic, unrelated, new investor. The terms of these equity
transactions may not be identical to the equity transactions between the portfolio company and the Corporation, and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to
quantify.  56




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  When appropriate the Black-Scholes pricing model is used to estimate the fair value of
warrants for accounting purposes. This model requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation of minority equity positions in small private and early stage
companies. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate. For recent investments of less than one year old, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified
causing the Corporation to depart from this basis. Loan and Debt Securities The significant unobservable inputs used in the fair value measurement of the Corporations loan and debt securities are the
financial and operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio companys products or services. These inputs will likely provide
an indicator as to the probability of principal recovery of the investment. The Corporations loan and debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where
appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair market value
inputs are identified causing the Corporation to depart from this basis. The following table provides a summary of the
significant unobservable inputs used to determine the fair value of the Corporations Level 3 portfolio investments as of December 31, 2017:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate Equity

$



$
25


$
2,145,496


$
5,792,387


$
7,937,908Non-Control/Non-Affiliate Debt

$
949,040



2,380,819



3,500,000



400,000



7,229,859Total
Non-Control/Non-Affiliate

$
949,040


$
2,380,844


$
5,645,496


$
6,192,387


$
15,167,767Affiliate Equity

$
4,420,000


$
22,841


$
5,156,092


$
1,001,477


$
10,600,410Affiliate Debt


5,767,919







98,466



550,000



6,416,385Total Affiliate

$
10,187,919


$
22,841


$
5,254,558


$
1,551,477


$
17,016,795Control Equity

$



$



$
99,500


$



$
99,500Control Debt


















Total Control

$



$



$
99,500


$



$
99,500Total Level 3 Investments

$
11,136,959


$
2,403,685


$
10,999,554


$
7,743,864


$
32,284,062Range


4X-9X



1X



0.5X-6.2X



Not ApplicableUnobservable Input


EBITDAMultiple



AssetValue



RevenueMultiple



TransactionPriceWeighted Average


5.8X



1X



2.3X



Not Applicable  57




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The following table provides a summary of the components of Level 1, 2 and 3 Assets
Measured at Fair Value on a Recurring Basis at December 31, 2017:  Fair Value Measurements at Reported Date UsingDescription

December 31,2017


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservableInputs
(Level 2)


Other 
SignificantUnobservableInputs(Level
3)Loan investments

$
3,550,000


$



$



$
3,550,000Debt investments


10,096,244











10,096,244Equity investments


18,637,818











18,637,818Total

$
32,284,062


$



$



$
32,284,062 The following table provides a summary of changes in Assets Measured at Fair Value on a Recurring Basis
Using Significant Unobservable Inputs (Level 3) for the year ended December 31, 2017:  Fair Value Measurements Using
SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2016, of Level 3 Assets

$
3,200,000


$
6,700,221


$
17,600,260


$
27,500,481Realized Loss included in net change in net assets from operations:City Dining Cards, Inc. (Loupe)










(500,000
)


(500,000
)Total Realized Loss










(500,000
)


(500,000
)Unrealized Gains and Losses included in net change in netassets from operations:ACV Auctions, Inc. (ACV Auctions)










119,356



119,356BeetNPath, LLC (Beetnpath)










29,723



29,723Carolina Skiff LLC (Carolina Skiff)










650,000



650,000Intrinsiq Material, Inc. (Intrinsiq)










(380,000
)


(380,000
)Knoa Software, Inc. (Knoa)










779,700



779,700Mercantile Adjustment Bureau, LLC (Mercantile)






(250,000
)






(250,000
)SciAps, Inc. (Sciaps)










(554,710
)


(554,710
)Teleservices Solutions Holdings, LLC (Teleservices)










(395,398
)


(395,398
)Total Unrealized Gains and Losses






(250,000
)


248,671



(1,329
)Purchases of Securities/Changes to Securities/Non-cash conversions:Beetnpath






100,000



11,277



111,277Centivo Corporation (Centivo)






