##### 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, 2021  ☐
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.)1405 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

Trading
Symbol(s)

Name of each exchange
on which registeredCommon Stock, $0.10 par value

RAND

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files).    Yes  ☐        No  ☐ 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. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.  Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☑

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 has filed a report on and attestation to its managements assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☐ 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, 2021 was approximately $14,150,000 based upon the closing price as reported
on the Nasdaq Capital Market on such date. As of March 3, 2022, there were 2,581,021 shares of the registrants common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporations definitive proxy statement for the 2022 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


15Item 1B.

Unresolved Staff Comments


28Item 2.

Properties


28Item 3.

Legal Proceedings


28Item 4.

Mine Safety Disclosures


28PART IIItem 5.

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


29Item 6.

(Reserved)


31Item 7.

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


31Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


51Item 8.

Financial Statements and Supplementary Data


52Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


97Item 9A.

Controls and Procedures


97Item 9B.

Other Information


98Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections


98PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


99Item 11.

Executive Compensation


99Item 12.

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


99Item 13.

Certain Relationships and Related Transactions, and Director Independence


99Item 14.

Principal Accountant Fees and Services


99PART IVItem 15.

Exhibits and Financial Statement Schedules


100Item 16

Form 10-K Summary


101




---

##### Table of Contents

PART I Item 1.Business Rand Capital Corporation (Rand, we, us and our) was incorporated under the laws of New York in
February 1969. We completed our initial public offering in 1971 and operated as an internally managed, closed-end, diversified, management investment company from that time until November 2019. In November 2019, Rand completed a stock sale transaction (the Closing) with East Asset Management (East). The
transaction consisted of a $25 million investment in Rand by East, in the form of cash and contributed portfolio assets, in exchange for approximately 8.3 million shares of Rand common stock. Concurrent with the Closing, Rands
management and staff became employees of Rand Capital Management, LLC (RCM), a registered investment adviser that has been retained by Rand as its external investment adviser and administrator (the Closing and the retention of RCM as our
investment adviser and administrator are collectively referred to herein as the Transaction). In connection with a change of control of RCM (the Adviser Change of Control), Rands shareholders approved a new investment
advisory and management agreement (the Investment Management Agreement) with RCM at a special meeting of shareholders held on December 16, 2020 (the Special Meeting). The terms of the Investment Management Agreement are
identical to those contained in the prior investment management agreement that was in effect prior to the Adviser Change of Control (the Prior Investment Management Agreement) with RCM continuing to provide investment advisory and
management services to Rand. Following approval by Rands shareholders at the Special Meeting, Rand, on December 31, 2020, entered into the Investment Management Agreement and a new administration agreement (the Administration
Agreement) with RCM and terminated the prior administration agreement (the Prior Administration Agreement). The terms of the Administration Agreement are identical to those contained in the Prior Administration Agreement. Pursuant
to the terms of the Investment Management Agreement, Rand pays RCM a base management fee and may pay an incentive fee, if specified benchmarks are met. In connection with the Closing, we also entered into a shareholder agreement by and between Rand and East (the Shareholder
Agreement). Pursuant to the terms of the Shareholder Agreement, East has the right to designate two or three persons, depending upon the size of the Board, for nomination for election to the Board. East has the right to designate (i) up
to two persons if the size of the Board is composed of fewer than seven directors or (ii) up to three persons if the size of the Board is composed of seven or more directors. Easts right to designate persons for nomination for election to
the Board under the Shareholder Agreement is the exclusive means by which East may designate or nominate persons for election to the Board. The Board currently consists of five directors, and East has designated Adam S. Gusky and Benjamin E. Godley
for nomination to the Board. After the completion of the Transaction, we are an externally managed,
closed-end, diversified management investment company. We have elected to be regulated 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 specified in the 1940 Act. 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. Prior to 2021, we made the majority of our investments through our wholly owned subsidiary, Rand Capital SBIC, Inc. (Rand SBIC),
which operated as a small business investment company (SBIC) and was licensed by the U.S. Small Business Administration (SBA) from 2002 to 2021. Until December 2021, Rand SBIC operated as a BDC. Rand SBICs board of
directors was comprised of the same directors that make up the board of directors of Rand, a majority of whom are not interested persons as defined by the 1940 Act. In November 2021, Rand SBIC repaid, in full, 100% of its outstanding SBA-guaranteed debentures and
surrendered its SBIC license. In connection with the surrender of its SBIC license, Rand SBIC changed its name to Rand Capital Sub, Inc. (Rand Sub), withdrew its election to be regulated as a BDC, and merged with and into Rand Capital
Sub LLC, a Delaware limited liability company, a wholly owned subsidiary of Rand. In this Annual Report on Form 10-K, (Annual Report), unless the context otherwise requires, we, the Corporation, us, and our refer to Rand Capital Corporation and its wholly owned
subsidiaries.  1




---

##### Table of Contents

In connection with the completion of the Transaction, we have shifted to an investment
strategy focused on higher yielding debt investments and elected U.S. Federal tax treatment as a regulated investment company (RIC) as of January 1, 2020 on our U.S. Federal tax return for the 2020 tax year. As required for the RIC
election, we paid a special dividend to shareholders to distribute all of our accumulated earnings and profits since inception to 2019. Rands Board of Directors declared a special dividend of $23.7 million, or approximately $1.62 per
share, on March 3, 2020. The cash and shares of Rands common stock comprising the special dividend were distributed on May 11, 2020 to shareholders. In addition, Rands Board of Directors declared a 2020 cash dividend of $1.33
per share on December 21, 2020, which represented over 90% of the investment company taxable income of Rand for 2020. The Board of
Directors declared the following quarterly cash dividends during the year ended December 31, 2021:  Quarter

Dividend/Share
Amount

Record Date

Payment Date1st

$0.10

March 15, 2021

March 29, 20212nd

$0.10

June 2, 2021

June 16, 20213rd

$0.10

September 2, 2021

September 16, 20214th

$0.14

December 20, 2021

December 31, 2021 In order to qualify to make the RIC election, Rand placed several of its equity investments in newly formed
holding companies that facilitate a tax structure that is advantageous to the RIC election. Rand has the following wholly owned blocker companies in place at December 31, 2021: Rand Somerset Holdings Corp., Rand Carolina Skiff Holdings Corp.,
Rand DSD Holdings Corp., Rand Filterworks Holdings Corp., Rand ITA Holdings Corp., and Rand BMP Swanson Hold Co., LLC (the Blocker Corps). These subsidiaries are consolidated using United States generally accepted accounting principles
(GAAP) for financial reporting purposes. Rand effected a
1-for-9 reverse stock split of its common stock effective May 21, 2020. The reverse stock split affected all issued and outstanding shares of Rands common
stock, including shares held in treasury. The reverse stock split reduced the number of issued and outstanding shares of Rands common stock from 23,845,470 shares and 23,304,424 shares, respectively, to 2,648,916 shares and 2,588,800 shares,
respectively. The reverse stock split affected all shareholders uniformly and did not alter any shareholders percentage interest in Rands outstanding common stock, except for adjustments for fractional shares. On October 7, 2020, Rand, RCM and certain of their affiliates received exemptive relief from the Securities and Exchange Commission
(SEC) to permit Rand to co-invest in portfolio companies with certain other funds, including other BDCs and registered investment companies, managed by RCM and certain of its affiliates in a manner
consistent with Rands investment objective, positions, policies, strategies and restrictions as well as regulatory requirements, subject to compliance with certain conditions (the Order). Pursuant to the Order, Rand is generally
permitted to co-invest with affiliated funds if a required majority (as defined in Section 57(o) of the 1940 Act) of Rands independent directors make certain conclusions in connection
with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to Rand and its shareholders and do not involve
overreaching in respect to Rand or its shareholders on the part of any person concerned and (2) the transaction is consistent with the interests of Rands shareholders and is consistent with Rands investment objective and strategies.
On March 29, 2021, the SEC granted approval for a new exemptive relief order (the New Order) that supersedes the Order and permits the Corporation to co-invest with affiliates of RCM and
Callodine Group, LLC (Callodine) in connection with the completion of the Adviser Change of Control. Our corporate office is
located in Buffalo, NY and our website address is www.randcapital.com. We make available on our website our annual and quarterly 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.  2




---

##### Table of Contents

Our Investment Objectives and Strategy Our investment activities are managed by our external investment adviser, RCM. Our investment objective is to generate current income and, when
possible, complement this current income with capital appreciation. As a result, the investments made by Rand during 2021were, and the investments to be made by Rand in the future are expected to be made primarily in debt instruments. At times when
excess cash is available, we may also invest in high yielding publicly traded equity instruments that provide income through dividends and are relatively more liquid than our private company equity investments based on our available cash and
projected cash needs. We expect to co-invest in privately held, lower middle market companies with
committed and experienced managements in a broad variety of industries. We seek to invest in early to later stage businesses that have sustainable, differentiated and market-accepted products and have revenue of more than $2 million and a clear
path to free cash flow or are already generating up to $5 million in EBITDA. We provide funding to companies that need growth or expansion capital or are looking to finance an ownership transition. Geographically, we focus in the eastern and
southern United States. We typically are a minority investor and work with other lenders, investment partners and sponsors to source and fund investment opportunities. Prospectively, our typical investment is expected to be in the range of $2 million to $4 million in any one company. The debt we
invest in is not expected to be rated by a rating agency and, if it were, would be below investment grade. Because of the higher risk nature of our investments, we require board observation or informational rights and may require a board seat. The maximum size of our investment in one individual portfolio company and the diversification of the overall portfolio holdings is subject to
SEC and IRS regulations. We may engage in various investment strategies to achieve our investment objectives based on the types of
opportunities we discover and the competitive landscape. We expect to focus on current cash yields in order to achieve our income producing goals. Our Investment Process The investment process is comprised of the sourcing and qualifying of investment opportunities, evaluating and negotiating the investment
vehicle, due diligence of the business plan, operations and prospects of the prospective investee and follow through investment monitoring, follow on investments and portfolio management. RCMs investment team identifies investment opportunities through a network of investment referral relationships. Investment proposals may
come to RCM or 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 RCMs and our reputation and experience in the
investment community provide a competitive advantage in originating quality investments. In a typical private financing, RCMs
investment committee (the Investment Committee) will review, analyze, through due diligence, the business plan and operations of the potential portfolio company. Additionally, RCM will familiarize themselves with the portfolio
companys industry and competition and may conduct reference checks with its customers and suppliers. RCMs investment committee will then review the deal and if approved, the transaction will be funded by Rand. Following our initial investment, we may make follow-on investments 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 on an individual basis by RCMs Investment Committee. Disposition of Investments We may exit investments through the maturity 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  3




---

##### Table of Contents

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 may realize further appreciation from warrants or other equity type instruments received in connection with
an investment. Current Portfolio Companies For a description of our current portfolio company investments, see Item 7. Managements Discussion and Analysis of Financial
Condition 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). We believe we are able to compete with these entities primarily on the basis of RCMs and our referral network, RCMs and our investing reputation and experience, RCMs responsive,
quick, and efficient investment analysis and decision-making process, and the investment terms we offer. For information concerning the
competitive risks we face, see Item 1A. Risk Factors. Employees We do not have any employees. Our operations are managed by RCM, our investment adviser and administrator. RCM employed a total of five
employees at December 31, 2021. Rands President and Chief Executive Officer, Allen F. Pete Grum, retired from Rand
and RCM effective December 1, 2021. Concurrent with Mr. Grums departure, Daniel P. Penberthy was appointed to serve as President and Chief Executive Officer of Rand. In addition, Margaret Brechtel was appointed to serve as Executive
Vice President, Treasurer, Chief Financial Officer and Secretary of Rand. We reimburse our administrator, RCM, for the allocable portion
of overhead and other expenses incurred by it in performing its obligations, on behalf of Rand, under the Administration Agreement. For a more detailed discussion of the administration agreement with RCM, see Administration Agreement. Investment Advisory and Management Agreement RCM serves as our investment adviser (the Adviser) under the terms of the Investment Management Agreement. The Adviser is a
registered investment adviser under the Investment Advisers Act of 1940, as amended. The Adviser manages the investment and reinvestment of our assets and, without limiting the generality of the foregoing: (i) determines the composition of Rands portfolio, the nature and timing of the changes therein and the manner of implementing such
changes; (ii) identifies, evaluates and negotiates the structure of the investments; (iii) executes, closes, services and monitors the investments; (iv) determines the securities and other assets that we will purchase, retain or sell; (v) performs due diligence on prospective portfolio companies and investments; (vi) provides us with other investment advisory, research and related services that may, from time to time, be required for the investment of
our assets; and (vii) assists us in the valuation of portfolio investments. The Advisers services under the Investment Management Agreement are not exclusive, and it may furnish similar services to other entities.
In addition, subject to compliance with the requirements of the 1940 Act, the  4




---

##### Table of Contents

Adviser is authorized to enter into one or more sub-advisory agreements with other investment advisors (each a
Sub-Advisor), including for purposes of recommending specific securities or other investments based upon our investment objectives and policies, and working, along with the Adviser, in structuring,
negotiating, arranging or effecting the acquisition or disposition of our investments and monitoring our investments. Under the terms of the Investment Management Agreement, the Adviser, and not us, will be responsible for any compensation that is
payable to any Sub-Advisor. About the Investment Process of the Adviser The Advisers principal investment portfolio manager is Daniel P. Penberthy, who manages our investment portfolio on a day-to-day basis. All decisions to acquire or dispose of assets on our behalf are made by the Advisers Investment Committee. Each decision must be approved unanimously
by the Investment Committee members. From January 1, 2021 to December 1, 2021 the Investment Committee was comprised of the
following six individuals:  

Scott Barfield;  

Brian Collins;  

Allen F. Grum;  

Adam Gusky;  

James Morrow; and  

Daniel P. Penberthy. From December 2, 2021 to December 31, 2021 the Investment Committee was comprised of the following five individuals:  

Scott Barfield;  

Brian Collins;  

Adam Gusky;  

James Morrow; and  

Daniel P. Penberthy. All potential investment opportunities undergo an initial informal review and each potential investment opportunity that is determined to have
merit is then presented and evaluated at Investment Committee meetings in which the members of the Investment Committee discuss the qualities and risks of that potential investment opportunity and the pricing and structure for the investment. Fees Paid to Adviser Under the
Investment Management Agreement, we pay the Adviser, as compensation for the investment advisory and management services, fees consisting of two components: (i) the Base Management Fee; and (ii) the Incentive Fees. Base Management Fee The Base
Management Fee is calculated at an annual rate of 1.50% of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds), determined according to procedures duly adopted by the Board. The Base Management Fee is calculated based on the average value of our total assets (other than cash or cash equivalents but including assets
purchased with borrowed funds) at the end of the two most recently completed calendar quarters.  5




---

##### Table of Contents

Incentive Fees The Incentive Fees are comprised of two parts: (1) the Income Based Fee; and (2) the Capital Gains Fee. Income Based Fee The Income Based Fee is calculated and payable quarterly in arrears based on the
Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter and is payable promptly following the filing of our financial statements for such quarter. Under the Investment Management Agreement, Pre-Incentive Fee Net Investment Income is
defined as interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees we receive from portfolio
companies) we accrue during the relevant calendar quarter, minus the operating expenses for such calendar quarter (including the Base Management Fee, expenses payable under the Administration Agreement, and any interest expense and dividends paid on
any issued and outstanding preferred stock, but excluding any portion of Incentive Fee). Pre-Incentive Fee Net Investment Income includes any accretion of original issue discount, market
discount, payment-in-kind interest, payment-in-kind dividends or other types of deferred
or accrued income, including in connection with zero coupon securities, that we have recognized in accordance with United States generally accepted accounting principles, (GAAP), but have not yet received in cash (collectively,
Accrued Unpaid Income). Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized and unrealized capital losses, or unrealized capital appreciation or
depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value
of our net assets (defined as total assets less indebtedness) at the end of the immediately preceding calendar quarter, is compared to a hurdle rate, expressed as a rate of return on the value of our net assets at the end of the most
recently completed calendar quarter, of 1.75% per quarter (7% annualized). We pay the Adviser an Incentive Fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (i) no Income Based Fee in any quarter in which the Pre-Incentive Fee Net Investment Income for
such quarter does not exceed the hurdle rate of 1.75% (7.00% annualized); (ii) 100% of the
Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the Pre-Incentive Fee Net Investment Income for such calendar quarter,
if any, that exceeds the hurdle rate of 1.75% (7.00% annualized) but is less than 2.1875% (8.75% annualized); and (iii) 20% of the amount
of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the Pre-Incentive Fee Net Investment Income for such calendar
quarter, if any, that exceeds 2.1875% (8.75% annualized). However, the Income Based Fee paid to the Adviser for any calendar quarter that
begins more than two years and three months after the effective date of the Prior Investment Management Agreement shall not be in excess of the Incentive Fee Cap. The Incentive Fee Cap for any quarter is an amount equal to (1) 20.0% of
the Cumulative Net Return (as defined below) during the relevant Income Based Fee Calculation Period (as defined below) minus (2) the aggregate Income Based Fee that was paid in respect of the calendar quarters included in the relevant Income
Based Fee Calculation Period. For purposes of the calculation of the Income Based Fee, Income Based Fee Calculation Period is
defined as, with reference to a calendar quarter, the period of time consisting of such calendar quarter and the additional quarters that comprise the lesser of (1) the number of quarters immediately preceding such calendar quarter that began
more than two years after the effective date of the Prior Investment Management Agreement or (2) the eleven calendar quarters immediately preceding such calendar quarter. For purposes of the calculation of the Income Based Fee, Cumulative Net Return is defined as (1) the aggregate net investment
income in respect of the relevant Income Based Fee Calculation Period minus (2) any Net Capital Loss, if any, in respect of the relevant Income Based Fee Calculation Period. If, in any quarter, the Incentive Fee Cap is zero or a negative value,
we pay no Income Based Fee to the Adviser for such quarter. If, in  6




---

##### Table of Contents

any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Income Based Fee that is payable to the Adviser for such quarter (before giving effect to the
Incentive Fee Cap) calculated as described above, we pay an Income Based Fee to the Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Income Based Fee
that is payable to the Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we pay an Income Based Fee to the Adviser equal to the Income Based Fee calculated as described above for such quarter
without regard to the Incentive Fee Cap. For purposes of the calculation of the Income Based Fee, Net Capital Loss, in respect
of a particular period, means the difference, if positive, between (1) aggregate capital losses, whether realized or unrealized, in such period minus (2) aggregate capital gains, whether realized or unrealized, in such period. Any Income Based Fee otherwise payable under the Investment Management Agreement with respect to Accrued Unpaid Income (such fees being the
Accrued Unpaid Income Based Fees) shall be deferred, on a security-by-security basis, and shall become payable to the Adviser only if, as, when and to the
extent cash is received by us in respect of any Accrued Unpaid Income. Any Accrued Unpaid Income that is subsequently reversed by us in connection with a write-down, write-off, impairment, or similar treatment
of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (1) reduce Pre-Incentive Fee Net Investment Income and (2) reduce the amount of Accrued Unpaid
Income Based Fees. Subsequent payments of Accrued Unpaid Income Based Fees that are deferred shall not reduce the amounts otherwise payable for any quarter as an Income Based Fee. Capital Gains Fee The Capital Gains Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the
Investment Management Agreement). Under the terms of the Investment Management Agreement, the Capital Gains Fee is calculated at the end of each applicable year by subtracting (1) the sum of our cumulative aggregate realized capital losses and
aggregate unrealized capital depreciation from (2) our cumulative aggregate realized capital gains, in each case calculated from the effective date of the Prior Investment Management Agreement. If this amount is positive at the end of any
calendar year, then the Capital Gains Fee for such year is equal to 20% of such amount, less the cumulative aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee payable for
that calendar year. If the Investment Management Agreement is terminated as of a date that is not a calendar year end, the termination date shall be treated as though it were a calendar year end for purposes of calculating and paying the Capital
Gains Fee. For purposes of the Capital Gains Fee:  

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive,
between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.  

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which
(a) the net sales price of each investment in our portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.  

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative,
between (a) the valuation of each investment in our portfolio as of the applicable Capital Gains Fee calculation date minus (b) the accreted or amortized cost basis of such investment. The accreted or amortized cost basis of an investment shall mean, with respect to an investment owned by us as of the effective date of the
Prior Investment Management Agreement, the fair value of that investment as set forth in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, as filed with the SEC on
November 7, 2019, and, with respect to an investment acquired by us subsequent to the effective date of the Prior Investment Management Agreement or the Investment Management Agreement, the accreted or amortized cost basis of such investment as
reflected in the our financial statements.  7




---

##### Table of Contents

Example 1: Income Based Fee Calculations: * Alternative 1 Assumptions: Investment income (including interest, dividends, fees, etc.) = 1.25% Hurdle rate(1) = 1.75% Base Management Fee(2) = 0.375% Other expenses (legal, accounting, transfer agent, etc.) = 0.20% Pre-Incentive Fee Net Investment Income (investment income  (Base Management Fee + other
expenses)) = 0.675% Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate,
therefore there is no Income Based Fee is payable for the calendar quarter. Alternative 2 Assumptions: Investment income (including
interest, dividends, fees, etc.) = 2.70% Hurdle rate(1) = 1.75% Base Management Fee(2) = 0.375% Other expenses (legal, accounting, transfer agent, etc.) = 0.20% Pre-Incentive Fee Net Investment Income (investment income  (Base Management Fee + other
expenses)) = 2.125% Income Based Fee (subject to catch up)(3) = 100.00%
× (2.125%  1.75%) = 0.375% Pre-Incentive Fee Net Investment Income exceeds the hurdle
rate, but does not fully satisfy the catch-up provision, therefore the Income Based Fee payable for the calendar quarter is 0.375%. Alternative 3 Assumptions: Investment income (including interest, dividends, fees, etc.) = 3.50% Hurdle rate(1) = 1.75% Base Management Fee(2) = 0.375% Other expenses (legal, accounting, transfer agent, etc.) = 0.20% Pre-Incentive Fee Net Investment Income (investment income  (Base Management Fee + other
expenses)) = 2.925% Income Based Fee (subject to catch up)(3) = 100.00%
× catch-up + (20.00% × (Pre-Incentive Fee Net Investment Income above 2.1875%)) Catch-up = 2.1875%  1.75% = 0.4375% Income Based Fee = (100.00% × .4375%) + (20.00% × (2.925%  2.1875%)) = 0.4375% + (20.00% × 0.7375%) = 0.4375% + 0.1475% = 0.585% Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, and fully satisfies the catch-up provision, therefore the Income Based Fee payable for the calendar quarter is 0.585%.  *
For ease of review, (i) the hypothetical amounts of Pre-Incentive
Fee Net Investment Income, investment income, Base Management Fee, other expenses, and Income Based Fee are each expressed  8




---

##### Table of Contents

as a percentage of total assets, though as described in greater detail above, each of these amounts are calculated as a numerical dollar amount as set forth in the Investment Management
Agreement, (ii) the hypothetical amount of the Base Management Fee is assumed to be consistent from quarter to quarter, and (iii) these examples each assume that the Incentive Fee Cap is not yet in effect. (1) Represents 7.00% annualized hurdle rate. (2) Represents 1.50% annualized Base Management Fee. (3) The catch-up provision is intended to provide the Adviser with an Income Based Fee of
20.00% on all Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when Rands Pre-Incentive Net Investment Income exceeds 1.75% in any
calendar quarter. Example 2: Capital Gains Fee Calculations: Alternative 1 Assumptions:  Year 1:

$20.0 million investment made in Company A (Investment A), and $30.0 million investment made in Company B (Investment B)Year 2:

Investment A sold for $50.0 million and fair market value (FMV) of Investment B determined to be $32.0 millionYear 3:

FMV of Investment B determined to be $25.0 millionYear 4:

Investment B sold for $31.0 million The Capital Gains Fees, if any, would be calculated as follows:  Year 1:

NoneYear 2:

Capital Gains Fee of $6.0 million  ($30.0 million realized capital gains on sale of Investment A multiplied by 20.0%)Year 3:

None  $5.0 million (20.0% multiplied by ($30.0 million cumulative capital gains less $5.0 million cumulative capital depreciation)) less $6.0 million (previous Capital Gains Fee paid in Year 2)Year 4:

Capital Gains Fee of $0.2 million  $6.2 million ($31.0 million cumulative realized capital gains multiplied by 20.0%) less $6.0 million (Capital Gains Fee taken in Year 2) Alternative 2 Assumptions:  Year 1:

$20.0 million investment made in Company A (Investment A), $30.0 million investment made in Company B (Investment B) and $25.0 million investment made in Company C
(Investment C)Year 2:

Investment A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV of Investment C determined to be $25.0 millionYear 3:

FMV of Investment B determined to be $27.0 million and Investment C sold for $30.0 millionYear 4:

FMV of Investment B determined to be $35.0 millionYear 5:

Investment B sold for $20.0 million The Capital Gains Fees, if any, would be calculated as follows:  Year 1:

NoneYear 2:

$5.0 million Capital Gains Fee - 20.0% multiplied by $25.0 million ($30.0 million realized capital gains on Investment A less $5.0 million unrealized capital depreciation on Investment B)Year 3:

$1.4 million Capital Gains Fee - $6.4 million (20.0% multiplied by $32.0 million ($35.0 million cumulative realized capital gains less $3.0 million unrealized capital depreciation)) less $5.0 million
Capital Gains Fee received in Year 2  9




---

##### Table of Contents

Year 4:

$0.6 million Capital Gains Fee - $7.0 million (20.0% multiplied by $35.0 million cumulative realized capital gains) less cumulative $6.4 million Capital Gains Fee received in Year 2 and Year 3Year 5:

None - $5.0 million (20.0% multiplied by $25.0 million (cumulative realized capital gains of $35.0 million less realized capital losses of $10.0 million)) less $7.0 million cumulative Capital Gains Fee paid in
Year 2, Year 3 and Year 4 Payment of Expenses Under the terms of Investment Management Agreement, all investment professionals of the Adviser and its staff, when and to the extent engaged
in providing investment advisory services to us, and the compensation of such personnel and the general office and facilities and overhead expenses incurred by the Adviser in maintaining its place of business allocable to these services, are
provided, and paid for by the Adviser and not by us. We will bear all other costs and expenses of its operations and transactions, related to the Corporation, including those relating to: (i) organization; (ii)
calculating our net asset value (including the cost and expenses of any independent valuation firm); (iii) expenses incurred by the
Adviser payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs and in monitoring our investments and performing due diligence on prospective portfolio companies; (iv) interest payable on debt, if any, incurred to finance our investments; (v) offerings of our common stock and other securities; (vi) investment advisory and management fees payable under the Investment Management Agreement, but excluding any fees payable to any Sub-Adviser; (vii) administration fees payable under the Administration Agreement; (viii) transfer agent and custodial fees; (ix) federal and state registration fees; (x) all costs of registration and listing our shares on any securities exchange; (xi) federal, state and local taxes; (xii) directors fees and expenses; (xiii) costs of preparing and filing reports or other documents required by governmental bodies (including the SEC); (xiv) costs of any reports, proxy statements or other notices to shareholders, including printing costs; (xv) our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance
premiums; (xvi) direct costs and expenses of administration, including independent auditors and outside legal costs; and (xvii) all other expenses incurred by us or the Adviser in connection with administering our business (including payments under the
Administration Agreement based upon our allocable portion of the Advisers overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our chief financial officer and chief
compliance officer and their respective staffs (including travel expenses)).  10




---

##### Table of Contents

Indemnification under the Investment Management Agreement The Investment Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of the reckless disregard of its duties and obligations, the Adviser, its members and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person affiliated with any of them
(collectively, the Indemnified Parties), are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) incurred by the
Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of us or our security holders) arising out of or otherwise based upon the
performance of any of the Advisers duties or obligations under the Investment Management Agreement or otherwise as an investment adviser. Duration and Termination The Investment
Management Agreement was executed on December 31, 2020 and will remain in effect for two years after this date. Our Board approved the Investment Management Agreement on October 29, 2020 and it was approved by our shareholders at the
Special Meeting held on December 16, 2020. Thereafter, the Investment Management Agreement will continue to renew automatically for successive annual periods so long as such continuance is specifically approved at least annually by: (i) the vote of our Board, or by the vote of shareholders holding a majority of the outstanding voting securities of Rand; and (ii) the vote of a majority of our independent directors, in either case, in accordance with the requirements of the 1940 Act. The Investment Management Agreement may be terminated at any time, without the payment of any penalty, upon sixty days written notice,
by: (a) vote of a majority of the Board or by vote of a majority of the outstanding voting securities of Rand (as defined in the 1940 Act); or (b) the Adviser. Furthermore, the Investment Management Agreement will automatically terminate
in the event of its assignment (as such term is defined for purposes of Section 15(a)(4) of the 1940 Act). See Part I, Item 1A. Risk FactorsOur investment adviser and administrator, RCM, has the right to resign on sixty
days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. Notwithstanding the termination or expiration of the Investment Management Agreement, the Adviser will be entitled to any amounts owed as
payment of the Base Management Fees and the Incentive Fees through the date of termination or expiration. Administration Agreement In connection with the Closing, we entered into the Prior Administration Agreement with the Adviser, and on December 31, 2020, concurrent
with the execution of the Investment Management Agreement, we entered into the Administration Agreement with the Adviser. Under the terms of the Administration Agreement, the Adviser agreed to perform (or oversee, or arrange for, the performance of)
the administrative services necessary for our operations, including, but not limited to, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and such other
services as the Adviser, subject to review by the Board, will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. The Adviser will also, on our behalf, arrange for the services of, and
oversee, custodians, depositories, transfer agents, dividend disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks, and such other persons in any such
other capacity deemed to be necessary or desirable. The Adviser makes reports to our Board regarding the performance of its obligations under the Administration Agreement and furnishes advice and recommendations with respect to such other aspects of
our business and affairs as it determines to be desirable.  11




---

##### Table of Contents

The Adviser is responsible for our financial and other records that are required to be
maintained and prepares all reports and other materials required to be filed with the SEC or any other regulatory authority, including reports to shareholders. In addition, the Adviser assists us in determining and publishing our Net Asset Value
(NAV), overseeing the preparation and filing of our tax returns, and the preparation and dissemination of reports to shareholders, and generally overseeing the payment of our expenses and the performance of administrative and
professional services rendered to us by others. The Adviser provides, on our behalf, significant managerial assistance to those portfolio companies to which we are required to provide such assistance. In full consideration of the provision of the services of the Adviser, we reimburse the Adviser for the costs and expenses incurred by the
Adviser in performing its obligations and providing personnel and facilities. Costs and expenses to be paid by us include those relating to: organization; calculating NAV (including the cost and expenses of any independent valuation firm); expenses
incurred by the Adviser payable to third parties, including agents, consultants or other advisors, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on its prospective portfolio companies;
interest payable on debt, if any, incurred to finance our investments; offerings of our common stock and other securities; investment advisory and management fees (other than fees (if any) payable to a
sub-advisor retained by the Adviser under the Investment Management Agreement); administration fees; transfer agent and custodial fees; federal and state registration fees; all costs of registration and
listing our common stock on any securities exchange; federal, state, local and other taxes; directors fees and expenses; costs of preparing and filing reports or other documents required by governmental bodies (including the SEC); costs of any
reports, proxy statements or other notices to shareholders, including printing costs; our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; direct costs and
expenses of administration, including independent auditors and outside legal costs; and all other expenses incurred by us or the Adviser in connection with administering our business, including payments under the Administration Agreement based upon
our allocable portion of the Advisers overhead in performing its obligations under the Administration Agreement, and our allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs
(including travel expenses). The Administration Agreement was executed on December 31, 2020, the same date as the Investment
Management Agreement, and will remain in effect for two years, and thereafter will continue automatically for successive annual periods so long as such continuance is specifically approved at least annually by the Board, including a majority of the
independent directors. The Administration Agreement may be terminated at any time, without the payment of any penalty, by vote of our directors, or by the Adviser, upon 60 days written notice to the other party. The Administration Agreement
may not be assigned by a party without the consent of the other party. Regulations The following discussion is a general summary of the material laws and regulations 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 the 1940 Act, the 1940
Act 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;  12




---

##### Table of Contents

(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 their total assets. 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. 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 non-qualifying investments may not exceed 30% of the BDCs total asset value at the time of the investment. At December 31, 2021, we were in
compliance with this rule. Managerial Assistance to Portfolio Companies In order to count portfolio securities as qualifying assets for purposes 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 The following section details out SBA regulations with which we had to comply prior to the surrender of our SBA license in
November 2021. SBA Lending Restrictions SBICs are designed to stimulate the flow of private debt and/or equity capital to small businesses. The types and dollar amount of the loans
and other investments we may make are limited by the 1940 Act, the Small  13




---

##### Table of Contents

Business Act (the SBA Act) and SBA regulations. Prior to the surrender of its SBA license in November 2021, Rand SBIC used funds borrowed from the SBA that could 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% to 25% (depending on
what year the investment was made) 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 had complied with these requirements since the
inception of Rand SBIC through the surrender of our SBA license in November 2021. 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. These requirements ceased with our
SBA license surrender in November 2021. SBA Leverage SBA debentures are issued with ten-year maturities. Interest only is payable semi-annually until
maturity. 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. In November 2021, Rand
SBIC repaid its $11,000,000 in outstanding debentures to the SBA. In addition, in November 2021, Rand SBIC received approval from the SBA to surrender its SBA license. At December 31, 2020, we had $11,000,000 in outstanding SBA debenture
instruments. After the SBA license surrender in November 2021, the SBA no longer has superior claim to Rand assets. Taxation as a Regulated Investment
Company The Corporation elected U.S. federal tax treatment as a regulated investment company (RIC) as of January 1,
2020 under subchapter M of the Internal Revenue Code of 1986, as amended, on our U.S. Federal tax return for the 2020 tax year. In order to qualify to make the RIC election, we, among other things, distributed our previously undistributed
accumulated earnings and profits to shareholders, through the special dividend paid to shareholders in May 2020. RIC qualifications also require meeting specified
source-of-income and asset-diversification requirements. In addition, in order to maintain our RIC status, we must distribute to our shareholders, with respect of each
taxable year, dividends for U.S. federal income tax purposes in an amount generally at least equal to 90% of our investment company taxable income, which is generally equal to the sum of our net ordinary income plus the excess of our
realized net short-term capital gains over our realized net long-term capital losses, determined without regard to any deduction for distributions paid (the Annual Distribution Requirement). As a RIC, we generally will not have to pay
corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our shareholders. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed
taxable income and could be subject to U.S. federal excise, state, local and foreign taxes. Additionally, we will be subject to U.S. federal income tax at the regular corporate rates on any income earned on certain investments that need to remain in
a taxable subsidiary in order to maintain RIC status.  14




---

##### Table of Contents

We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed
income unless we distribute in a timely manner an amount at least equal to the sum of: (1) 98% of our ordinary income for each calendar
year; (2) 98.2% of our capital gain net income for the one-year period ending October 31 in
that calendar year; and (3) any income recognized, but not distributed, in preceding years and on which we paid no U.S. federal income
tax. In order to maintain qualification as a RIC for U.S. federal income tax purposes going forward, we must, among other things: (1) meet the Annual Distribution Requirement; (2) qualify to be regulated as a BDC or be registered as a management investment company under the 1940 Act; (3) derive in each taxable year at least 90% of gross income from dividends, interest, payments with respect to certain securities loans, gains
from the sale or other disposition of stock or other securities or currencies or other income derived with respect to the business of investing in such stock, securities or currencies and net income derived from an interest in a qualified
publicly-traded partnership (as defined in the Internal Revenue Code); and (4) diversify our holdings so that at the end of each
quarter of the taxable year: (a) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities,
securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes
the equity securities of a qualified publicly-traded partnership); and (b) no more than 25% of the value of our assets is
invested in the securities, other than U.S. Government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the
same or similar or related trades or businesses or (iii) of one or more qualified publicly-traded partnerships. We may be
required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that have original issue discount (OID) or debt instruments with payment-in-kind (PIK) interest, we must include in income, each year, a portion of this non-cash income that accrues over the life of the obligation,
regardless of whether cash is received by us in that taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are
paid in non-cash compensation such as warrants or stock. Because any OID income or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to
make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash. As long as we qualify for taxation as a RIC, distributions out of our earnings and profits to shareholders generally will be taxable to
shareholders for U.S. federal income tax purposes, either as ordinary income or capital gains, depending upon the nature of the income giving rise to the distribution. The tax consequences to a shareholder attributable to the acquisition, ownership,
and disposition of our common stock, are complex and will depend on the facts of the shareholders unique circumstances. Item 1A.Risk Factors We have listed below the material risk factors applicable to us grouped into the following categories: Risks related to our Business and Structure, Risks
related to our Investments, Risks related to our Common Stock and Risks Relating to U.S. Federal Income Tax.  15