100,000







100,000eHealth Global Technologies, Inc. (eHealth)


2,000,000











2,000,000Empire Genomics, LLC (Empire Genomics)






201,489







201,489Genicon, Inc. (Genicon)


300,000



903,779



120,000



1,323,779GoNoodle, Inc. (GoNoodle)






10,229







10,229KnowledgeVision Systems, Inc. (Knowledge Vision)


50,000











50,000Mercantile






108,350







108,350Microcision LLC (Microcision)






22,176







22,176Sciaps










274,274



274,274Tilson Technology Management, Inc. (Tilson)






750,000



750,000



1,500,000Total Purchases of Securities/Changes to Securities/Non-cash
conversions


2,350,000



2,196,023



1,155,551



5,701,574Transfers within Level 3


(2,000,000
)


1,450,000



550,000



Transfers out of Level 3










(416,664
)


(416,664
)Ending Balance, December 31, 2017, of Level 3 Assets

$
3,550,000


$
10,096,244


$
18,637,818


$
32,284,062Decrease in unrealized depreciation on investments for the period included in changes in net assets


($
274,708
)Net realized gain on investments for the period included in changes in net assets


$
138,240  58




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The following table provides a summary of the significant unobservable inputs used to
determine the fair value of the Corporations Level 3 portfolio investments as of December 31, 2016:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


Asset 
ApproachLiquidationMethod


TotalsNon-Control/Non-Affiliate Equity

$



$



$
2,571,325


$
6,163,891


$




8,735,216Non-Control/Non-Affiliate Debt

$
1,090,690







3,669,101







300,000



5,059,791Total
Non-Control/Non-Affiliate

$
1,090,690


$



$
6,240,426


$
6,163,891


$
300,000


$
13,795,007Affiliate Equity

$
2,023,746


$
22,841


$
3,163,166


$
2,755,791


$
800,000


$
8,765,544Affiliate Debt


1,891,964







1,048,466



1,700,000



200,000



4,840,430Total Affiliate

$
3,915,710


$
22,841


$
4,211,632


$
4,455,791


$
1,000,000


$
13,605,974Control Equity

$



$



$
99,500


$



$



$
99,500Control Debt






















Total Control

$



$



$
99,500


$



$



$
99,500Total Level 3 Investments

$
5,006,400


$
22,841


$
10,551,558


$
10,619,682


$
1,300,000


$
27,500,481Range


4.8X-6.7X



1X



0.5X-10.3X



NotApplicable



Not ApplicableUnobservable Input


EBITDAMultiple



AssetValue



RevenueMultiple



TransactionPrice



AssetValueWeighted Average


5.9X



1X



3.5X



NotApplicable



Not Applicable The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair
Value on a Recurring Basis at December 31, 2016:  Fair Value Measurements at Reported Date UsingDescription

December 31,2016


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservableInputs
(Level 2)


Other 
SignificantUnobservableInputs(Level
3)Loan investments

$
3,200,000


$



$



$
3,200,000Debt investments


6,700,221











6,700,221Equity investments


17,600,260











17,600,260Total

$
27,500,481


$



$



$
27,500,481  59




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The following table provides a summary of changes in Assets Measured at Fair Value on a
Recurring Basis Using Significant Unobservable Inputs (Level 3) for the year ended December 31, 2016:  Fair Value Measurements Using
SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2015, of Level 3 Assets

$
416,972


$
5,076,632


$
31,338,796


$
36,832,400Realized Gains included in net change in net assets from operations:Gemcor II, LLC (Gemcor)










14,620,063



14,620,063Statisfy, Inc. (Statisfy)










(650,000
)


(650,000
)Total Realized Gains










13,970,063



13,970,063Unrealized Gains and Losses included in net change in net assets from operations:Athenex, Inc. (Athenex)










69,444



69,444Carolina Skiff LLC (Carolina Skiff)










500,000



500,000Gemcor II, LLC (Gemcor)










(12,775,000
)


(12,775,000
)Intrinsiq Material, Inc. (Intrinsiq)