---

##### Table of Contents

Risks related to our Business and Structure The COVID-19 pandemic has, and may continue to, negatively affect the operating results, financial conditions or
liquidity of our portfolio companies, which may negatively affect our operating results and financial condition. Beginning in March
2020, the global outbreak of COVID-19 (coronavirus) has created significant uncertainty and economic disruption as businesses and federal, state, and local governments take and have taken broad
actions to mitigate this public health crisis, including restrictions on travel and the temporary closures of corporate offices, retail stores, and manufacturing facilities and factories across the United States and the wider global community. As a result, the business, operating results, financial condition and liquidity of our portfolio companies have been, and may continue to be,
materially and adversely affected. Specific impacts to the businesses of our portfolio companies include labor shortages, disruptions in the supply chain, delayed or reduced customer orders and sales, and delays in shipments to and from certain
countries. The impact to our portfolio companies results from coronavirus remains highly uncertain and difficult to predict, and will depend to a large extent on the duration and severity of coronavirus, the effectiveness and utilization of
vaccines for coronavirus and its variants, and the actions taken by governmental authorities and other entities to contain coronavirus and its variants and to treat its impacts, all of which are beyond our control. In addition, even if our portfolio
companies have availed themselves of financial assistance provided by U.S. federal or state governmental entities to mitigate the impacts of coronavirus, certain of our portfolio companies have experienced, and may continue to experience, liquidity
issues, which, in turn, may negatively affect their ability to repay principal and interests on outstanding loans and other debt instruments owed to the Corporation, including resulting in the Corporation having large outstanding interest receivable
balances owed to it. Furthermore, certain portfolio companies may not be able to continue as going concerns. As a result of the coronavirus pandemic and its associated impacts on our portfolio companies, we have been, and may in the future be,
required to restructure certain of our investments on terms that are less favorable to us to avoid potential bankruptcies and other insolvency issues for our portfolio companies. A substantial negative impact to one or more of our portfolio
companies resulting from the coronavirus pandemic could have a material adverse effect on our business, financial condition and results of operations. We are dependent upon RCM for our future success. Our day-to-day investment operations are managed by our
investment adviser and administrator, RCM, subject to oversight and supervision by our Board. We no longer have any employees, and, as a result, RCMs investment team evaluates, negotiates, structures, closes and monitors our investments. We
depend on the diligence, skill, investment expertise and network of business contacts of RCMs investment professionals, and the Investment Committee to source appropriate investments for us. We also depend on members of RCMs investment
team and the Investment Committee to analyze potential investments for us and monitor those investments, and on members of the Investment Committee to make investment decisions for us. Our future success depends on the continued availability of the
members of RCMs investment team and the Investment Committee and the other investment professionals available to RCM. The Corporation does not have any employment agreements with key personnel of RCM, including members of the Investment
Committee, and we cannot provide any assurance that unforeseen business, medical, personal or other circumstances would not lead any such individual to terminate his or her relationship with RCM. RCM may need to hire, train, supervise and manage new
investment professionals to participate in our investment selection and monitoring process and may not be able to find investment professionals in a timely manner or at all. The loss of a material number of investment professionals to which RCM has
access or members of the Investment Committee, could have a material adverse effect on our ability to achieve our investment objectives as well as on our financial condition and results of operations. RCM has no prior experience managing or acting as an investment adviser for a BDC. Prior to its entry into the Investment Management Agreement with Rand, RCM was a newly formed entity that had no prior experience managing or
acting as an investment adviser for a BDC. The investment philosophy and techniques used by RCM, and in particular its Investment Committee, to manage the Corporations investment  16




---

##### Table of Contents

activities may differ from the investment philosophy and techniques previously employed by RCMs investment team in identifying and managing other investments and from those that were
previously used by the Corporation when it was internally managed. RCM has focused its investing on behalf of the Corporation on interest-yielding debt securities. In addition, RCM is seeking to source potential investments using its relationships
and the business networks of the members of the Investment Committee. However, we can offer no assurance that RCM will be successful with respect to its investment decisions in acting as our investment adviser or that RCM or the Investment Committee
will be successful in their attempts to source and originate additional potential transactions that are appropriate for Rands investment strategy through the use of existing business networks, and our investment returns could be substantially
lower than the returns we have achieved in the past. Our financial results will depend on RCMs skill to manage and deploy capital effectively. Our ability to achieve long-term capital appreciation on our existing equity investments and to maintain a current cash flow from our
debt investments while shifting our portfolio to contain a greater percentage of interest-yielding debt securities depends on RCMs capability to effectively identify, invest, and manage our capital. Accomplishing this investment objective effectively will be based on RCMs handling of the investment process, starting with its ability
to find investments that offer favorable terms and meet our investment objective. RCM will also need to monitor our portfolio companies performance and may be called upon to provide managerial assistance. These competing demands on their time
may slow the rate of investment or the effective deployment of capital. Even if RCM is able to grow and build on our investment portfolio,
any failure by RCM to manage the growth of our portfolio effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. If RCM cannot successfully manage our investment portfolio or
implement our investment objectives, this could negatively impact our results of operation and financial condition. We are subject to risks created by
our regulated environment. We are regulated by the SEC as a BDC. The 1940 Act imposes numerous constraints on the operations of BDCs
and their external advisers. Changes in the laws or regulations that govern 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 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. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an
enforcement action against us and/or expose us to claims of private litigants. We are subject to risks created by the valuation of our portfolio
investments. At December 31, 2021, 78% 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 typically invest. Investments are valued in accordance with our established valuation policy and are stated at fair value and approved by our Board. The
inputs into the determination of fair value of these investments may require significant judgment or estimation. In the absence of a readily ascertainable market value, the estimated value of our investment portfolio 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 change in unrealized
appreciation/depreciation on investments. In addition, the participation of RCMs investment professionals in our valuation process may result in a conflict of interest as RCMs Base Management Fee under the Investment Management
Agreement is based, in part, on the value of our gross assets, and the Incentive Fees payable under the Investment Management Agreement are based, in part, on realized gains and realized and unrealized losses.  17




---

##### Table of Contents

RCM, acting as our investment adviser, operates in a competitive market for investment opportunities. RCM, acting as our investment adviser, operates in a competitive market for investment opportunities. RCM faces competition in our
investing activities from many entities including 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 general geographical areas as we do. Some of our competitors have higher risk tolerances or different risk assessments than we do. These characteristics could allow our competitors to consider a wider variety of investments, establish more
relationships and offer better pricing and more flexible structuring than we are able to offer. We may lose investment opportunities if we do not match our competitors pricing, terms and structure. If we choose to match our competitors
pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. As a regulated BDC, we are also required to disclose quarterly 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 or similar types of disclosure requirements. This obligation to disclose this information
could hinder RCMs ability to invest in potential portfolio companies on our behalf. Additionally, other regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a private fund that
is not subject to these regulations. There are potential conflicts of interest, including the management of other investment funds and accounts by the
principals and certain members of the Investment Committee of RCM, which could impact our investment returns. The principals and
certain members of the Investment Committee of RCM manage other funds and accounts, including for entities affiliated with members of the Investment Committee. Accordingly, they have obligations to those investors, the fulfillment of which may not
be in the best interests of, or may be adverse to the interests of, us or our shareholders. Although the principals, members of the Investment Committee and other professional staff of RCM are expected to devote as much time to our management as
appropriate to enable RCM to perform its duties in accordance with the Investment Management Agreement, the members of the Investment Committee and investment professionals of RCM may have conflicts in allocating their time and services among RCM,
on the one hand, and the other managed investment vehicles, on the other hand. RCM, including members of its Investment Committee, may
face conflicts in allocating investment opportunities between us and other investment vehicles affiliated with members of the Investment Committee that have overlapping investment objectives with ours. Although RCM, including members of the
Investment Committee, and its affiliates that manage other investment portfolios will endeavor to allocate investment opportunities in a fair and equitable manner in accordance with its written allocation policies and procedures, it is possible
that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by RCM or members of the Investment Committee given the requirements or application of such allocation policies and procedures or
if such investment is prohibited by law. RCM and its affiliates, including some of our officers and directors, face conflicts of interest caused by
compensation arrangements with us, which could result in actions that are not in the best interests of our shareholders. RCM and its
affiliates will receive fees from us in return for their services, including certain incentive fees based on the performance of our investments. These fees could influence the advice provided to us. Generally, the greater the risk assumed by us with
respect to our investments, the greater the potential for growth in our assets and profits, and, correlatively, the fees payable by us to RCM under the terms of the Investment Management Agreement. These compensation arrangements could affect RCM or
its affiliates judgment with respect to investments made by us, which allows RCM to earn increased asset management fees. Our ability to enter
into transactions with our affiliates is restricted. We are prohibited under the 1940 Act from participating in certain transactions
with certain of our affiliates without the prior approval of the required majority of our directors as defined in Section 57(o) of the 1940 Act  18




---

##### Table of Contents

and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding
voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited from buying from, or selling to, such affiliate any securities, absent the prior approval of the required majority of our directors
as defined in Section 57(o) of the 1940 Act. The 1940 Act also prohibits certain joint transactions with certain of our affiliates, including other funds or clients advised by RCM or its affiliates, which in certain circumstances
could include investments in the same portfolio company (whether at the same or different times to the extent the transaction involves a joint investment), without prior approval of our Board and, in some cases, the SEC. If a person acquires more
than 25% of our voting securities, or is otherwise deemed to control, be controlled by, or be under common control with us, we will be prohibited from buying from, or selling to, such person or certain of that persons affiliates any
securities, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. For example, given Easts approximately 64% ownership position in our common stock, this prohibition impacts our ability to
participate in certain transactions or investments where East is involved, including with respect to certain of the loans and other securities that were contributed to us by East as part of the consideration for Easts purchase of our common
stock in the Transaction, to the extent such loans and other securities are also held by East or another one of our affiliates. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates or anyone
who is under common control with us. As a result of these restrictions, we may also be prohibited from buying securities from, or selling securities to, any portfolio company that is controlled by a fund managed by either RCM or its affiliates
without the prior approval of the SEC, which may limit the scope of investment or disposition opportunities that would otherwise be available to us. The analysis of whether a particular transaction constitutes a joint transaction requires a review
of the relevant facts and circumstances then existing. On October 7, 2020, we, RCM and certain of our affiliates received exemptive
relief from the SEC to permit us to co-invest with certain other funds managed by RCM or its affiliates in a manner consistent with the conditions of our exemptive relief. Pursuant to such exemptive relief, we
generally are permitted to co-invest with certain of our affiliates if a required majority (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions
in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not
involve overreaching of us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, and (3) the
investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing. On March 29, 2021, the SEC approved a new exemptive
relief order reflecting the new organizational structure of RCM and its affiliates after the Adviser Change of Control. This new exemptive order supersedes our prior exemptive order and permits, subject to compliance with specified conditions, the
Corporation to co-invest with funds managed by RCM and its affiliates under RCMs current ownership structure after the completion of the Adviser Change in Control. In situations when co-investment with funds managed by RCM or its affiliates is not permitted under the
1940 Act and related rules, existing or future staff guidance, or the terms and conditions of the exemptive relief granted to us by the SEC, RCM and its affiliates will need to decide which client or clients (including the Corporation) will proceed
with the investment. Generally, we will not be entitled to make a co-investment in these circumstances and, to the extent that a client (other than the Corporation) is granted the opportunity to proceed with
the investment, we will not be permitted to participate in the investment we otherwise may have made. The fee structure under the Investment
Management Agreement may induce RCM to pursue investments and incur leverage, which may not be in the best interests of the shareholders. Under the terms of the Investment Management Agreement, the Base Management Fee is payable even if the value of our investment portfolio
declines. The Base Management Fee is calculated based on the total assets (other than cash or cash equivalents but including assets purchased with borrowed funds), as determined according to procedures duly adopted by the Board. Accordingly, the
Base Management Fee is payable regardless of whether the value of Rands total assets or investment portfolio has decreased during the then-current quarter and creates an incentive for RCM to incur leverage, which may not be consistent with our
shareholders interests.  19




---

##### Table of Contents

The Incentive Fee payable to RCM is calculated based on a percentage of our return on
invested capital. The terms of the Incentive Fee calculation may create an incentive for RCM to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. Unlike the Base
Management Fee, the Income Based Fee is payable only if the hurdle rate is achieved. Because the portfolio earns investment income on gross assets while the hurdle rate is based on net assets, and because the use of leverage increases gross assets
without any corresponding increase in net assets, RCM may be incentivized to incur leverage to grow the portfolio, which will tend to enhance returns where our portfolio has positive returns and increase the chances that the hurdle rate is achieved.
Conversely, the use of leverage may increase losses where our portfolio has negative returns, which would impair the value of our common stock. In addition, RCM receives the Incentive Fees based, in part, upon net capital gains realized on our investments under the Capital Gains Fee.
Unlike the Income Based Fee, there is no hurdle rate applicable to the Capital Gains Fee. As a result, RCM may have an incentive to invest more capital in investments that are likely to result in capital gains as compared to income producing
securities. Such a practice could result in our investing in more speculative equity securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. RCM may be paid incentive compensation even if we incur a net loss, and we cannot recover any portion of the incentive fee previously paid. RCM is entitled to incentive compensation under our Investment Management Agreement for each fiscal quarter under the Income Based Fee in an
amount equal to a percentage of our pre-incentive fee net investment income, subject to a hurdle rate, a catch-up provision, a cap and a deferral mechanism. For purposes
of calculating the Income Based Fee, our pre-incentive fee net investment income excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in a
net loss for that quarter. Thus, we may be required to pay RCM incentive compensation under the Income Based Fee for a fiscal quarter even if we incur a net loss for that quarter. In addition, if we pay the Capital Gains Fee and thereafter
experience additional realized capital losses or unrealized capital losses, we will not be able to recover any portion of the incentive fee previously paid. RCMs liability is limited under the Investment Management Agreement and the Administration Agreement, and we are required to indemnify RCM against
certain liabilities, which may lead RCM to act in a riskier manner on our behalf than it would when acting for its own account. Under
the Investment Management Agreement and the Administration Agreement, RCM does not assume any responsibility to us other than to render the services described in the Investment Management Agreement and Administration Agreement, as applicable, and it
is not responsible for any action of our Board in declining to follow RCMs advice or recommendations. Pursuant to the Investment Management Agreement and the Administration Agreement, RCM, its members and their respective officers, managers,
partners, agents, employees, controlling persons, members and any other person affiliated with any of them are not liable to us for their acts under the Investment Management Agreement and Administration Agreement, as applicable, absent willful
misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. We have agreed to indemnify, defend and protect RCM its members and their respective officers, managers, partners, agents, employees, controlling
persons, members and any other person affiliated with any of them with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of RCMs duties or obligations under the Investment
Management Agreement or Administration Agreement, as applicable, or otherwise as investment adviser or administrator, as applicable, for us, and not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the
performance of their duties under the Investment Management Agreement or the Administration Agreement. These protections may lead RCM to act in a riskier manner when acting on our behalf than it would when acting for its own account.  20




---

##### Table of Contents

Our investment adviser and administrator, RCM, has the right to resign on 60 days notice, and we
may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. Our investment adviser and administrator, RCM, has the right, under both the Investment Management Agreement and the Administration Agreement,
to resign at any time upon not less than 60 days written notice, whether we have found a replacement or not. If RCM resigns, we may not be able to find a new investment adviser or administrator or hire internal management with similar
expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of
operations are likely to be adversely affected and the market price of our common stock may decline. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity
with our investment objectives may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to maintain our qualification as a BDC or be precluded from
investing according to our current business strategy. As a BDC, we may not acquire any assets other than qualifying assets
unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe
that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes
of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for
example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in
order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find a buyer for such investments and, even if we do
find a buyer, we may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business, financial condition, results of operations and cash flows. If we do not maintain our status as a BDC, we would be subject to regulation as a
registered closed-end investment company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more
regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility. We may need to raise additional capital to
grow. We may need additional capital to fund new investments and grow. We may access the capital markets periodically to issue equity
securities. We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock at a price below the then-current net asset value of our common stock if our Board determines
that such sale is in the best interests of us and our shareholders, and our shareholders approve, giving us the authority to do so. Although we currently do not have such authorization, we may seek such authorization in the future. In addition, we may also issue debt securities or borrow from financial institutions in order to obtain such additional capital, up to the
maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue debt securities or incur indebtedness only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% immediately after such issuance or
incurrence. Unfavorable economic conditions could increase our funding costs and limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our
ability to grow. In addition, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our shareholders to maintain our RIC Election. As a result,
these earnings may not be available to fund new investments if such distributions are made in cash.  21




---

##### Table of Contents

If we are unable to access the capital markets or if we are unable to borrow from financial
institutions, we may be unable to grow our business and execute our business strategy fully, and our earnings, if any, could decrease, which could have an adverse effect on the value of our common stock. We are subject to cybersecurity risks and incidents that may adversely affect our operations, the operations of RCM or the companies in which we invest. A
failure in our, or RCMs, cybersecurity 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 and RCMs 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 and RCMs information and the information of our portfolio companies. Like
other companies, we or RCM may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the
confidential, proprietary and other information stored in, or transmitted through, our or RCMs computer systems and networks, or otherwise cause interruptions or malfunctions in our or RCMs operations, which could result in damage to our
or RCMs reputation, financial losses, litigation, increased costs or regulatory penalties. Furthermore, if one of these events were to occur at one of our portfolio companies, it could impact their business, financial condition and results of
operations, which could negatively impact our investment. In addition, these cyber-attacks could affect our and RCMs computer network, our website or our other service providers (such as, but not limited to, accountants, lawyers, and transfer
agents) and could result in operating 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 the Corporation, but we remain potentially vulnerable to additional known and unknown threats. We may experience fluctuations in our annual and quarterly results. We could experience fluctuations in our annual and quarterly operating results due to a number of factors, some of which are beyond our
control, including RCMs ability or inability to make investments in companies that meet our investment criteria, RCMs transition of Rands portfolio to include more interest-yielding securities, the interest rate payable on the debt
securities acquired and the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in the markets in which
we operate and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future quarters or any future fiscal years. 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 performs poorly or goes 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. RCM, on our behalf, invests, and we expect that RCM will continue, on our behalf, 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 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  22