254,329



254,329Knoa Software, Inc. (Knoa)










(422,800
)


(422,800
)OnCore Golf Technology, Inc. (Oncore Golf)










(187,500
)


(187,500
)Teleservices Solutions Holdings, LLC (Teleservices)










(990,680
)


(990,680
)Total Unrealized Gains and Losses










(13,552,207
)


(13,552,207
)Purchases of Securities/Changes to Securities/Non-cash conversions:ACV Auctions, Inc. (ACV Auctions)










163,000



163,000BeetNPath, LLC (Beetnpath)






150,000







150,000ClearView Social, Inc. (Clearview Social)










200,000



200,000eHealth Global Technologies, Inc. (eHealth)


1,500,000











1,500,000Empire Genomics, LLC (Empire Genomics)






550,000







550,000Genicon, Inc. (Genicon)


1,700,000











1,700,000GoNoodle, Inc. (GoNoodle)






10,127







10,127Intrinsiq










430,671



430,671Knoa Software, Inc. (Knoa)






48,466







48,466Mercantile Adjustment Bureau, LLC (Mercantile)






9,996







9,996Oncore Golf






150,000







150,000PostProcess Technologies, Inc. (Post Process)






300,000







300,000SciAps, Inc. (Sciaps)






300,000







300,000Tilson Technology Management, Inc. (Tilson)






200,000



200,000



400,000Total Purchases of Securities/Changes to Securities/Non-cash
conversions


3,200,000



1,718,589



993,671



5,912,260Repayments and Sale of Securities:Gemcor


(416,972
)






(15,245,063
)


(15,662,035
)Total Repayments and Sale of Securities


(416,972
)






(15,245,063
)


(15,662,035
)Transfers within Level 3






(95,000
)


95,000



Ending Balance, December 31, 2016, of Level 3 Assets

$
3,200,000


$
6,700,221


$
17,600,260


$
27,500,481Decrease in unrealized appreciation on investments for the period included in changes in net assets


($
13,552,207
)Net realized gain on investments for the period included in changes in net assets


$
14,138,203  60




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 3.  OTHER ASSETS Other assets was comprised of the following at December 31:  2017


2016Dividend receivable

$
37,160


$
34,101Operating receivables


3,204



1,126Equipment (net)


2,490



6,523Escrow receivable from Gemcor II LLC (Gemcor)






1,100,000Prepaid expenses






6,758Total other assets

$
42,854


$
1,148,508 During 2016, Gemcor II, LLC sold its assets, and a portion of the proceeds were held in escrow at
December 31, 2016 and collected during 2017. NOTE 4.  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 tax rate expected to be in effect when the taxes are actually paid or recovered. The tax effect of the
major temporary differences and carryforwards that give rise to the Corporations net deferred tax asset at December 31, 2017 and 2016 are approximately as follows:  2017


2016Operations

($
134,000
)

$
328,000Investments


638,000



830,000NOL & tax credit carryforwards


91,000



51,000Valuation allowance


(43,000
)


(44,000
)Deferred tax asset, net

$
552,000


$
1,165,000 The major temporary differences cited above include differences in the book and tax bases of the
Corporations portfolio company investments, as well as unrealized gains and losses on corporate investments that will be taxed when realized in future years. The Corporation assesses the recoverability of its deferred tax assets annually to
determine if a valuation allowance is necessary. In performing this assessment, it considers estimated future taxable income and ongoing tax planning strategies. Based on this assessment, it was determined that a valuation allowance was necessary
against the deferred tax asset relating to certain state net operating loss carryforwards (NOL). On December 22, 2017,
President Trump signed the Tax Cuts and Jobs Act (the Act) into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporations net deferred tax asset, as of December 31, 2017, was approximately $346,000 in additional income tax expense. The Act also includes a number of other provisions
including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions
are not expected to have a material effect on the Corporation. Given the significant complexity of the Act and anticipated
additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.  61




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The components of income tax expense (benefit) reported in the statements of operations
are as follows for the years ended December 31:  2017


2016


2015Current:Federal

($
490,730
)

$
2,571,560


$
257,279State


(104,556
)


374,290



14,015(595,286
)


2,945,850



271,294Deferred:Federal


601,777



(3,151,558
)


320,546State


11,524



(374,792
)


202,289613,301



(3,526,350
)


522,835Total

$
18,015


($
580,500
)

$
794,129 A reconciliation of the (benefit) expense for income taxes at the federal statutory rate to the expense
reported is as follows:  2017


2016


2015Net investment (loss) gain, realized gain and unrealized (loss) gain before income tax expense

($
692,663
)

($
1,783,183
)

$
2,294,348Expected tax (benefit) expense at statutory rate

($
235,505
)

($
606,282
)

$
780,078State - net of federal effect


(59,906
)


(2,586
)


142,459Pass-through expense (benefit) from portfolio investment


(3,536
)


31,213



(135,262
)Dividend received deduction


(11,659
)


(15,368
)


(4,977
)Federal Act Rate Change


346,292



0



0Other


(17,671
)


12,523



11,831Total

$
18,015


($
580,500
)

$
794,129 At December 31, 2017 and 2016, the Corporation had no federal net operating loss carryforwards or
capital loss carryforwards. For state tax purposes, there were various state net operating loss carryforwards totaling $837,526 and $671,184 at December 31, 2017 and 2016, respectively. The related deferred tax asset has a valuation
allowance of $43,000 and $44,000 at December 31, 2017 and 2016 on the Pennsylvania net operating loss, which is not expected to be utilized. For state tax purposes the Corporation has a Georgia Employers Jobs Tax Credit carryforward
of $41,165 and $30,568 at December 31, 2017 and 2016 and this credit expires in the next five to ten years. The
Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2014 through 2017. In general, the Corporations state income tax returns are open to audit under the
statute of limitations for the years ended December 31, 2014 through 2017. It is the Corporations policy to include
interest and penalties related to income tax liabilities in income tax expense on the Statement of Operations. In addition, the Corporation records uncertain tax positions in accordance with ASC 740, Income Taxes, (ASC 740).
ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. The uncertain tax benefits for the years ended December 31, 2017, 2016 and 2015 were de minimus and
no amounts were recorded for interest and penalties related to unrecognized tax positions for the years ended December 31, 2017, 2016, and 2015.  62




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 5.  SBA DEBENTURE OBLIGATIONS At December 31, 2017 and 2016, Rand SBIC had debentures payable to and guaranteed by the SBA totaling $8,000,000. The weighted
average interest rate at December 31, 2017 was 3.54%. The debenture terms require semiannual payments of interest at
annual interest rates ranging from 2.245% to 3.644%, plus an annual charge of 0.804%. The debentures have fixed interest rates and a 10 year maturity date. As of December 31, 2017, no additional leverage is available from the SBA. The debentures outstanding at December 31, 2017 will mature as follows:  Maturity Date

Leverage2022

$
3,000,0002023


2,500,0002024


1,500,0002025


1,000,000Total Outstanding

$
8,000,000 The Corporation was required to pre-pay the SBA a commitment fee
equal to 1% of the face amount of the SBA leverage reserved as a partial prepayment of the SBAs nonrefundable 3% leverage draw fees. There were no commitment and leverage draw fees paid during the years ended December 31, 2017, 2016 or
2015. Rand SBIC has consented to the exercise by the SBA of all rights of the SBA under 13 C.F.R. 107.1810(i) SBA
remedies for automatic events of default and has agreed to take all actions that the SBA may so require, which may include an automatic consent to the appointment of SBA or its designee as receiver under section 311(c) of the Act. Pursuant to Accounting Standard Update (ASU) 2015-03, the debt origination costs directly
associated with the SBA debt obligations are presented as a direct deduction from the related debt liability.  December 31,2017


December 31,2016Debentures guaranteed by the SBA

$
8,000,000


$
8,000,000Less unamortized issue costs


(144,827
)