---

##### Table of Contents

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, including as a result of the COVID-19 pandemic, 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. 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 historically been risk seeking rather than risk averse in our approach to our investments. Given the incentive compensation components of our arrangement with RCM under the Investment Management Agreement, RCM
may have similar incentives to be risk seeking rather than risk averse in making its investment decisions. 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 may be subject to risks associated with our origination of, or investment in,
covenant-lite loans to our portfolio companies. We have originated or invested in, and may in the future originate or invest in,
covenant-lite loans to our portfolio companies, which means the loan agreement or other debt instrument governing these debt obligations contains fewer maintenance covenants than other loan agreements or debt obligations, or no maintenance
covenants, and may not include covenants that the Corporation could use to monitor the financial performance of the portfolio company borrower, including covenants based upon compliance with financial ratios, and declare a default under the loan
agreement or other debt instrument if the specified covenants are breached. While these loans or other debt obligations to portfolio company borrowers may still contain other collateral protections, a covenant-lite loan may carry more risk than a
covenant-heavy loan made by the same portfolio company borrower as it does not require this borrower to provide affirmation that certain specific financial tests have been satisfied on a routine basis, as is generally required under a covenant-heavy
loan agreement or other debt instrument. Generally, covenant-lite loans or other debt instruments provide borrowers more freedom, which may negatively impact lenders because these covenants, if any, tend to be incurrence-based, meaning they are only
tested and can only be breached following an affirmative action of the borrower, rather than by deterioration in the borrowers financial condition. Should the financial condition of a portfolio company borrower begin to deteriorate, our
investment in or origination of covenant-lite loans or other debt instruments to such portfolio company borrower may potentially reduce our ability to restructure such problematic loan and mitigate potential loss. As a result of our investment in or
origination of covenant-lite loans, our exposure to losses may be increased, which could result in an adverse impact on the Corporations revenues, net income and NAV per share. We provide debt and equity capital primarily to small companies, which may present a greater risk of loss than providing debt and equity capital to larger
companies. Our portfolio consists primarily of debt and equity investments in small companies. Compared to larger companies, small
companies generally have more limited access to capital and higher funding costs, may be in a  23




---

##### Table of Contents

weaker financial position and may need more capital to expand, compete and operate their business. They also typically have fewer administrative resources, which can lead to greater uncertainty
in their ability to generate accurate and reliable financial data, including their ability to deliver audited financial statements. In addition, many small companies may be unable to obtain financing from the public capital markets or other
traditional sources, such as commercial banks, in part because loans made to these types of companies entail higher risks than loans made to companies that have larger businesses, greater financial resources or are otherwise able to access
traditional credit sources on more attractive terms. A variety of factors may affect the ability of borrowers to make scheduled payments
on debt securities or loans, including failure to satisfy financial targets and covenants, a downturn in a borrowers industry or changes in the economy in general. In addition, investing in small companies in general involves a number of
significant risks, including that small companies:  

may have limited financial resources and may be unable to meet their obligations under their debt securities that
we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;  

typically have shorter operating histories, narrower product lines and smaller market shares than larger
businesses, which tend to render small companies more vulnerable to competitors actions and market conditions, as well as general economic downturns;  

are more likely to depend on the management talents and efforts of a small group of persons; therefore, the
death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;  

generally have less predictable operating results, may be engaged in rapidly changing businesses with products
subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;  

may from time to time be parties to litigation, and our executive officers, directors and our investment adviser
may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies;  

may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to
grow or to repay their outstanding indebtedness upon maturity; and  

may be particularly vulnerable to changes in customer preferences and market conditions, depend on a limited
number of customers, and face intense competition, including from companies with greater financial, technical, managerial and marketing resources. Any of these factors or changes thereto could impair a small companys financial condition, results of operation, cash flow or result in
other adverse events, such as bankruptcy, any of which could limit a borrowers ability to make scheduled payments on our debt securities. This, in turn, could result in losses in our investments and a decrease in our net interest income and
net asset value. We may have limited access to information about privately held companies in which we invest. We invest primarily in privately held companies. Generally, little public information exists about these companies, and we are required to rely
on the ability of RCMs investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. These companies and their financial information are not subject to the Sarbanes-Oxley Act of
2002 and other rules that govern public companies. If we are unable to uncover all material information about these companies, RCM may not make a fully informed investment decision, and we may lose money on our investment.  24




---

##### Table of Contents

Prepayments of our debt investments by our portfolio companies could adversely impact our results of
operations and reduce our returns on equity. We are subject to the risk that investments intended to be held over long periods
are, instead, repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments that will typically have substantially lower yields than the debt being prepaid, and we could experience
significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio
companies elects to prepay amounts owed by them. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock. Our portfolio companies may incur debt that ranks equal with, or senior to, our investments in such companies. We invest primarily in debt securities issued by our portfolio companies. In some cases portfolio companies are permitted to have other debt
that ranks equal with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which we are
entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our
investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining
assets to use for repaying its obligation to us. In the case of debt ranking equal with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an
insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company. There may be circumstances where our debt investments could
be subordinated to claims of other creditors or we could be subject to lender liability claims. Even though we may have structured
certain of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the size of our investment and the extent to which we actually provided managerial assistance to
that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In addition, lenders can be subject to lender liability claims for actions taken by them
where they become too involved in the borrowers business or exercise control over the borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken in rendering significant
managerial assistance. We generally do not control our portfolio companies. We do not have an expectation to control the decision making in our portfolio companies, even though we may have a board seat or board
observation rights. Because of this, we are subject to the risk that our portfolio companies will make business decisions with which we disagree or will incur risks or otherwise act in ways that do not maximize their value and serve our interests as
minority debt and equity holders. Due to the lack of liquidity in our investments in these private companies, we may not be able to dispose of our investment in these portfolio companies as freely as we would like or at a valuation that is
appropriate. As a result, a portfolio company may make decisions that would decrease the value of our portfolio holdings. We typically are a minority
shareholder in our portfolio companies in which we have made equity investments. In connection with equity investments, 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 equity investments longer
than planned or to seek a sale that may not reflect the full value of our equity investment.  25




---

##### Table of Contents

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 by the company. There is no assurance that we will make, have sufficient funds to make or be permitted to make under the 1940 Act,
these follow-on investments. Any decision to not make an additional investment in a portfolio company may have a negative impact on the portfolio company in need of the capital and have a negative impact on
our investment in the company. Risks related to our Common Stock East exercises significant influence over us in connection with its ownership of our common stock. East beneficially owns approximately 64% of Rands outstanding common stock. As a result, East is able to direct the outcome of any
matters submitted for shareholder action, including approval of significant corporate transactions, such as amendments to our governing documents, business combinations, consolidations, and mergers. East has substantial influence on us and could
exercise its influence in a manner that conflicts with the interests of other shareholders. The presence of a significant shareholder may also have the effect of making it more difficult for a third party to acquire us or for the Board to discourage
a third party from seeking to acquire us. In addition, pursuant to the terms of the Shareholder Agreement, East has the right to designate
two or three persons, depending upon the size of the Board, for nomination for election to the Board. East has the right to designate (i) up to two persons if the size of the Board is composed of fewer than seven directors; or (ii) up to
three persons if the size of the Board is composed of seven or more directors. Under the terms of the Shareholder Agreement, East has designated Adam S. Gusky and Benjamin E. Godley for nomination for election to the Board. The designation right
provided to East under the terms of the Shareholder Agreement provides East with a significant presence on the Board and direct influence on matters presented to the Board, although all directors, whether or not nominated by East, owe fiduciary
duties to all shareholders. Investing in our shares may be inappropriate for an investors risk tolerance. Our 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 common stock may have
an adverse effect on the market price of our securities. Sales of substantial amounts of our common stock, or the availability of such
securities for sale, could adversely affect the prevailing market prices for our common stock. 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, or when, our shares will trade at, above, or below net asset value. Risks related to U.S. Federal
Income Tax In connection with our RIC election, we may not be able to pay distributions to our shareholders, our distributions may not grow
over time and a portion of our distributions may be a return of capital. In connection with our RIC election, we intend to continue to
pay distributions in the form of cash dividends to our shareholders out of assets legally available for distribution. However, we cannot assure shareholders that  26




---

##### Table of Contents

we will achieve investment results that will allow us to make a specified level of cash distributions or results in year over year increases in cash distribution amounts. Our ability to pay
distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC can limit our ability to pay
distributions. All distributions will be paid at the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and state corporate law requirements and
such other factors as our Board may deem relevant from time to time. We cannot assure shareholders that we will pay distributions on our common stock in the future. When we make distributions, we are required to determine the extent to which such distributions are paid out of current or accumulated earnings
and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of an investors basis in our stock and, assuming that
an investor holds our stock as a capital asset, thereafter as a capital gain. Generally, a non-taxable return of capital will reduce an investors basis in our stock for federal tax purposes, which will
result in higher tax liability when the stock is sold. Shareholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains. In connection with our RIC Election, we will be subject to corporate-level income tax if we are unable to satisfy certain RIC qualification requirements
under Subchapter M of the Code or do not satisfy the annual distribution requirement. No assurance can be given that we will be able
to qualify for and maintain RIC status, and we will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M of the Code. In order to satisfy the requirements for RIC tax treatment, we must meet
the following annual distribution, income source and asset diversification requirements to be relieved of federal taxes on income and gains distributed to our shareholders.  

The annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual
basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. If we are unable to obtain cash from sources in order to make these distributions, we could fail to
qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.  

The income source requirement will only be satisfied if we obtain at least 90% of our income for each year from
dividends, interest, gains from the sale of stock or securities or similar sources.  

The asset diversification requirement will only be satisfied if we meet certain asset diversification
requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. Government securities, securities of other regulated investment companies,
and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. Government securities or securities of other regulated investment companies, of one issuer, of two or more issuers
that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain qualified publicly traded partnerships. Failure to meet these requirements
may result in our having to dispose of certain investments quickly in order to prevent the loss of regulated investment company status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such
dispositions could be made at disadvantageous prices and could result in substantial losses. If we fail to satisfy
certain RIC qualification requirements under Subchapter M of the Code or to meet the annual distribution requirement for any reason and are subject to corporate-level U.S. federal income tax, the resulting corporate taxes could substantially reduce
our net assets, the amount of income available for distribution and the amount of our distributions, if any. Such a failure would have a material adverse effect on us and our shareholders.  27




---

##### Table of Contents

In connection with our RIC Election, we may have difficulty paying required distributions to shareholders
if we recognize income before or without receiving cash representing such income. In connection with our RIC Election, we are required
to distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses to maintain our eligibility for RIC tax treatment. For U.S. federal income tax purposes, we
include in taxable income certain amounts that we have not yet received in cash, such as contracted payment-in-kind (PIK) interest, which represents
contractual interest added to the loan balance and due at the end of the loan term. The increases in loan balances as a result of contracted PIK arrangements are included in income in advance of receiving cash payment and are separately identified
on our consolidated statements of cash flows. We also may be required to include in income certain other amounts that we will not receive in cash. Any warrants that we receive in connection with our debt investments will generally be valued as part of the negotiation process with the
particular portfolio company. As a result, a portion of the aggregate purchase price for the debt investments and warrants will be allocated to the warrants that we receive. This will generally result in our debt instruments having original issue
discount (OID) for tax purposes, which we must recognize as ordinary income as such original issue discount accrues regardless of whether we have received any corresponding payment of such interest. Other features of debt instruments
that we hold may also cause such instruments to generate original issue discount. Since in certain cases we may recognize income before or
without receiving cash representing such income, we could have difficulty meeting the requirement to distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses to
maintain our eligibility for RIC tax treatment. Accordingly, we may have to use cash on hand or sell some of our assets, raise additional equity capital or reduce new investment originations to meet these distribution requirements. If we do not have
sufficient cash on hand or are unable to obtain cash from other sources to satisfy such distribution requirements, we may fail to qualify for RIC tax treatment and thus may become subject to corporate-level income tax. Item 1B.Unresolved Staff Comments Not applicable. Item 2.Properties We do not own any real estate or other physical properties. Our corporate headquarters is located at 14 Lafayette Square, Suite 1405, Buffalo
NY.  Item 3.Legal
Proceedings None. Item 4.Mine Safety Disclosures Not applicable.  28




---

##### Table of Contents

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. Shareholders of Record On March 1, 2022, we had a total of approximately 1,089 shareholders, which included 54 record holders of our common stock, and an
estimated 1,035 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks. Dividends We have elected U.S. federal tax treatment as a RIC as of January 1, 2020 on our U.S. Federal tax return for the 2020 tax year. In order
to qualify as a RIC, among other things, we are required to meet certain source of income and asset diversification requirements and timely distribute to our shareholders at least 90% of our investment company taxable income, as defined by the Code
(as defined below), for each tax year. If we make the requisite distributions to our shareholders, this will generally relieve us from any requirement to pay corporate-level U.S. federal income taxes with respect to all income distributed to our
shareholders. Our dividends, if any, are determined by our Board of Directors. Rands Board declared a special dividend of
$23.7 million, or approximately $1.62 per share, on March 3, 2020. The cash and shares of Rands common stock comprising the special dividend were distributed on May 11, 2020 to shareholders. In addition, our Board declared a 2020 cash dividend of $1.33 per share on December 21, 2020. The 2020 cash dividend was paid on
January 19, 2021 to shareholders of record as of December 31, 2020. The cash dividend represented over 90% of estimated investment company taxable income of Rand for 2020. The Board of Directors declared the following quarterly cash dividends during the year ended December 31, 2021:  Quarter

Dividend/ShareAmount

Record Date

Payment Date1st

$0.10

March 15, 2021

March 29, 20212nd

$0.10

June 2, 2021

June 16, 20213rd

$0.10

September 2, 2021

September 16, 20214th

$0.14

December 20, 2021

December 31, 2021 Share Repurchase Program  Period

Total numberof sharespurchased (1)


Average price paidper share (2)


Total number of sharespurchased as part ofpubliclyannounced plan (3)


Maximum dollar amountof shares that may yet bepurchased under the sharerepurchase program
(3)10/1/2021  10/31/2021





$







$
1,479,23011/1/2021  11/30/2021





$







$
1,479,23012/1/2021  12/31/2021





$







$
1,479,230Total





$




  (1)
There were no shares repurchased, in open market transactions, during the fourth quarter of 2021.  (2)
The average price paid per share is calculated on a settlement basis and includes commission.  29




---

##### Table of Contents

(3)
On April 22, 2021, the Board of Directors approved a new share repurchase plan, which authorizes the
Corporation to repurchase shares of the Corporations outstanding common stock with an aggregate cost of up to $1,500,000 at prices per share of common stock of no greater than the then current net asset value. This share repurchase
authorization lasts for a period of 12 months from the authorization date, until April 22, 2022. During the year ended December 31, 2021 we repurchased 1,148 shares. Stock Performance Graph The following graph shows a five-year comparison of cumulative total shareholder returns for our common stock, the Nasdaq Market Index, our new
peer group and our old peer group, assuming a base index of $100 at the end of 2015. 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 2021   LOGO Comparison of cumulative total return of one or more companies, peer groups, industry indexes and/or broad markets YEAR ENDED DECEMBER 31,  Company/Index/Market

2016


2017


2018


2019


2020


2021Rand Capital Corporation

$
100.00


$
95.57


$
79.14


$
84.94


$
121.34


$
120.18NASDAQ Market Index

$
100.00


$
129.64


$
125.96


$
172.18


$
249.51


$
304.85New Peer Group Index

$
100.00


$
97.44


$
108.68


$
104.35


$
80.14


$
105.69Old Peer Group Index

$
100.00


$
95.11


$
94.09


$
90.60


$
78.48


$
98.00 Our new peer group is comprised of the following companies: Great Elm Capital Corp. (NasdaqGM: GECC) Investcorp Credit Management BDC Inc. (NasdaqGS: ICMB) Oxford Square Capital Corp. (NasdaqGM: OXSQ) Portman Ridge Financial Corp (NasdaqGS: PTMN)  30




---

##### Table of Contents

Our old peer group was comprised of the following companies: Harvest Capital Credit Corporation (NasdaqGM: HCAP) Great Elm Capital Corp. (NasdaqGM: GECC) Investcorp Credit Management BDC Inc. (NasdaqGS: ICMB) Portman Ridge Financial Corp (NasdaqGS: PTMN) We selected the new peer group because we believe that the issuers included in this group are organized and have investment objectives that
are similar to ours, as they are each an externally managed BDC that pays a regular cash dividend, and among the publicly traded companies, they are relatively similar in size to us. We removed Harvest Capital Credit Corporation from our peer group
because they merged with Portman Ridge Financial Corp. during 2021. 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 of 1933, as amended or the Exchange Act.  Item 6.
(Reserved.)  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 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, including statements related to our investment strategies, the impact of COVID-19 on our portfolio companies; the impact of our
election as a RIC for U.S. federal tax purposes on payment of corporate level U.S. federal income taxes by Rand; statements regarding our liquidity and financial resources; statements regarding any Capital Gains Fee that may be due to RCM upon a
hypothetical liquidation of our portfolio and the amount of the Capital Gains Fee that may be payable for 2022; and statements regarding our compliance with the requirements to elect to be taxed as a RIC as of December 31, 2021, future dividend
payments, 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 scope of the impact of the COVID-19 pandemic and its specific impact on our portfolio companies, 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.  31




---

##### Table of Contents

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 externally managed
investment company that lends to and invests in lower middle market companies. At times, we also invest in high yielding publicly traded equity securities. Our investment objective is to generate current income and when also possible, capital
appreciation, by targeting investment opportunities with favorable risk-adjusted returns. Our investment activities are managed by our investment adviser, Rand Capital Management, LLC (RCM). We have elected to be regulated 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 specified in the 1940 Act. Prior to 2020, we made the majority of our investments through our wholly owned subsidiary, Rand Capital SBIC, Inc.
(Rand SBIC), which operated as a small business investment company (SBIC) and had been licensed by the U.S. Small Business Administration (SBA) since 2002. In November 2021, Rand SBIC repaid its $11,000,000
in outstanding debentures to the SBA. In addition, in November 2021, Rand SBIC received approval from the SBA to surrender its SBA license. In connection with the surrender of its SBIC license, Rand SBIC changed its name to Rand Capital Sub, Inc.
(Rand Sub), withdrew its election to be regulated as a BDC, and merged with and into Rand Capital Sub LLC, a Delaware limited liability company, a wholly owned subsidiary of Rand. All of our investments going forward, are expected be
made out of Rand Capital Corporation (the Corporation, we or Rand). In November 2019, Rand completed
a stock sale transaction (the Transaction) with East Asset Management (East). The Transaction consisted of a $25 million investment in Rand by East, in exchange for approximately 8.3 million shares of Rand common
stock. Concurrent with the closing of the Transaction with East on November 8, 2019, Rand entered into an investment advisory and management agreement (the Prior Investment Management Agreement) and an administration agreement (the
Prior Administration Agreement) with RCM. In connection with retaining RCM as our investment adviser and administrator, Rands management and staff became employees of RCM. On December 16, 2020, Rands shareholders approved a new investment advisory and management agreement (the Investment
Management Agreement) with RCM at a special meeting of shareholders (the Special Meeting). The approval was required because Callodine Group, LLC (Callodine) planned to acquire a controlling interest in RCM, which was,
at that time, majority owned by East (the Adviser Change in Control), which constituted an assignment under the 1940 Act resulting in the termination of the Prior Investment Management Agreement. The terms of the Investment
Management Agreement were identical to those contained in the Prior Investment Management Agreement, with RCM continuing to provide investment advisory and management services to Rand following the Adviser Change in Control. Following approval by
Rands shareholders at the Special Meeting, Rand, on December 31, 2020, entered into the Investment Management Agreement and a new administration agreement (the Administration Agreement) with RCM and terminated the Prior
Administration Agreement. Pursuant to the terms of the Investment Management Agreement, Rand pays RCM a base management fee and may pay
an incentive fee if specified benchmarks are met. We elected U.S federal tax treatment as a regulated investment company
(RIC) as of January 1, 2020, under Subchapter M of the Internal Revenue Code of 1986, as amended, on our timely filed U.S. Federal tax return for the 2020 tax year. To maintain our qualification as a RIC, we must, among other
things, meet certain  32




---

##### Table of Contents

source of income and asset diversification requirements. As a RIC, we generally will not be subject to corporate level U.S. federal income taxes on any ordinary income or capital gains if we
annually distribute to our shareholders at least 90% of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Accordingly, our Board of Directors has initiated a regular
quarterly cash dividend. As of December 31, 2021, we believe we are in compliance with these RIC requirements. In connection with
our RIC election, we paid a special dividend of $23.7 million, or approximately $1.62 per share, on the Corporations common stock, par value $0.10 per shares (the Common Stock), in cash and stock to shareholders on
May 11, 2020, which distributed all of our accumulated earnings and profits since our inception through 2019. The total amount of cash distributed to all shareholders, as part of the special dividend, was limited to $4.8 million, or 20% of
the total special dividend that was paid. The remaining 80% of the special dividend was paid using approximately 8.6 million shares of the Corporations common stock. The Rand Board of Directors declared a 2020 cash dividend of $1.33 per share on December 21, 2020 that was paid on January 19, 2021
to shareholders of record as of December 31, 2020. The 2020 cash dividend represented over 90% of our investment company taxable income for 2020. The Rand Board of Directors declared the following quarterly cash dividends during the year ended December 31, 2021:  Quarter

Dividend/Share
Amount

Record Date

Payment Date1st

$0.10

March 15, 2021

March 29, 20212nd

$0.10

June 2, 2021

June 16, 20213rd

$0.10

September 2, 2021

September 16, 20214th

$0.14

December 20, 2021

December 31, 2021 We intend to co-invest, subject to the conditions included in the
exemptive relief order we received from the SEC, with certain of our affiliates. See SEC Exemptive Order below. We believe that such co-investments may afford us additional investment opportunities
and an ability to achieve greater diversification. SEC Exemptive Order On October 7, 2020, the Corporation, RCM and certain of their affiliates received exemptive relief from the SEC to permit the Corporation
to co-invest in portfolio companies with certain other funds, including other BDCs and registered investment companies, managed by RCM and certain of its affiliates in a manner consistent with the
Corporations investment objective, positions, policies, strategies and restrictions as well as regulatory requirements, subject to compliance with certain conditions (the Order). Pursuant to the Order, the Corporation is generally
permitted to co-invest with affiliated funds if a required majority (as defined in Section 57(o) of the 1940 Act) of the Corporations independent directors makes certain conclusions in
connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to the Corporation and its shareholders and do
not involve overreaching in respect of the Corporation or its shareholders on the part of any person concerned; and (2) the transaction is consistent with the interests of the Corporations shareholders and is consistent with the
Corporations investment objective and strategies. On March 29, 2021, the SEC approved a new exemptive relief order (the
New Order) reflecting the new organizational structure of RCM and its affiliates after the Adviser Change of Control. This New Order supersedes the Order and permits, subject to compliance with specified conditions, the Corporation to co-invest with funds managed by RCM and its affiliates under RCMs current ownership structure after the completion of the Adviser Change in Control.  33




---

##### Table of Contents

Outlook Rands strategy is to grow its investment income to drive net income growth in order to increase the dividend paid to its shareholders. We
began 2021 with $20.4 million in cash and cash equivalents and had portfolio exits and loan repayments during the year that provided approximately $14.3 million of cash proceeds. In 2021, we put approximately $19.7 million of
available cash to work, primarily in income producing investments to increase our investment income. We also used available cash to repay $11.0 million in SBA debt reducing our debt service requirements. At the end of the 2021, having put our
capital to work, repaid debt and distributed $4.6 million in cash to shareholders, we ended the year with $834 thousand in cash and cash equivalents available for future investments and expenses. Our portfolio at December 31, 2021 was comprised of 46% interest yielding debt instruments compared with 41% at the end of 2020,
improving our portfolio yield and net interest income. The annualized weighted average yield of the portfolio was 12.3% at the end of 2021 compared with 12.7% at the end of 2020. Rand plans to leverage its assets, which are not unencumbered after repayment of the SBA debt, to provide greater liquidity for further
investments into higher yielding investments. It also plans to use its publicly traded equity investments as available liquidity and capital for prospective opportunities that will provide higher yields. COVID-19 Update Since the outbreak of the COVID-19 pandemic, our investment adviser, RCM, has continued to engage in
active discussions with the management teams of the companies within our portfolio regarding actions taken by those portfolio companies with respect to the safety and welfare of their employees and their processes for adapting to a new work
environments post-COVID-19. RCM has informed us about the impact of COVID-19 on the businesses of our portfolio companies, and the potential impact of disruptions in the
supply chain, and the actions these portfolio companies have taken, and are taking, to adapt to changes in demand, both increased and decreased, depending upon the portfolio company. While we do not know what the ultimate long-term impact of the
COVID -19 pandemic will be on our portfolio companies, RCM is actively monitoring our portfolio companies, their liquidity and operational status. Trends and Opportunities We believe the
combination of cash on hand, highly liquid publicly traded BDC stocks, proceeds from portfolio exits, and prospective investment income provide us the liquidity that will enable us to add new investments to our portfolio and reinvest in existing
portfolio companies that demonstrate continued growth potential. We are actively building a pipeline of investment opportunities in order to put our capital to work. The following short and long-term trends provide us confidence in our ability to grow the Corporation:  

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

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

RCM, on our behalf, is involved with the governance and management of a majority 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 externalized management structure.  

We believe that the establishment of RCM as our external investment adviser and its ownership by Callodine, as
well as our relationship with East, broadens our potential pipeline of investment opportunities to build our portfolio, facilitate growth and reduce operating expenses as a percentage of portfolio assets. Strategically, we expect to advance our
efforts to increase our income-producing investments to support a regular cash dividend for shareholders and complement these securities with equity investments that drive capital appreciation.  34




---

##### Table of Contents



We believe an opportunity for lending to lower middle market companies exists because of the consolidation among
commercial banks has reduced their focus on the lower middle market business. Heightened regulatory requirements for commercial banks has also resulted in less participation by banks in the lower middle market lending arena, opening up opportunities
for alternative lenders such as us.  

Lower middle market companies are increasingly seeking lenders with long-term capital to provide flexible
solutions for their debt and equity financing needs. We believe that many lower middle market companies prefer to execute transactions with alternative lenders, such as us, because we can address their capital requirements quickly and in the
check size that is best suited for their businesses.  

We believe we have sufficient liquid assets to both invest in new opportunities and to repurchase shares. On
April 22, 2021, the Board of Directors approved a new share repurchase plan, which authorizes the Corporation to repurchase shares of the Corporations outstanding common stock with an aggregate cost of up to $1,500,000 at prices per share
of common stock no greater than the then current net asset value. This new share repurchase authorization lasts for a period of 12 months from the authorization date until April 22, 2022. During the year ended December 31, 2021, we
purchased 1,148 shares at an average price of $18.09 per share. 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 requires us to 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. Valuation of Investments Our investments are carried at fair value in accordance with FASB 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. Investments are valued at fair value as determined in good faith by RCM and approved by our Board. 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 company 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. 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
portfolio company.  35




---

##### Table of Contents

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. This approach values the equity at the value remaining after the portfolio company pays of its debt and loan
balances and its outstanding liabilities. 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, we adjust 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 appreciation or depreciation in value that result in estimating fair value are recorded net on the Statement of Operations as Net
change in unrealized appreciation/depreciation on investments. 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. At December 31, 2021, 78% of our investments were Level 3 investments and 22% were Level 1
investments. At December 31, 2020, 92% of the our investments were Level 3 and 8% were held in Level 1 investments. 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;  36




---

##### Table of Contents



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 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. 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.  37




---

##### Table of Contents

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. Portfolio 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. RCM 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
security is redeemed. Financial Condition Overview:  12/31/21


12/31/20


Increase(Decrease)


% Increase(Decrease)Total assets

$
65,644,854


$
60,966,942


$
4,677,912



7.7
%Total liabilities


4,899,438



14,862,112



(9,962,674
)


(67.0
%)Net assets

$
60,745,416


$
46,104,830


$
14,640,586



31.8
% Net asset value (NAV) was $23.54 per share at December 31, 2021 versus $17.86 per share at
December 31, 2020. Our gross outstanding SBA debentures at December 31, 2021 and 2020 were $0 and $11,000,000, respectively.
Cash approximated 1% of net assets at December 31, 2021 compared to 44% at December 31, 2020.  38




---

##### Table of Contents

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 year ends indicated.  12/31/21


12/31/20


Change


% ChangeInvestments, at cost

$
52,370,668


$
40,720,313


$
11,650,355



28.6%Unrealized appreciation/depreciation, net


11,697,794



(671,812
)


12,369,606



NMInvestments, at fair value

$
64,068,462


$
40,048,501


$
24,019,961



60.0
%Number of Active Portfolio Companies


34



36 NM  Not meaningful Our total investments at fair value, approved by our Board of Directors, approximated 106% of net assets at December 31, 2021 and 87% of
net assets at December 31, 2020. Our investment objective is to maximize total return to our shareholders with current income and,
capital appreciation, when possible. As a result, we are focused on investing in higher yielding debt instruments and related equity investments in privately held, lower middle market companies with a committed and experienced management team in a
broad variety of industries. We may invest in publicly traded shares of other business development companies that provide income through dividends and have more liquidity that our private company equity investments. The change in investments, at cost, during the year ended December 31, 2021, is comprised of the following:  Cost Increase(Decrease)New investments:ITA Acquisition, LLC (ITA)

$
3,900,000DSD Operating, LLC (DSD)


3,812,500Seyberts Billiards Corporation (Seyberts)


3,300,000Nailbiter, Inc. (Nailbiter)


2,250,000BMP Swanson Holdco, LLC (Swanson)


1,833,333Applied Image, Inc. (Applied Image)


1,750,000Mattison Avenue Holdings, LLC (Mattison)


667,130TCG BDC, Inc. (TCG)


522,753PennantPark Investment Corporation (Pennant Park)


522,082Apollo Investment Corporation (Apollo)


518,080FS KKR Capital Corp. (FS KKR)


510,458Filterworks Acquisition USA, LLC (Filterworks)


63,743Total of new investments


19,650,079  39




---

##### Table of Contents

Cost Increase(Decrease)Other changes to investments:Filterworks interest conversion


96,786Microcision LLC (Microcision) OID amortization


88,003Caitec, Inc. (Caitec) interest conversion


71,854Seyberts interest conversion


55,294ITA interest conversion


36,611Mattison interest conversion


30,028HDI Acquisition LLC (Hilton Displays) interest conversion


26,055GoNoodle, Inc. (GoNoodle) interest conversion


15,234SciAps, Inc. (Sciaps) OID amortization


15,000DSD interest conversion


14,183Seyberts OID amortization


9,172Total of other changes to investments


458,220Investments repaid, sold, liquidated or converted:Science and Medicine Group, Inc. (SMG) repayment


(1,900,000
)Microcision repayment


(1,500,000
)Mercantile Adjustment Bureau, LLC (Mercantile) repayment


(1,446,665
)Apollo sale


(882,164
)Centivo Corporation (Centivo) sale


(801,342
)First Wave Technologies, Inc. (First Wave) sale


(661,563
)GiveGab, Inc. (GiveGab) sale


(616,221
)Empire Genomics, Corp. (Empire Genomics) realized loss


(308,676
)ClearView Social Inc. (ClearView) sale


(200,000
)Advantage 24/7 LLC (Advantage) repayment


(55,000
)GoNoodle repayment


(44,972
)ACV Auctions, Inc. (ACV) sale


(41,341
)Total of investments repaid, sold, liquidated or converted


(8,457,944
)Net change in investments, at cost

$
11,650,355 Our top five portfolio companies represented 47% of total assets at December 31, 2021:  Company

Industry

Fair Value atDecember 31, 2021


% of Total Assetsat December 31,2021Tilson Technology Management, Inc. (Tilson)

Professional Services

$
8,925,015



14
%ACV

Software

$
8,333,065



13
%Open Exchange, Inc.

Software

$
5,570,000



8
%Caitec

Consumer Product

$
3,882,556



6
%DSD

Automotive

$
3,826,683



6
%  40




---

##### Table of Contents

Our top five portfolio companies represented 33% of total assets at December 31, 2020:  Company

Industry

Fair Value atDecember 31, 2020


% of Total Assetsat December 31,2020ACV

Software

$
6,531,815



11
%Tilson

Professional Services

$
4,710,015



8
%Caitec

Consumer Product

$
3,810,702



6
%Filterworks

Automotive

$
2,912,331



5
%SMG

Health Care

$
1,900,000



3
% Below is the geographic breakdown of our investments using fair value as of December 31, 2021 and 2020:  Geographic Region

% of Net Asset Valueat December 31,2021


% of Net Asset Valueat December 31,2020USA  East


83
%


69
%USA  South


23
%


18
%Total investments as a % of net asset value


106
%


87
% As of December 31, 2021, and 2020, our investment portfolio consisted of the following types of
investments:  Cost


Percentage ofTotal Portfolio


Fair Value


Percentage ofTotal PortfolioDecember 31, 2021:Subordinated Debt and Promissory Notes

$
29,583,482



57
%

$
29,583,482



46
%Convertible Debt














Equity and Membership Interests


18,441,276



35



20,498,872



32Equity Warrants


155,063







85,063



Publicly traded stock


4,190,847



8



13,901,045



22Total

$
52,370,668



100
%

$
64,068,462



100
%December 31, 2020:Subordinated Debt and Promissory Notes

$
17,262,145



42
%

$
16,413,105



41
%Convertible Debt


1,308,675



3



157,654



1Equity and Membership Interests


19,018,826



47



20,086,342



50Equity Warrants


252,688



1



95,063



0Publicly traded stock


2,877,979



7



3,296,337



8Total

$
40,720,313



100
%

$
40,048,501



100
%  41




---

##### Table of Contents

Results of Operations Investment Income Comparison of the
years ended December 31, 2021 and 2020  December 31,2021


December 31,2020


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
3,017,634


$
2,461,943


$
555,691



22.6
%Interest from other investments


13,876



87,784



(73,908
)


(84.2
%)Dividend and other investment income


888,179



428,081



460,098



107.5
%Fee income


156,614



125,111



31,503



25.2
%Total investment income

$
4,076,303


$
3,102,919


$
973,384



31.4
% Investment income was received, on a current basis, during the year ended December 31, 2021 from 29
portfolio companies. This is an increase from the 23 portfolio companies generating current investment income for the year ended December 31, 2020. This increase can be attributed to our increased focus on investing in higher yielding debt
investments. Interest from portfolio companies  Interest from portfolio companies was approximately 23% higher for the year
ended December 31, 2021 versus the same period in 2020 due to the fact that we originated more income-producing debt investments during the last twelve months. The new debt instruments were originated from BMP Swanson Holdco, LLC (Swanson),
Caitec, Inc. (Caitec), DSD Operating, LLC (DSD), ITA Acquisition, LLC (ITA), Nailbiter, Inc. (Nailbiter) and Seyberts Billiards Corporation (Seyberts). In addition, interest income was higher due to an approximately $88,000 increase in
OID income during the year ended December 31, 2021 due to a first quarter 2021 loan payoff. Interest from other investments
 The decrease in interest from other investments is due to lower average cash balances and lower interest rates during the year ended December 31, 2021 versus the same period in 2020. 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 years ended were:  December 31,2021


December 31,2020Carolina Skiff LLC (Carolina Skiff)

$
214,265


$
66,230FS KKR Capital Corp. (FS KKR)


133,380



64,000TCB BDC, Inc. (TCB)


129,000



29,200PennantPark Investment Corporation (Pennant Park)


93,600



24,000Knoa Software, Inc. (Knoa)


87,771



Tilson Technology Management, Inc. (Tilson)


52,500



52,500Ares Capital Corporation (Ares)


43,740



32,400Owl Rock Capital Corporation (Owl Rock)


37,200



46,800Golub Capital BDC, Inc. (Golub)


36.563



27,189Barings BDC, Inc. (Barings)


32,800



13,200Apollo


27,360



56,700Somerset Gas Transmission Company, LLC (Somerset)






15,862Total dividend and other investment income

$
888,179


$
428,081  42




---

##### Table of Contents

Fee income  Fee income generally consists of the revenue associated with the
amortization of financing fees charged to the portfolio companies upon successful closing of financings, income from portfolio company board attendance fees and other miscellaneous 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 $87,018 and $29,188 for the years ended December 31, 2021 and 2020,
respectively. During the year ended December 31, 2021, we recognized a one-time fee of $30,000 in conjunction with the repayment of the Microcision loan instrument and $25,500 in other one-time fees associated with the loan monitoring and application fees. During the year ended December 31, 2020, we recognized a one-time
pre-payment fee of $91,423 on the repayment of the Andretti debt instrument and a one-time pre-payment fee of $4,500 on the
repayment of the Open Exchange debt instrument. The board fees were $14,096 and $0 for the years ended December 31, 2021 and 2020,
respectively. Comparison of the years ended December 31, 2020 and 2019  December 31,2020


December 31,2019


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
2,461,943


$
1,520,540


$
941,403



61.9
%Interest from other investments


87,784



166,556



(78,772
)


(47.3
%)Dividend and other investment income


428,081



579,848



(151,767
)


(26.2
%)Fee income


125,111



457,752



(332,641
)