(172,227
)Debentures guaranteed by the SBA, net

$
7,855,173


$
7,827,773 NOTE 6.  STOCKHOLDERS EQUITY (NET ASSETS) At December 31, 2017 and 2016, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued. On October 26, 2017, the Board of Directors extended the repurchase authorization for up to 1,000,000 shares of the
Corporations outstanding common stock on the open market through October 26, 2018 at prices that are no greater than the then current net asset value. No shares were repurchased during the year ended December 31, 2017. During 2016,
the Corporation repurchased 6,550 shares for $21,615 and paid an average of $3.30 per share. At December 31, 2017, the total treasury shares held was 541,046 shares with a total cost of $1,469,105.  63




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Summary of change in equity accounts:  AccumulatedNetInvestmentLoss


UndistributedNet RealizedGain
onInvestments


Net UnrealizedDepreciation orAppreciation onInvestmentsBalance, December 31, 2015

($
24,580
)

$
18,262,401


$
5,795,237Net (decrease) increase in net assets from operations


(1,553,268
)


8,864,653



(8,514,068
)Balance, December 31, 2016

($
1,577,848
)

$
27,127,054


($
2,718,831
)Net (decrease) increase in net assets from operations


(19,298
)


88,684



(780,064
)Balance, December 31, 2017

($
1,597,146
)

$
27,215,738


($
3,498,895
) NOTE 7.  STOCK OPTION PLANS In 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the Option Plan) that provides for the award of options to purchase up to 200,000
common shares to eligible employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporations employees in connection with the formation of its SBIC subsidiary. As of
December 31, 2017, 2016 and 2015, no stock options had been awarded under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any option,
warrant or right is outstanding under an executive compensation plan, no options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation (See Note 8). NOTE 8.  EMPLOYEE BENEFIT PLANS The Corporation has a defined contribution 401(k) Plan (the 401K Plan). The 401K Plan provides a base contribution of 1% for eligible employees and also provides up to 5% matching
contributions. The employer contributions to the 401K Plan amounted to $29,199, $39,673 and $44,793 for the years ended December 31, 2017, 2016 and 2015, respectively. In 2002, the Corporation established a Profit Sharing Plan (the Plan) for its executive officers in accordance with Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay
its executive officers aggregate profit sharing payments equal to 12% of the net realized gains on investments of its SBIC subsidiary, net of all realized losses and unrealized depreciation on the investments of the SBIC subsidiary, for the fiscal
year, computed in accordance with the Plan and the Corporations interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the Corporations net income, as defined in the Plan. For purposes of the 20% profit
sharing test, the Corporation interprets net income to be the total of the Corporations net investment (loss) gain and its net realized gain (loss) on sales and dispositions of investments, prior to inclusion of the estimated profit
sharing obligation. The profit sharing payments are split equally between the Corporations two executive officers, each of whom is fully vested in the Plan. The Corporation recorded expenses of $0, $1,270,052 and $0 under the Plan for the years ended December 31, 2017, 2016 and 2015, respectively. Included in the profit sharing and bonus payable line on
the accompanying statement of financial position at December 31, 2017 is $132,000 to be paid to the executive officers for the escrow receivable collected in 2017. This amount will be paid in 2018. Estimated payroll taxes and benefits on the
profit sharing have been accrued. The amounts approved do not exceed the defined limits.  64




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 9.  COMMITMENTS AND CONTINGENCIES The Corporation has a lease for office space which expires in December 2020. Rent expense under this operating lease for the years ended
December 31, 2017, 2016 and 2015 was $19,800, $19,500 and $19,200, respectively. The operating lease obligations are approximately as follows:  Year

Amount2018


19,1002019


19,4002020


19,700Total

$
58,200 On March 2, 2017, the Corporation filed with the Securities and Exchange Commission (SEC) certain
Change in Control Agreements, which have been executed with each of its named executive officers, (NEOs), which provide each NEO with certain financial benefits in the event that (i) such NEOs employment is terminated without
cause (as defined in the Change in Control Agreement) in connection with, or within eighteen months after, a Change in Control (as defined in the Change in Control Agreement) of the Corporation or (ii) such NEO terminates his employment in
connection with, or within eighteen months after, a Change in Control for good reason (as defined in the Change in Control Agreement). Upon the occurrence of such events, each Change in Control Agreement provides for a lump sum payment to the NEO in
an amount equal to (i) one (1.0) times such NEOs annual base salary then in effect plus (ii) the average of the annual incentive bonuses and profit sharing payments earned by such NEO for the last five fiscal years ended prior
to such NEOs employment termination date. However, the amount of the payment to any NEO cannot exceed (and will be reduced in order not to exceed) 1.5% of the total equity capitalization of the Corporation implied by the Change in Control
event. NOTE 10.  QUARTERLY OPERATIONS AND EARNINGS DATA  UNAUDITED  4thQuarter


3rdQuarter


2ndQuarter


1stQuarter2017Investment income

$
379,987


$
397,019


$
349,139


$
328,637Net increase (decrease) in net assets from operations

$
226,209


$
57,931


($
635,337
)

($
359,481
)Basic and diluted net increase (decrease) in net assets per share from operations

$
0.04


$
0.01


($
0.10
)

($
0.06
)2016Investment income

$
301,335


$
315,886


$
220,506


$
194,131Net decrease in net assets from operations

($
215,771
)

($
571,300
)

($
198,092
)

($
217,520
)Basic and diluted net decrease in net assets per share from operations

($
0.03
)

($
0.09
)

($
0.03
)

($
0.04
)  65




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 11.  ALLOWANCE FOR DOUBTFUL ACCOUNTS The Corporation maintains an allowance for doubtful accounts for estimated uncollectible interest payments due from portfolio investments.
The allowance for doubtful accounts is based on a review of the overall condition of the receivable balances and a review of past due amounts. Changes in the allowance for doubtful accounts consist of the following:  2017


2016


2015Balance at beginning of year

($
161,000
)

($
122,000
)

($
128,311
)Provision for losses






(39,000
)


Write offs/Recoveries










6,311Balance at end of year

($
161,000
)

($
161,000
)

($
122,000
)  66




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY SCHEDULE OF CONSOLIDATED CHANGES IN INVESTMENTS AT COST AND REALIZED GAIN For the Year Ended December 31, 2017  CostIncrease(Decrease)


RealizedGain (Loss)New investments:eHealth Global Technologies, Inc. (eHealth)

$
2,000,000



Tilson Technology Management, Inc. (Tilson)


1,500,000



Genicon, Inc. (Genicon)


1,300,000



SciAps, Inc. (Sciaps)


250,000



BeetNPath, LLC (Beetnpath)


100,000



Centivo Corporation (Centivo)


100,000



Mercantile Adjustment Bureau, LLC (Mercantile)


100,000



KnowledgeVision Systems, Inc. (Knowledge Vision)


50,000



Total of new investments


5,400,000



Other changes to investments:Empire Genomics, LLC (Empire Genomics) interest conversion


201,489



Sciaps interest conversion


24,274



Genicon OID amortization


23,779



Microcision LLC (Microcision) interest conversion


22,176



Beetnpath interest conversion


11,277



GoNoodle, Inc. (GoNoodle) interest conversion


10,229



Mercantile OID amortization


8,350



Total of other changes to investments


301,574



Investments repaid, sold or liquidated:Athenex Inc. (Athenex) sold shares


(143,285
)


638,240City Dining Cards, Inc. (Loupe) realized loss


(500,000
)


(500,000
)Total investments repaid, sold or liquidated


(643,285
)