(72.7
%)Total investment income

$
3,102,919


$
2,724,696


$
378,223



13.9
% Investment income was received, on a current basis, during the year ended December 31, 2020 from 23
portfolio companies. This is an increase from the 17 portfolio companies generating current investment income for the year ended December 31, 2019. Interest from portfolio companies  Interest from portfolio companies was approximately 62% higher for the year ended
December 31, 2020 versus the same period in 2019 due to the fact that we had more income-producing debt investments in 2020. As part of the contributed assets received from East at the completion of the Transaction in November 2019, we received
debt instruments from Andretti, Filterworks, Hilton Displays and Mattison. In addition, during the year ended December 31, 2020 we originated three loan instruments totaling $7.2 million from Caitec, Sciaps, and SMG. A portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance was on
non-accrual status at December 31, 2020 and 2019. Interest from other investments
 The decrease in interest from other investments is due to lower interest rates during the year ended December 31, 2020 versus the same period in 2019. This was partially offset by higher average cash balances during the year ended
December 31, 2020 versus the same period in 2019.  43




---

##### Table of Contents

Dividend and other investment income The dividend distributions for the respective years ended were:  December 31,2020


December 31,2019Carolina Skiff LLC (Carolina Skiff)

$
66,230


$
76,914FS KKR


64,000



Apollo


56,700



Tilson Technology Management, Inc. (Tilson)


52,500



49,958Owl Rock


46,800



Ares


32,400



TCB


29,200



Golub


27,189



Pennant Park


24,000



Somerset Gas Transmission Company, LLC (Somerset)


15,862



256,542Barings


13,200



Knoa Software, Inc. (Knoa)






193,934Advantage 24/7 LLC (Advantage 24/7)






2,500Total dividend and other investment income

$
428,081


$
579,848 Fee income The income associated with the amortization of financing fees was $29,188 and $69,252 for the years ended December 31, 2020 and 2019,
respectively. During the year ended December 31, 2020, we recognized a one-time pre-payment fee of $91,423 on the repayment of the Andretti debt instrument and a one-time pre-payment fee of $4,500 on the repayment of the Open Exchange debt instrument. During the year ended December 31, 2019, we recognized a one-time fee of $225,000 in conjunction with the repayment of the eHealth Global Technologies, Inc. (eHealth) loan instrument, a one-time $112,500 change of control fee from
Open Exchange and a one-time loan modification fee of $50,000 from GoNoodle, Inc. (GoNoodle). The
board fees were $0 and $1,000 for the years ended December 31, 2020 and 2019, respectively. Expenses Comparison of the years ended December 31, 2021 and 2020  December 31,2021


December 31,2020


Increase


% IncreaseTotal expenses

$
6,670,315


$
1,974,978


$
4,695,337



237.7
% Total expenses increased approximately $4,700,000 for the year ended December 31, 2021 compared to the
year ended December 31, 2020. The increase in expenses was primarily due to a $4,200,000 increase in the capital gains incentive fee expense, an approximately $269,000 increase in the base management fee payable to RCM, and an approximately
$201,000 increase in interest expense. The increase in the capital gains incentive fee expense as shown on our Consolidated Statement of
Operations, is due to the calculation at December 31, 2021 of the capital gains fee, per the Investment Management Agreement, currently payable to RCM of approximately $652,000 and an accrual of a capital gains incentive fee of approximately
$3,548,000, per a GAAP requirement. The Investment Management Agreement does not allow the use of unrealized gains in calculating the amount of the capital gains incentive fee payable under that agreement to RCM. However, as required by GAAP, the
Corporation must accrue capital gains  44




---

##### Table of Contents

incentive fees on the basis of unrealized gains. Our capital gains incentive fee accrual reflects the capital gains incentive fees that would be payable to RCM if our entire investment portfolio
was liquidated at its fair value as of the balance sheet date even though RCM is not entitled to this capital gains incentive fee with respect to unrealized gains unless and until such gains are actually realized. There were no capital gains
incentive fees accrued or expensed for the year ended December 31, 2020. The base management fee, payable to RCM, is calculated
based upon total assets less cash, and, as we deploy more capital into investments, the base management fee, payable to RCM, will increase accordingly. During the fourth quarter of 2021 we repaid, in full, the $11,000,000 of outstanding SBA debentures, using cash on hand. As a condition of the
repayment, the SBA required that we pre-pay the interest expense that would have been paid on March 1, 2022. We, therefore, recognized two additional months of SBA interest during the year ended
December 31, 2021. In addition, we expensed approximately $144,000 of remaining SBA deferred commitment and leverage fees after the repayment of the SBA debentures. Comparison of the years ended December 31, 2020 and 2019  December 31,2020


December 31,2019


Decrease


% DecreaseTotal expenses

$
1,974,978


$
2,770,716


($
795,738
)


(28.7
%) Expenses decreased approximately $796,000 or 29% for the year ended December 31, 2020 compared to the
year ended December 31, 2019. The decrease in operating expenses was primarily due to an approximately $299,000 or 54% decrease in shareholders and office operating expenses. Shareholders and office operating expenses were higher during the
year ended December 31, 2019 due to the fact that we held a special meeting of shareholders to approve all proposals related to the Transaction during this period. The decrease in expense can also be attributed to the absence of salary, bonus
and benefits expense during the year ended December 31, 2020. The salary, bonus and benefit expense for the year ended December 31, 2019 was approximately $925,000. These decreases were offset by the $504,000 increase in the base
management fee payable to RCM, under the Investment Management Agreement, during the year ended December 31, 2020 compared to the year ended December 31, 2019. There were no incentive fees earned by RCM during the year ended
December 31, 2020. Because it was our intention to elect RIC status as of January 1, 2020, a net deferred tax asset of
$1,451,658 was eliminated in accordance with GAAP, resulting in deferred tax expense for the year ended December 31, 2020. In addition, certain portfolio investments, that generate non-qualifying income
for a RIC, and their related deferred tax liabilities of $247,460, were contributed to blocker corporations in December 2019. These blocker corporations are subject to federal and state income taxes. Net Investment Income The excess of
investment income over total expenses represents net investment income (or loss). The net investment (loss) income for the years ended December 31, 2021, 2020 and 2019 were ($2,604,908), $1,756,128 and ($85,697), respectively. Net Realized Gains and Losses on Investments  December 31,2021


December 31,2020


December 31,2019Net realized gain (loss) on sales and dispositions, before income taxes

$
5,820,354


($
5,983,279
)

$
1,117,761 During the year ended December 31, 2021, we sold our investment in Givegab and recognized a gain of
$1.8 million, sold our investment in Centivo Corporation and recognized a gain of $1.6 million, sold our investment in ClearView Social, Inc. and recognized a gain of approximately $135,000 and sold our investment in Mercantile Adjustment
Bureau, Inc. and recognized a gain of $36,000. The realized gain from the sale of  45




---

##### Table of Contents

Clearview included $35,766 that will be held in escrow and is expected to be received in 2022. The escrow holdback is recorded in Other Assets on the Corporations Balance Sheet. We also received additional proceeds of approximately $57,000 from Microcision LLC (Microcision) related to the 2019 sale of our equity
interest in Microcision. We sold our investment in First Wave Technologies, Inc. and recognized a loss of approximately ($662,000). In addition, we restructured our notes in Empire Genomics, LLC, and converted our equity holdings into a debt
instrument. As part of that restructuring, we recognized a realized loss of approximately ($309,000). In addition, during the year ended
December 31, 2021 we recognized a net realized gain of $2.9 million on the sale of 147,646 shares of Class A common stock of ACV Auctions, Inc. (ACV). ACV trades on the NASDAQ Global Select Market under the symbol ACVA. At
December 31, 2021, we owned 442,934 shares of ACV. During the year ended December 31, 2021, we also sold our shares in Apollo Investment Corporation and recognized a gain of approximately $175,000. During year ended December 31, 2020, we realized a $2.3 million gain when we exited our investment in Outmatch as part of a
strategic majority investment from Rubicon Technology Partners. We also received additional proceeds of approximately $117,000 from Microcision LLC (Microcision) related to the 2019 sale of our equity interest in Microcision and approximately
$37,000 in additional gain from Advantage 24/7. We recognized a realized loss of $5.1 million on Genicon, Inc. following its senior creditor liquidation. In addition, we recognized a $1.6 million loss in Teleservices Solutions Holdings,
LLC, a $0.9 million loss in BeetNPath, LLC, a $0.4 million loss in G-TEC Natural Gas Systems, and a $0.3 million loss in Dataview, Inc. following the sale and/or liquidation of the investment
securities. During the year ended December 31, 2019, we sold our equity interest in Microcision LLC (Microcision) and recognized a
gain of $1,510,000. In addition, we realized a loss of $472,632 on our investment in SOMS Technologies, LLC after the company ceased doing business. We also recognized a $40,500 gain on our investment in Advantage 24/7 LLC after the Corporation
converted its equity into a debt instrument, and we received a final distribution of proceeds of $39,893 from Gemcor II, LLC, a portfolio company we exited in 2016.  46




---

##### Table of Contents

Net Change in Unrealized Appreciation or Depreciation on Investments The change in net unrealized appreciation or depreciation, before income taxes, for the year ended December 31, 2021 was comprised of the
following:  Year endedDecember 31,2021Open Exchange Inc. (Open Exchange)

$
4,918,061Tilson Technology Management, Inc. (Tilson)


4,215,000ACV Auctions, Inc. (ACV)


1,842,591Empire Genomics, Corp. (Empire Genomics)


1,151,021Mercantile Adjustment Bureau, LLC (Mercantile)


946,665SciAps, Inc. (Sciaps)


721,000First Wave Technologies, Inc. (First Wave)


628,563PennantPark Investment Corporation (Pennant Park)


364,751TCG BDC, Inc. (TCG)


239,914FS KKR Capital Corp. (FS KKR)


204,285Ares Capital Corporation (Ares)


115,290Barings BDC, Inc. (Barings)


71,067Owl Rock Capital Corporation (Owl Rock)


46,700Golub Capital BDC, Inc. (Golub)


46,043Apollo Investment Corporation (Apollo)


(7,616
)Microcision LLC (Microcision)


(10,000
)New Monarch Machine Tool, Inc. (New Monarch)


(22,841
)PostProcess Technologies, Inc. (Post Process)


(122,728
)Carolina Skiff LLC (Carolina Skiff)


(200,000
)Social Flow Inc. (Social Flow)


(201,487
)Filterworks Acquisition USA, LLC (Filterworks)


(369,249
)ITA Acquisition, LLC (ITA)


(375,000
)Knoa Software, Inc. (Knoa)


(544,860
)Centivo Corporation (Centivo)


(584,832
)Rheonix Inc. (Rheonix)


(702,732
)Total change in net unrealized appreciation or depreciation of investments before income
taxes

$
12,369,606 Ares, Barings, FS KKR, Golub, Owl Rock and Pennant Park are all publicly traded stocks, and as such, are
marked to market at the end of each quarter using the three-day average closing price. We sold our Apollo shares during year ended December 31, 2021. ACV completed an Initial Public Offering (IPO) at a price of $25.00 per share on March 23, 2021, and trades on the NASDAQ Global Select
market under the symbol ACVA. At December 31, 2021, we held 442,934 shares of unrestricted Class A common stock. Our holdings in the Class A common stock of ACV was valued, at December 31, 2021, using a price of
$18.81 per share, based upon the three-day average closing price. See footnote (p) on our Consolidated Schedule of Portfolio Investments for a discussion of ACV stock price subsequent to year end. In accordance with the Corporations valuation policy, we increased the value of our investments in Open Exchange and Tilson based on
significant equity financings for each of these portfolio companies. In addition,  47




---

##### Table of Contents

we increased the value of our investments in Empire Genomics and SciAps after a financial analysis of each of the portfolio companys indicating continued improved performance. During the year ended December 31, 2021, the valuation of our investments in Carolina Skiff, Filterworks, ITA, Knoa, New Monarch, Post
Process, Rheonix and Social Flow were decreased after a review of their operations and financial condition. The change in net unrealized
appreciation or depreciation, before income taxes, for the year ended December 31, 2020 was comprised of the following:  Year endedDecember 31,2020Genicon, Inc. (Genicon)

$
4,359,757Teleservices Solutions Holdings, LLC (Teleservices)


1,636,078BeetNPath, LLC (Beetnpath)


882,904Centivo Corporation (Centivo)


584,832G-Tec Natural Gas Systems
(G-tec)


400,000Dataview, LLC (Dataview)


310,357Ares


108,340USTec


100,500Pennant Park


88,537FS KKR


73,437TCG BDC


41,404Owl Rock


33,833Barings


33,581Golub


31,610Apollo


7,616Microcision LLC (Microcision)


(15,000
)Knoa Software, Inc. (Knoa)


(205,140
)Carolina Skiff, LLC (Carolina Skiff)


(250,000
)SocialFlow, Inc. (Socialflow)


(426,513
)SciAps, Inc. (Sciaps)


(869,274
)Total net change in unrealized appreciation or depreciation on investments before income
taxes

$
6,926,859 The valuations of our investments in Carolina Skiff, Knoa, Sciaps, and Socialflow were decreased after we
reviewed each portfolio company and its current and projected financial condition and determined that a valuation adjustment was appropriate. In accordance with our valuation policy, we increased the value of our investment in Centivo based on a significant equity financing during
2020 with sophisticated new non-strategic outside investors at a higher valuation than their prior financing round valuation. Beetnpath, Dataview, G-tec, Teleservices and USTec investments, previously deemed to have a zero
value, were sold and we did not receive any proceeds. Apollo, Ares, Barings, FS KKR, Golub, Owl Rock, Pennant Park and TCG are all
publicly traded stocks, and as such, are marked to market at the end of each quarter.  48




---

##### Table of Contents

The change in net unrealized appreciation or depreciation, before income taxes, for the year
ended December 31, 2019 was comprised of the following:  Year endedDecember 31,2019ACV Auctions, Inc. (ACV)

$
3,754,908Tilson Technology Management, Inc. (Tilson)


1,860,000SOMS Technologies, LLC (SOMS)


472,632PostProcess Technologies, Inc. (PostProcess)


122,728Mercantile Adjustment Bureau, LLC (Mercantile)


(200,000
)Open Exchange, Inc. (Open Exchange)


(200,001
)Empire Genomics, LLC (Empire Genomics)


(249,661
)Mezmeriz, Inc. (Mezmeriz)


(351,477
)BeetNPath, LLC (Beetnpath)


(523,904
)Microcision LLC (Microcision)


(610,000
)SciAps, Inc. (Sciaps)


(950,000
)SocialFlow, Inc. (Socialflow)


(1,321,300
)Rheonix, Inc. (Rheonix)


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


(4,277,257
)Total net change in unrealized appreciation or depreciation on investments before income
taxes

($
3,973,332
) The valuations of our investments in Beetnpath, Empire Genomics, Mercantile, Mezmeriz, Open Exchange, Rheonix,
Sciaps, and Socialflow were decreased after each of the portfolio companys operations, commercial progress against their business plan, and past and projected financial condition were reviewed, and it was determined that a valuation adjustment
was appropriate. Our valuation of Genicon was decreased due to a recent round of financing and after a review of their financial
condition. In accordance with our valuation policy, we increased the value of our holdings in ACV, Post Process and Tilson based on
significant equity financings for each of these companies, during 2019 with sophisticated new non-strategic outside investors at a higher valuation than their prior financing round valuation. We recognized a realized gain on the sale of the Microcision equity during 2019 and reversed the previously recorded unrealized appreciation.
We recognized a realized loss on our investment in SOMS during the year ended December 31, 2019. All of the valuation adjustments
resulted using the guidance set forth by ASC 820 and our established valuation policy. Net Increase (Decrease) in Net Assets from Operations We account for our operations under GAAP for investment companies. The principal measure of our financial performance is Net increase
(decrease) in net assets from operations on our consolidated statements of operations. During the year ended December 31, 2021, the net increase in net assets from operations was $15,797,428 as compared with of a net increase of $743,766
for the year ended December 31, 2020 and a net decrease of ($2,289,670) for the year ended December 31, 2019.  49




---

##### Table of Contents

Liquidity and Capital Resources Liquidity is a measure of our ability to meet anticipates cash requirements, fund new and follow-on
portfolio investments, pay distributions to our stockholders and other general business demands. As of December 31, 2021, our total liquidity consisted of approximately $834,000 in cash and cash equivalents. In addition, we hold publicly traded
equity securities of several BDCs and of ACV Auctions, which are available for future liquidity requirements. For the year ended
December 31, 2021, we experienced a net decrease in cash and cash equivalents in the amount of approximately $19,500,000, which is a net effect of approximately $3,900,000 of cash used in our operating activities and approximately $15,600,000
used in our financing activities. The $3,900,000 of cash used in our operating activities during the year ended December 31, 2021,
resulted primarily from cash used of approximately $19,700,000 to fund new or follow-on portfolio company investments. This was partially offset by cash proceeds totaling approximately $14,300,000 from the
sales and repayments of debt investments and the return on capital of our equity investments. Net cash flow used for financing activities
during the year ended December 31, 2021 was approximately $15,600,000. This is comprised of the repayment of $11,000,000 in SBA debentures, the approximately $4,600,000 in dividends paid to shareholders and the approximately $21,000 used to
repurchase shares. We anticipate that we will continue to fund our investment activities through cash and cash flows generated through
our ongoing operating activities and the sale of our publicly traded liquid investments. We anticipate that we will continue to exit investments. However, the timing of liquidation events within our privately held investments is difficult to
project. 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, 2021. 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 year2022


2023


2024


2025


2026 andbeyondScheduled cash receipts from portfolio companies

$
3,950,000


$
11,700,000


$
5,305,000


$
2,400,000


$
20,520,000Number of companies contributing to the scheduled cash receipts


14



14



9



7



7 Regulated Investment Company (RIC) Status and Distributions We have elected U.S federal tax treatment as a RIC under Subchapter M of the Code. As long as we qualify as a RIC, we will not be subject to
corporate-level U.S. federal income tax on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis. Taxable income commonly differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition
of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Dividends declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of
current year taxable income or the  50




---

##### Table of Contents

distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital. We intend to continue to declare and pay quarterly dividends to our shareholders. To avoid certain excise taxes imposed on RICs, we generally
strive to distribute, during each calendar year, an amount at least equal to the sum of:  

98% of our ordinary net taxable income for the calendar year;  