138,240Net change in investments, at cost

$
5,058,289


$
138,240  67




---

##### Table of Contents

Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Rand Capital Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position, including the consolidated schedules of portfolio
investments, of Rand Capital Corporation and Subsidiaries (the Corporation) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period
ended December 31, 2017, and the related notes to the consolidated financial statements, and the financial highlights schedule for each of the five years in the period ended December 31, 2017 (collectively, the financial statements). In
our opinion, the financial statements and financial highlights schedule present fairly, in all material respects, the financial position of Rand Capital Corporation and Subsidiaries as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2017, and the financial highlights for each of the five years in the period ended December 31, 2017 in conformity with accounting principles
generally accepted in the United States of America. Basis for Opinion These financial statements and the financial highlights schedule are the responsibility of the Corporations management. Our
responsibility is to express an opinion on the Corporations financial statements and financial highlights schedule based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and financial highlights schedule are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Corporations internal control over financial reporting. Accordingly, we express no such opinion. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements and financial highlights schedule, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights schedule. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements and financial highlights schedule. Our procedures included confirmation of investments as of December 31, 2017 and 2016, by correspondence with portfolio
companies and custodian(s); when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2, the investment securities included in the consolidated financial statements valued at $32,284,062 (101% of net assets) and $27,500,481 (84% of net assets) as of December 31,
2017 and 2016, respectively, include securities valued at $32,284,062 and $27,500,481, respectively, whose fair values have been estimated by management in the absence of readily ascertainable fair 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. The supplemental schedule of consolidated changes in investments at cost and realized gain for the year ended December 31, 2017 has been subjected to audit procedures performed in conjunction with
the audit of the Corporations financial statements. The supplemental schedule is the responsibility of the Corporations management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial
statements or the underlying accounting and other records, as applicable and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule,
we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with accounting principles generally accepted in the United States of America. In our opinion, the supplemental schedule of consolidated
changes in investments at cost and realized gain for the year ended December 31, 2017 is fairly stated, in all material respects, in relation to the financial statements as a whole. /s/ FREED MAXICK CPAs, P.C. We have served as the Corporations auditor since 2003. Buffalo, New York March 8,
2018  68




---

##### Table of Contents

Item  9.Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A.Controls and Procedures Disclosure Controls and Procedures.The Corporation maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the
SECs rules and forms, and that this information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The
Chief Executive Officer and the Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as of December 31, 2017. Based on the evaluation of
these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Corporations controls and procedures were effective as of December 31, 2017. Management Report on Internal Control Over Financial Reporting.The management of the Corporation is
responsible for establishing and maintaining adequate internal control over financial reporting. The Corporations internal control system is a process designed to provide reasonable assurance to the Corporations management and board of
directors regarding the preparation and fair presentation of published financial statements. Management assessed the
effectiveness of the Corporations internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control-Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2017, the Corporations internal control over financial reporting is effective. This annual report does not include an attestation report of the Corporations independent registered public accounting firm
regarding internal control over financial reporting. Managements report was not subject to attestation by the Corporations independent registered public accounting firm pursuant to rules of the SEC that permit the Corporation to
provide only managements report in this Annual Report. Changes in Internal Control over Financial
Reporting.There have been no changes in our internal control over financial reporting during the Corporations most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect,
the Corporations internal control over financial reporting. Item 9B.Other
Information None Part III  Item 10.Directors,
Executive Officers, and Corporate Governance Information in response to this Item is incorporated herein by reference to the information under the headings  PROPOSAL 1--ELECTION OF DIRECTORS,
COMMITTEES AND MEETING DATA, and Section 16(a) Beneficial Ownership Compliance provided in the Corporations definitive Proxy Statement for its 2018 Annual Meeting of Shareholders, to be filed under Regulation 14A
(the 2018 Proxy Statement).  Item 11.
Executive Compensation Information in response to this Item is incorporated herein by reference to the information provided in the Corporations 2018 Proxy Statement under the headings COMPENSATION DISCUSSION AND
ANALYSIS and DIRECTOR COMPENSATION.  69