98.2% of our capital gains, if any, in excess of capital losses for the
one-year period ending on October 31 of the calendar year; and  

any net ordinary income and net capital gains for the preceding year that were not distributed during such year
and on which we do not pay corporate tax. The amount of our declared dividends, as estimated by RCM and approved by our
Board, is based primarily on an evaluation of our net taxable income and our capital gains, in excess of capital losses. Our ongoing
liquidity is tied to the performance of our portfolio companies and, as such, it may be affected going forward based on the impact of the COVID-19 pandemic and its lasting impact on the capital markets, our
portfolio companies, and the U.S. economy in general. Contractual Obligations We do not have any capital lease obligations or long-term liabilities on our consolidated statement of financial position at December 31,
2021.  Item 7A.
Quantitative and Qualitative Disclosures about Market Risk Our investment activities contain elements of risk. The portion of our investment portfolio consisting of debt and
equity securities in private companies is subject to valuation risk. Because there is typically no public market for the debt and equity securities in which we invest, the valuations of the debt and equity interests in the portfolio are stated at
fair value as determined in good faith by RCM and approved by our Board. 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
change in unrealized appreciation or depreciation on investments. At times, a portion of our portfolio may include marketable
securities traded in the over-the-counter market or on a 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, 2021, we did not have any off-balance sheet arrangements or hedging or similar derivative financial instrument investments.  51




---

##### 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:  Consolidated Statements of Financial Position as of December 
31, 2021 and 2020


53Consolidated Statements of Operations for the three years in the period ended
 December 31, 2021


54Consolidated Statements of Changes in Net Assets for the three years in the period
ended December 31, 2021


55Consolidated Statements of Cash Flows for the three years in the period ended
 December 31, 2021


56Consolidated Schedule of Portfolio Investments as of December 31,
2021


57Consolidated Schedule of Portfolio Investments as of December 31,
2020


65Financial Highlights Schedule for the five years in the period ended December 31,
 2021


73Notes to the Consolidated Financial Statements


74Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized
 Gain for the year ended December 31, 2021


95Report of Independent Registered Public Accounting Firm


96  52




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31,  2021


2020ASSETSInvestments at fair value:Affiliate investments (cost of $27,357,797 and $14,835,885, respectively)

$
30,279,873


$
13,891,199Non-Control/Non-Affiliate
investments (cost of $25,012,871 and $25,884,428, respectively)


33,788,589



26,157,302Total investments, at fair value (cost of $52,370,668 and $40,720,313, respectively)


64,068,462



40,048,501Cash and cash equivalents


833,875



20,365,415Interest receivable (net of allowance of $0 and $15,000, respectively)


128,047



258,186Prepaid income taxes


252,010



220,740Deferred tax asset


181,003



Other assets


181,457



74,100Total assets

$
65,644,854


$
60,966,942LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Due to investment adviser

$
891,102


$
156,999Accounts payable and accrued expenses


51,689



171,373Capital gains incentive fees


3,547,760



Deferred revenue


408,887



153,895Deferred tax payable






121,141Debentures guaranteed by the SBA (net of debt issuance costs)






10,824,587Dividend payable






3,434,117Total liabilities


4,899,438



14,862,112Commitments and contingencies (See Note 8)Stockholders equity (net assets):Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916; shares
outstanding: 2,581,021 at 12/31/21 and 2,582,169 at 12/31/20


264,892



264,892Capital in excess of par value


51,679,809



52,003,545Treasury stock, at cost: 67,895 shares at 12/31/21 and 66,747 shares at 12/31/20


(1,566,605
)


(1,545,834
)Total distributable earnings


10,367,320



(4,617,773
)Total stockholders equity (net assets) (per share - 2021: $23.54, 2020: $17.86)


60,745,416



46,104,830Total liabilities and stockholders equity (net assets)

$
65,644,854


$
60,966,942 See accompanying notes  53




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, 2021, 2020 and 2019  2021


2020


2019Investment income:Interest from portfolio companies:Control investments

$
23,068


$



$
Affiliate investments


1,541,507



666,969



823,565Non-Control/Non-Affiliate
investments


1,453,059



1,794,974



696,975Total interest from portfolio companies


3,017,634



2,461,943



1,520,540Interest from other investments:Non-Control/Non-Affiliate
investments


13,876



87,784



166,556Total interest from other investments


13,876



87,784



166,556Dividend and other investment income:Affiliate investments


354,536



118,730



320,806Non-Control/Non-Affiliate
investments


533,643



309,351



259,042Total dividend and other investment income


888,179



428,081



579,848Fee income:Affiliate investments


114,697



15,417



27,639Non-Control/Non-Affiliate
investments


41,917



109,694



430,113Total fee income


156,614



125,111



457,752Total investment income


4,076,303



3,102,919



2,724,696Expenses:Base management fee (see Note 11)


858,144



589,519



85,483Capital gains incentive fees (see Note 11)


4,200,000







Interest on SBA obligations


617,270



416,760



408,039Professional fees


578,577



568,857



548,041Shareholders and office operating


223,381



258,266



557,546Directors fees


153,500



116,500



117,500Insurance


38,635



33,868



38,302Corporate development


14,702



14,546



67,441Other operating


1,106



662



17,504Salaries










621,290Bonuses










115,000Employee benefits










189,157Bad debt (recovery) expense


(15,000
)


(24,000
)


5,413Total expenses


6,670,315



1,974,978



2,770,716Net investment (loss) income before income taxes


(2,594,012
)


1,127,941



(46,020
)Income tax expense (benefit)


10,896



(628,187
)


39,677Net investment (loss) income


(2,604,908
)


1,756,128



(85,697
)Net realized gain (loss) on sales and dispositions of investments:Control investments


(308,676
)






80,393Affiliate investments


192,645



(7,927,552
)


(472,632
)Non-Control/Non-Affiliate
investments


5,936,385



1,944,273



1,510,000Net realized gain (loss) on sales and dispositions, before income taxes


5,820,354



(5,983,279
)


1,117,761Income tax expense










255,923Net realized gain (loss) on sales and dispositions of investments


5,820,354



(5,983,279
)


861,838Net change in unrealized appreciation/depreciation on investments:Control investments


1,151,021







Affiliate investments


3,414,050



5,939,325



(3,970,007
)Non-Control/Non-Affiliate
investments


7,804,535



987,534



(3,325
)Change in unrealized appreciation/depreciation before income taxes


12,369,606



6,926,859



(3,973,332
)Deferred income tax (benefit) expense


(212,376
)


1,955,942



(907,521
)Net change in unrealized appreciation/depreciation on investments


12,581,982



4,970,917



(3,065,811
)Net realized and unrealized gains (losses) on investments


18,402,336



(1,012,362
)


(2,203,973
)Net increase (decrease) in net assets from operations

$
15,797,428


$
743,766


($
2,289,670
)Weighted average shares outstanding


2,581,707



2,268,356



836,893Basic and diluted net increase (decrease) in net assets from operations per share

$
6.12


$
0.33


($
2.74
) See accompanying notes  54




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS For The Years Ended December 31, 2021, 2020 and 2019  2021


2020


2019Net assets at beginning of year

$
46,104,830


$
53,628,516


$
31,524,187Net investment (loss) income


(2,604,908
)


1,756,128



(85,697
)Net realized gain (loss) on sales and dispositions of investments


5,820,354



(5,983,279
)


861,838Net change in unrealized appreciation/depreciation on investments


12,581,982



4,970,917



(3,065,811
)Net increase (decrease) in net assets from operations


15,797,428



743,766



(2,289,670
)Declaration of dividends


(1,136,071
)


(8,190,723
)


Issuance of capital stock, net










24,393,999Purchase of treasury shares


(20,771
)


(76,729
)


Net assets at end of year

$
60,745,416


$
46,104,830


$
53,628,516   See accompanying notes.  55




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, 2021, 2020 and 2019  2021


2020


2019Cash flows from operating activities:Net increase (decrease) in net assets from operations

$
15,797,428


$
743,766


($
2,289,670
)Adjustments to reconcile net increase (decrease) in net assets to net cash (used in) provided by
operating activities:Investments originated


(19,650,079
)


(11,327,982
)


(2,650,049
)Proceeds from sale of portfolio investments


9,331,661



4,617,617



1,549,893Proceeds from loan repayments


4,946,637



5,035,699



6,076,142Net realized (gain) loss on portfolio investments


(5,820,354
)


5,983,279



(1,117,761
)Change in unrealized appreciation/depreciation on investments


(12,369,606
)


(6,926,859
)


3,973,332Deferred tax (benefit) expense


(302,144
)


1,325,339



(679,000
)Depreciation and amortization


175,412



37,675



37,295Original issue discount accretion


(112,175
)


(47,801
)


(40,767
)Change in interest receivable allowance


(15,000
)


(151,413
)


5,413Non-cash conversion of debenture interest


(346,045
)


(361,662
)


(595,286
)Changes in operating assets and liabilities:Decrease (increase) in interest receivable


145,139



35,492



(2,146
)(Increase) decrease in other assets


(107,358
)


191,276



(253,949
)(Increase) decrease in prepaid income taxes


(31,270
)


122,356



795,612Decrease in bonus payable






(80,000
)


(45,000
)(Decrease) in accounts payable and accrued liabilities


(119,684
)


(36,500
)


(37,885
)Increase in due to investment adviser


734,103



106,435



50,564Increase in capital gains incentive fees payable


3,547,760







Increase (decrease) in deferred revenue


254,992



116,313



(34,751
)Total adjustments


(19,738,011
)


(1,360,736
)


7,031,657Net cash (used in) provided by operating activities


(3,940,583
)


(616,970
)


4,741,987Cash flows from financing activities:Pay back debentures guaranteed by the SBA


(11,000,000
)






Payment of cash dividend


(4,570,186
)


(4,756,606
)


Purchase of treasury shares


(20,771
)


(76,729
)


Issue capital stock (net)










14,844,504Proceeds from SBA debentures










2,250,000Origination costs to SBA










(54,563
)Net cash (used in) provided by financing activities


(15,590,957
)


(4,833,335
)


17,039,941Net (decrease) increase in cash and cash equivalents


(19,531,540
)


(5,450,305
)


21,781,928Cash and cash equivalents:Beginning of year


20,365,415



25,815,720



4,033,792End of year

$
833,875


$
20,365,415


$
25,815,720Supplemental disclosure of non-cash financing
activitiesFair value of common stock dividend paid

$



$
19,028,027


$
Receipt of contributed assets in exchange for issuance of common stock (see Note 1)

$



$



$
9,549,543 See accompanying notes  56




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021 (Unaudited)  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  55.6% of net assets: (j)ACV Auctions, Inc. NASDAQ:ACVA(e)(g)(n)(p)
Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software)
www.acvauctions.com

442,934 Class A Common stock valued at
$18.81.


8/12/16



<1
%

$
121,659


$
8,333,065



13.7
%Ares Capital Corporation NASDAQ: ARCC(n)
New York, NY. (BDC Investment Fund)

27,000 shares.


3/16/20



<1
%


343,460



567,090



0.9
%Barings BDC, Inc. NYSE: BBDC(n) New York,
NY. (BDC Investment Fund)

40,000 shares.


8/13/20



<1
%


333,352



438,000



0.7
%Caitec, Inc.
Halethorpe, MD. Pet product manufacturer and distributor. (Consumer Goods)
www.caitec.com

$1,750,000 Subordinated SecuredPromissory Note at 12% (+2% PIK) dueJune 1, 2026.
150 Class A Units. (g)$1,750,000 Subordinated
SecuredPromissory Note at 12% (+2% PIK) dueJune 1, 2026. (g) 150 Class A Units.


11/6/2011/6/20
11/6/20 
11/6/20



4
%


1,791,278
150,000 
 1,791,278
150,000



1,791,278
150,000 
 1,791,278
150,000



6.4
%Total Caitec










3,882,556



3,882,556Empire Genomics, Corp.(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

$444,915 + $1,000,000 SecuredPromissory Notes at 8% due
December 31, 2026.


5/3/21



0
%


1,444,915



1,444,915



2.4
%FS KKR Capital Corp. NYSE: FSK(n)
Philadelphia, PA. (BDC Investment Fund)

54,000 shares.


3/16/20



<1
%


849,438



1,127,160



1.9
%Golub Capital BDC, Inc. NASDAQ: GBDC(n)
New York, NY. (BDC Investment Fund)

31,250 shares.


3/16/20



<1
%


403,910



481,563



0.8
%GoNoodle, Inc.(g)(h)(l)
Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software)
www.gonoodle.com

$1,500,000 Secured Note at 12% (1% PIK) due
September 30, 2024. Warrant for 47,324 Series C
Preferred. Warrant for 21,948 Series D
Preferred.


11/1/19 3/1/15
 11/1/19



<1
%


1,487,801
25 38



1,487,801
25 38



2.5
%Total GoNoodle










1,487,864



1,487,864HDI Acquisition LLC (Hilton Displays)(l)
Greenville, NC. HDI is engaged in manufacturing, installation and maintenance of signage and brands. (Manufacturing)
www.hiltondisplays.com

$1,245,119 Term Loan at 12% (+2% PIK) due
June 20, 2023.


11/8/19



0
%


1,301,195



1,301,195



2.1
%Lumious (Tech 2000, Inc.)(g)
Herndon, VA. Develops and delivers IT training. (Software)
www.t2000inc.com

$850,000 Replacement Term Note at 14% due
November 15, 2023.


11/16/18



0
%


860,777



860,777



1.4
%Mattison Avenue Holdings LLC(l)
Dallas, TX. Provider of upscale salon spaces for lease. (Professional Services)
www.mattisonsalonsuites.com

$1,794,944 Third Amended,Restated and Consolidated
Promissory Note at 14% (2% PIK) due December 9, 2023.



6/23/21



0
%


1,819,362



1,819,362



3.0
%  57




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021  (Continued) (Unaudited)  Company, Geographic Location, BusinessDescription, (Industry)
and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsNailbiter, Inc. Reston, VA. Video-metrics
data analytics supporting name brand consumer products groups (CPG) shopping behavioral insight. (Professional Services) www.nailbiter.com

$2,250,000 Membership Interest of USB Focus Fund Nailbiter I, LLC with economic interest of $2,250,000 Subordinated Secured Promissory Note at
10% due November 23, 2024. Warrants for Preferred stock of Nailbiter, Inc.


11/22/21



<1%



2,250,000



2,250,000



3.7%OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Patented and proprietary golf balls utilizing technology and innovation.
(Consumer Product) www.oncoregolf.com

300,483 Preferred AA.


11/30/18



3%



752,712



300,000



0.5%Open Exchange, Inc.(e)(g)
(Formerly KnowledgeVision Systems, Inc.) Lincoln, MA. Online
presentation and training software. (Software) www.openexc.com

397,899 Series C Preferred. 397,899
Common.


11/13/1310/22/19



3%



1,193,697208,243



2,785,0002,785,000



9.2%Total Open Exchange










1,401,940



5,570,000Owl Rock Capital Corporation NYSE:ORCC(n)
New York, NY. (BDC Investment Fund)

30,000 shares.


3/16/20



<1%



347,067



427,600



0.7%PennantPark Investment Corporation NASDAQ: PNNT(n)
New York, NY. (BDC Investment Fund)

195,000 shares.


8/13/20



<1%



892,212



1,345,500



2.2%PostProcess Technologies, Inc.(e)(g)
Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com

360,002 Series A1 Preferred.


11/1/19



<1%



348,875



348,875



0.6%Rheonix, Inc.(e) Ithaca, NY.
Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com

9,676 Common. (g)1,839,422 Series A
Preferred. (g) 50,593 Common. (g) 589,420 Series
B Preferred.


10/29/0912/12/13 10/24/09
9/29/15



4%



2,099,999
 702,732




 



0.0
%Total Rheonix










2,802,731



SocialFlow, 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. 1,204,819 Series B-1 Preferred. 717,772 Series C Preferred.


4/5/134/8/14 6/26/15



4%



500,000750,000
500,000



35,00052,000
35,000



0.2
%Total Social Flow










1,750,000



122,000Somerset Gas Transmission Company, LLC(e)(m)
Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com

26.5337 Units.


4/1/05



3%



719,097



500,000



0.8%TCG BDC, Inc. NASDAQ: CGBD(n) New York,
NY. (BDC Investment Fund)

86,000 shares.


8/13/20



<1%



899,749



1,181,067



1.9%Subtotal Non-Control/Non-Affiliate Investments











$
25,012,871


$
33,788,589  58




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021  (Continued) (Unaudited)  Company, Geographic Location, BusinessDescription, (Industry)
and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsAffiliate Investments  49.9% of net assets(k) Applied Image, Inc.
Rochester NY. Global supplier of precision imaged optical components and calibration standards for a wide range of industries and applications. (Manufacturing)
www.appliedimage.com

$1,750,000 Term Note at 10% due February 1, 2029.
Warrant for 1,167 shares.


12/31/21
 12/31/21



12%


$
1,750,000



$
1,750,000




2.9
%Total Applied Imaging









$
1,750,000


$
1,750,000BMP Swanson Holdco, LLC(g)(m)
Plano, TX. Designs, installs and maintains a variety of fire protection systems.
(Professional Services)

$1,600,000 Term Note at 12% due September 4,
2026. Preferred Membership Interest for 9.29%.


3/4/21 3/4/21



9%



1,600,000
233,333


$
1,600,000
233,333



3.0
%Total BMP Swanson










1,833,333



1,833,333Carolina Skiff LLC(g)(m) Waycross, GA.
Manufacturer of ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com

6.0825% Class A Common Membership Interest.


1/30/04



7%



15,000



1,300,000



2.2%DSD Operating, LLC(m) Duluth, GA.
Design and renovate auto dealerships. (Automotive) www.dsdteam.com

$2,745,000 Term Note at 12% (+2% PIK) due September 30, 2026.
1,067 Class A Preferred shares. 1,067 Class B Common
shares.


9/30/21



11%



2,759,183
1,067,500 



2,759,183
1,067,500 



6.3%Total DSD










3,826,683



3,826,683Filterworks Acquisition USA, LLC DBA Autotality(l)(m)
Deerfield Beach, FL. Provides spray booth equipment, frame repair machines and paint booth filter services for collision shops. (Automotive)
www.autotality.com

$2,283,702 Term Note at 12% (+2% PIK), modified to 4% (+10% PIK) through March 31,2022 due December 4, 2023.
626 Class A Units.


11/8/19 12/28/21



9%



2,446,617 626,243



2,446,617 256,994



4.5%Total Filterworks










3,072,860



2,703,611ITA Acquisition, LLC(m) Ormond Beach, FL.
Blind and shade manufacturing. (Manufacturing) www.itainc.com

$1,900,000 Term Note at 12% (+2% PIK) dueJune 21, 2026.
(g) $1,500,000 Term Note at 12% (+2% PIK)due June 21, 2026.
(g) 500 Class A Preferred Units and 500Class B Common Units.