---

##### Table of Contents

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information in response to this Item is incorporated herein by reference to the information provided in the Corporations 2018 Proxy
Statement under the heading BENEFICIAL OWNERSHIP OF SHARES.  Item 13.
Certain Relationships and Related Transactions and Director Independence Information in response to this Item is incorporated herein by reference to the information in the Corporations 2018 Proxy Statement
under the heading DIRECTOR INDEPENDENCE and RELATED PERSON TRANSACTIONS. Item 14.Principal Accountant Fees and Services Information concerning the Corporations independent auditors, the audit committees
pre-approval policy for audit services and our principal accountant fees and services is contained in the Corporations 2018 Proxy Statement under the heading INDEPENDENT REGISTERED PUBLIC
ACCOUNTANT (INDEPENDENT ACCOUNTANT) FEES. Part IV Item 15.Exhibits and Financial Statement Schedules  (a)
The following documents are filed as part of this report and included in Item 8:  (1)
CONSOLIDATED FINANCIAL STATEMENTS Statements of Financial Position as of December 31, 2017 and 2016 Statements of Operations for the three years in the period ended December 31, 2017 Statements of Changes in Net Assets for the three years in the period ended December 31, 2017 Statements of Cash Flows for the three years in the period ended December 31, 2017 Schedule of Portfolio Investments as of December 31, 2017 Schedule of Portfolio Investments as of December 31, 2016 Financial
Highlights Schedule for the five years in the period ended December 31, 2017 Notes to the Consolidated Financial
Statements Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended
December 31, 2017 Report of Independent Registered Public Accounting Firm  (2)
FINANCIAL STATEMENT SCHEDULES The required financial statement Schedule II  Valuation and Qualifying Accounts has been omitted because the information required
is included in the Note 11 to the consolidated financial statements.  (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, as amended.  (3.1)(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. (File No. 333-25617).  (3.1)(ii)
By-laws of the Corporation, incorporated
 by reference to Exhibit 3(ii) to the Corporations Quarterly Report on Form 10-Q for the period ended September 30, 2016 filed with the Securities Exchange Commission on November 2, 2016. (File
No. 814-00235).  70




---

##### Table of Contents

(3.2)(i)
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 February 6, 2009. (File No. 811-22276).  (3.2)(ii)
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 February 6, 2009.
(File No. 811-22276).  (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. (File No. 333-25617).  (10.2)
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 February 6, 2009. (File No. 811-22276).  (10.3)
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 February 6, 2009. (File No. 811-22276).*  (10.4)
Change in Control Agreement, dated as of March 
1, 2017, by and between the Corporation and Allen F. Grum, incorporated by reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission on March 3,
 2017. (File No. 814-00235).*  (10.5)
Change in Control Agreement, dated as of March 
1, 2017, by and between the Corporation and Daniel P. Penberthy, incorporated by reference to Exhibit 10.2 to the Corporations Current Report on Form 8-K filed with the Securities and Exchange Commission on
 March 3, 2017. (File No. 814-00235).*  (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  filed herewith.  *  Management
contract or compensatory plan. Item 16.Form 10-K Summary None  71




---

##### 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.  Date: March 8, 2018

RAND CAPITAL CORPORATIONBy:

/s/  Allen F. GrumAllen F. Grum, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Corporation in the capacities and on the dates indicated.  Signature/Title(i) Principal Executive Officer:/s/  Allen F. Grum
Allen F. Grum / President


March 8, 2018(ii) Principal Accounting & Financial Officer:/s/  Daniel P. Penberthy
Daniel P. Penberthy / Treasurer


March 8, 2018(iii) Directors:/s/  Allen F. Grum
Allen F. Grum / Director


March 8, 2018/s/  Erland E. Kailbourne
Erland E. Kailbourne / Director


March 8, 2018/s/  Ross B. Kenzie
Ross B. Kenzie / Director


March 8, 2018/s/  Reginald B. Newman II
Reginald B. Newman II / Director


March 8, 2018/s/  Jayne K. Rand
Jayne K. Rand / Director


March 8, 2018/s/  Robert M. Zak
Robert M. Zak / Director


March 8, 2018  72