6/22/21 6/22/21
 6/22/21



24%



1,920,459
 1,516,152
 500,000



1,920,459
 1,516,152
 125,000



5.9%Total ITA










3,936,611



3,561,611Knoa Software, Inc.(e)(g)
New York, NY. End user experience management and performance (EMP) solutionsutilizing enterprise applications. (Software)www.knoa.com

973,533 Series A-1 Convertible Preferred.
1,876,922 Series B Preferred.


11/20/126/9/14



7%



750,000479,155



479,155



0.8%Total Knoa










1,229,155



479,155Mezmeriz, Inc.(e)(g) Ithaca, NY.
Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer)
www.mezmeriz.com

1,554,565 Series Seed Preferred.


5/14/15



12%



742,850







0.0%Microcision LLC(g) Pennsauken Township,
NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing) www.microcision.com

Membership Interest Purchase Warrant for 5%.


1/10/20



5%



110,000



85,000



0.1%New Monarch Machine Tool, Inc.(e)(g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com

22.84 Common.


1/17/08



15%



22,841







0.0%  59




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021  (Continued) (Unaudited)  Company, Geographic Location, BusinessDescription, (Industry)
and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsSciAps, 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 Preferred. 274,299 Series A1
Convertible Preferred. 117,371 Series B Convertible Preferred.
113,636 Series C Convertible Preferred. 369,698 Series C1
Convertible Preferred. 147,059 Series D Convertible Preferred.
Warrant to purchase Series D-1 Preferred.
$1,500,000 Second Amended and Restated Secured Subordinated Promissory Note at 12% due August 20, 2024.


7/12/134/4/14
8/31/15 4/7/16
4/7/16 5/9/17
5/9/17 8/20/21



6%



1,500,000504,710
250,000 175,000
399,274 250,000
45,000 
 1,480,000



210,00096,000
124,000 84,000
207,000 250,000
 
 1,480,000



4.0%Total SciAps










4,603,984



2,451,000Seyberts Billiards Corporation
Coldwater, MI. Billiard supplies. (Consumer Product)
www.seyberts.com

$1,900,000 Term Note at 12% (+2% PIK) dueJanuary 19, 2026.
Warrant for 4%. (g) $1,400,000 Term Note at 12% (+2%
PIK)due January 19, 2026. Warrant for 4%.


11/22/21
1/19/21 1/19/21
 1/19/21



8
%


1,907,775 25,000
 1,406,690
25,000



1,907,775 25,000
 1,406,690
25,000



5.5
%Total Seyberts










3,364,465



3,364,465Tilson Technology Management, Inc.(g)
Portland, ME. Provides network deployment construction and information system services management for cellular, fiber optic and wireless systems providers. Its
affiliated entity, SQF, LLC is a CLEC supporting small cell 5G deployment. (Professional Services) www.tilsontech.com

*120,000 Series B Preferred. *21,391 Series C
Preferred. *70,176 Series D Preferred. *15,385 Series E
Preferred. 211,567 SQF Hold Co. Common. 23,077 Series F
Preferred.


1/20/159/28/16
9/29/17 3/15/19
3/15/19 6/15/20



9
%


600,000200,000
800,000 500,012
 750,003



3,900,000695,000
2,280,000 500,012
800,000 750,003



14.7
%Total Tilson










2,850,015



8,925,015*2.5% dividend payable quarterly.Subtotal Affiliate Investments











$
27,357,797


$
30,279,873TOTAL INVESTMENTS  105.5%











$
52,370,668


$
64,068,462LIABILITIES IN EXCESS OF OTHER ASSETS  (5.5%)
















(3,323,046
)NET ASSETS  100%















$
60,745,416  60




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021 (Continued) (Unaudited)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2021, restricted securities represented 78% of the fair value of the investment portfolio.
Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in the form of shares unless otherwise noted as units or interests, i.e., preferred shares, common
shares.  (b)
The Date Acquired column indicates the date on which the Corporation first acquired an investment.  (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 Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2021, ASC 820 designates 78% of the
Corporations investments as Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly traded securities are valued at the average closing 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 our external investment advisor Rand Capital Management, LLC (RCM) 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 3. 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. If a debt or a preferred equity investment fails to make its most recent payment, then the investment will also be classified as non-income producing.  (f)
As of December 31, 2021, the total cost of investment securities was approximately $52.4 million. Net
unrealized appreciation was approximately $11.7 million, which was comprised of $21.2 million of unrealized appreciation of investment securities and ($9.5) million of unrealized depreciation of investment securities. At December 31,
2021, the aggregate gross unrealized gain for federal income tax purposes was $20.6 million and the aggregate gross unrealized loss for federal income tax purposes was ($9.6) million. The net unrealized gain for federal income tax purposes was
$11.0 million based on a tax cost of $53.0 million.  (g)
Rand Capital investment held by Rand Capital Sub LLC.  (h)
Reduction in cost and value from previously reported balances reflects current principal repayment.  (i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the
Corporations Consolidated Statements 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)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment and due at
maturity. The amount of PIK earned is included in the interest rate detailed in the Type of Investment column, unless it has been noted with a (+), in which case the PIK is in addition to the face amount of interest due on the security.  (m)
Equity holdings are held in a wholly owned (100%) blocker corporation of Rand Capital Corporation or
Rand Capital Sub LLC for federal income tax and Regulated Investment Company (RIC) compliance.  (n)
Publicly traded company.  (o)
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.  (p)
Subsequent to December 31, 2021, ACV Auctions (ACVA) public market share price had a trading range on
NASDAQ of $10.30 to $19.73 for the period of January 1st to February 28th, 2022. The Corporations value per share on December 31, 2021 was $18.81.  61




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021 (Continued) (Unaudited)  Investments in and Advances to Affiliates  Company

Type of Investment

January 1,2021, FairValue


NetChange inUnrealizedAppreciation(Depreciation)


GrossAdditions(1)


GrossReductions(2)


December 31,2021 FairValue


NetRealized(Losses)Gains


Amount ofInterest/Dividend/FeeIncome(3)Control Investments:Empire Genomics Corp.

$444,915 Secured Promissory Note at 8% due December 31, 2026.
1,576,499 common shares.

$




$




$
444,915
157,655


($
444,915
(157,655
)
)

$




($
308,676

)

$
23,068
Total Empire

$



$




602,570



(602,570
)






(308,676
)


23,068Total Control Investments

$



$



$
602,570


($
602,570
)

$



($
308,676
)

$
23,068Affiliate Investments:Applied Image Inc.

$1,750,000 Term Note at 10% due
December 28, 2028. Warrant for 1,167 shares.

$




$




$
1,750,000



$




$
1,750,000



$




$
17,500
Total Applied Image










1,750,000







1,750,000







17,500BMP Swanson Holdco, LLC

$1,600,000 Term Note at 12% due
September 4, 2026. Preferred Membership Interest for
9.29%.












1,600,000
233,333








1,600,000
233,333








166,623
Total BMP Swanson










1,833,333







1,833,333







166,623Carolina Skiff LLC

6.0825% Class A Common Membershipinterest.


1,500,000



(200,000
)










1,300,000







214,265ClearView Social, Inc.

312,500 Series Seed Plus Preferred.


200,000











(200,000
)






135,430



DSD Operating, LLC

$2,745,000 Term Note at 12% (+2%PIK) due September 30, 2026.
1,067 Class A Preferred shares. 1,067 Class B Common
shares.



 




 



2,759,183
1,067,500 




 



2,759,183
1,067,500 




 



103,089
 Total DSD










3,826,683







3,826,683







103,089Filterworks Acquisition USA, LLC

$2,283,702 Term Note at 12%. 562.5 Class A
Units.


2,349,831562,500



(369,249
)


96,78663,743







2,446,617256,994







336,090Total Filterworks


2,912,331



(369,249
)


160,529







2,703,611







336,090ITA Acquisition LLC

$1,900,000 Term Note at 12% (+2%PIK) due June 22, 2026.
(g) $1,500,000 Term Note at 12% (+2%PIK) due June 22, 2026.
(g)500 Class A Preferred Units and 500Class B Common Units.



 
 




 
 (375,000
)


1,920,459
 1,516,152
 500,000




 
 



1,920,459
 1,516,152
125,000




 
 



147,049
 118,220
 14,096Total ITA






(375,000
)


3,936,611







3,561,611







279,365Knoa Software, Inc.

973,533 Series A-1 Convertible Preferred.
1,876,922 Series B Preferred.


544,860479,155



(544,860
)










479,155







87,771Total Knoa


1,024,015



(544,860
)










479,155







87,771Mezmeriz, Inc.

1,554,565 Series Seed Preferred.


























Microcision LLC

$1,500,000 Subordinated PromissoryNote at 10%.
Membership Interest Purchase Warrantfor 5%.


1,411,997
 95,000




 (10,000
)


88,003
 



(1,500,000
 
)



 85,000



57,215
 



126,711
 Total Microcision


1,506,997



(10,000
)


88,003



(1,500,000
)


85,000



57,215



126,711New Monarch Machine Tool, Inc.

22.84 Common.


22,841



(22,841
)


















OnCore Golf Technology, Inc.

300,483 Series AA Preferred.


300,000











(300,000
)










  62




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021 (Continued) (Unaudited)  Company

Type of Investment

January 1,2021, FairValue


NetChange inUnrealizedAppreciation(Depreciation)


GrossAdditions(1)


GrossReductions(2)


December 31,2021 FairValue


NetRealized(Losses)Gains


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

187,500 Series A Preferred. 274,299 Series A-1 Convertible Preferred. 117,371 Series B Convertible Preferred.
113,636 Series C Convertible Preferred. 369,698 Series C-1 Convertible Preferred. 147,059 Series D Convertible Preferred.
Warrant to Purchase Series D-1 Preferred.
$1,500,000 Subordinated Promissory Note at 12%.



 
 250,000
 1,465,000



210,00096,000
124,000 84,000
207,000 
 




 
 
 15,000




 
 
 



210,00096,000
124,000 84,000
207,000 250,000
 1,480,000




 
 
 




 
 
 215,000Total SciAps


1,715,000



721,000



15,000







2,451,000







215,000Seyberts Billiards Corporation

$1,400,000 Term Note at 12% (+2% PIK)due January 19, 2026.
Warrant for 4%. (g) $1,400,000 Term Note at 12%
(+2%PIK) due January 19, 2026. Warrant for 4%.



 
 




 
 



1,907,774
25,000 
1,406,690 25,000




 




1,907,774
25,000 
1,406,690 25,000




 
 



209,904
 
201,922 Total Seyberts










3,364,464







3,364,464







411,826Tilson Technology Management, Inc.

120,000 Series B Preferred. 21,391 Series C
Preferred. 70,176 Series D Preferred. 15,385 Series E
Preferred. 23,077 Series F Preferred. 211,567 SQF Hold Co.
Common.


1,950,000347,604
1,140,360 500,012
750,003 22,036



1,950,000347,396
1,139,640 
 777,964




 
 




 
 



3,900,000695,000
2,280,000 500,012
750,003 800,000




 
 



52,500
 
 Total Tilson


4,710,015



4,215,000











8,925,015







52,500Total Affiliate Investments

$
13,891,199


$
3,414,050


$
14,974,623


($
2,000,000
)

$
30,279,872


$
192,645


$
2,010,740Total Control and Affiliate Investments

$
13,891,199


$
3,414,050


$
15,577,193


($
2,602,570
)

$
30,279,872


($
116,031
)

$
2,033,808 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements,
including the Notes to the Consolidated Financial Statements and the Consolidated Schedule of Portfolio Investments.  (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 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, 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.  63




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2021 (Continued)  Industry Classification

Percentage of TotalInvestments (at fair value)as of December 31, 2021Software


26.3
%Professional Services


23.1Manufacturing


16.8Consumer Product


11.8Automotive


10.2BDC Investment Funds


8.7Healthcare


2.3Oil and Gas


0.8Total Investments


100
%  64




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020  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 
 56.7% 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.


8/12/16



<1
%

$
163,000


$
6,531,815



14.2
%Advantage 24/7 LLC(g)
Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company)
www.advantage24-7.com

$140,000 Term Note at 7% due January 1, 2022.


1/1/19



0
%


55,000



55,000



0.1
%Apollo Investment Corporation NASDAQ: AINV(n) Public BDC
New York, NY.

35,000 shares.


3/16/20



<1
%


364,084



371,700



0.8
%Ares Capital Corporation NASDAQ: ARCC(n) Public BDC
New York, NY.

27,000 shares.


3/16/20



<1
%


343,460



451,800



1.0
%Barings BDC, Inc. NYSE:BBDC(n) Public BDC
New York, NY.

40,000 shares.


8/13/20



<1
%


333,352



366,933



0.8
%Caitec Acquisition, Inc.
Halethorpe, MD. Pet product manufacturer. (Manufacturing)
www.caitec.com

$1,750,000 Subordinated Secured Promissory Note at 12% (+2% PIK) due June 1, 2026.
150 Class A Units. (g)$1,750,000 Subordinated Secured
Promissory Note at 12% (+2% PIK) due June 1, 2026 (g) 150 Class A Units.


11/6/20 11/6/20
11/6/20 
11/6/20



2 2
%  %


1,755,351
150,000 
1,755,351 150,000



1,755,351
150,000 
1,755,351 150,000



8.3
%Total Caitec










3,810,702



3,810,702Centivo Corporation(e)(g)
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)
www.centivo.com

190,967 Series A-1 Preferred.
337,808 Series A-2 Preferred.
298,347 Series B Preferred.


3/19/183/19/18
11/9/20



<1
%


200,000101,342
500,000



320,042566,132
500,000



3.0
%Total Centivo










801,342



1,386,174Empire 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

$1,209,014 Senior Secured Convertible Term Notes at 10% due February 28, 2021.
$444,915 Promissory Note at 9% due February 28, 2021.


6/13/14 10/1/18



0
%


1,308,675
 444,915



157,654
 444,915



1.3
%Total Empire










1,753,590



602,569First Wave Technologies, Inc.(e)(g)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds pills for nursing homes and medical institutions. (Health Care)
www.firstwavetechnologies.com

670,443.2 Class A Common.


4/19/12



2
%


661,563



33,000



0.1
%FS KKR Capital Corp. NYSE:FSK(n) Public BDC
Philadelphia, PA.

25,000 shares.


3/16/20



<1
%


338,980



412,417



0.9
%GiveGab, Inc.(e)(g)
Ithaca, NY. Nonprofit giving platform that provides an easy and effective way for fundraising professionals to raise money online. (Software)
www.givegab.com

5,084,329 Series Seed Preferred.


1/14/15



4
%


616,221



616,221



1.3
%Golub Capital BDC, Inc. NASDAQ: GBDC(n) Public BDC
New York, NY.

31,250 shares.


3/16/20



<1
%


403,910



435,520



0.9
%GoNoodle, Inc.(g)(l)
Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software)
www.gonoodle.com

$1,500,000 Secured Note at 12% (1% PIK) due September 30, 2024.
Warrant for 47,324 Series C Preferred. Warrant for 21,948 Series D
Preferred.


11/1/19
3/1/15 11/1/19



<1
%


1,517,539
25 38



1,517,539
25 38



3.3
%Total GoNoodle










1,517,602



1,517,602  65




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry)and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsHDI Acquisition LLC (Hilton Displays)(l)
Greenville, NC. HDI is engaged in manufacturing, installation and maintenance of signage and brands. (Manufacturing)
www.hiltondisplays.com

$1,245,119 Term Loan at 12% (+2% PIK) due June 20, 2023.


11/8/19



0
%


1,275,140



1,275,140



2.8
%Lumious (Tech 2000, Inc.)(g)
Herndon, VA. Develops and delivers IT training. (Software)
www.t2000inc.com

$850,000 Replacement Term Note at 14% due November 15, 2021.


11/16/18



0
%


860,777



860,777



1.9
%Mattison Avenue Holdings LLC(l)
Dallas, TX. Provider of upscale salon spaces for lease. (Professional Services) www.mattisonsalonsuites.com

$1,031,406 Second Amended, Restated and Consolidated Promissory Note at 14% (2% PIK) due June 9, 2022.


11/8/19



0
%


1,122,204



1,122,204



2.5
%Mercantile 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% (8% effective August 2020) due January 31, 2022.
(e)$150,000 Subordinated Debenture at 8% due January 31, 2022.
Warrant for 3.29% Membership Interests. Option for 1.5% Membership Interests.


10/22/12 6/30/14
 10/22/12



4
%


1,199,040
 150,000
 97,625



500,000
 
 



1.1
%Total Mercantile










1,446,665



500,000Open Exchange, Inc.(e)(g)
(Formerly KnowledgeVision Systems, Inc.) Lincoln, MA. Online
presentation and training software. (Software) www.openexc.com

397,899 Series C Preferred. 397,899
Common.


11/13/1310/22/19



4
%


1,193,697208,243



543,283108,656



1.4
%Total Open Exchange










1,401,940



651,939Owl Rock Capital Corporation NYSE: ORRC(n) Public BDC
New York, NY.

30,000 shares.


3/16/20



<1
%


347,067



380,900



0.8
%PennantPark Investment Corporation NASDAQ: PNNT(n) Public BDC
New York, NY.

100,000 shares.


8/13/20



<1
%


370,130



458,667



1.0
%PostProcess Technologies, Inc.(e)(g)
Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com

360,002 Series A1 Preferred.


11/1/19



<1
%


348,875



471,603



1.0
%Rheonix, Inc.(e)
Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com

9,676 Common. (g)1,839,422 Series A
Preferred. (g) 50,593 Common. (g) 589,420 Series
B Preferred.


10/29/0912/12/13
10/24/09 9/29/15



4
%


2,099,999
 702,732




 702,732



1.5
%Total Rheonix










2,802,731



702,732Science and Medicine Group, Inc. (SMG)(g)
Arlington, VA. Research and advisory firm serving the life science, analytical instrument, diagnostic, healthcare, radiology, and dental industries. (Health
Care) www.scienceandmedicinegroup.com

$1,900,000 Participation Agreement of $5,000,000 Promissory Note at 12% due March 5, 2023.


7/31/20



0
%


1,900,000



1,900,000



4.1
%SocialFlow, 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. 1,204,819 Series B-1 Preferred. 717,772 Series C Preferred.


4/5/134/8/14
6/26/15



4
%


500,000750,000
500,000



92,425138,637
92,425



0.7
%Total Social Flow










1,750,000



323,487  66




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry)and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsSomerset Gas Transmission Company, LLC(e)(m)
Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com

26.5337 Units.


4/1/05



3
%


719,097



500,000



1.1
%TCG BDC, Inc. NASDAQ:CGBD(n) Public BDC
New York, NY.

40,000 shares.


8/13/20



<1
%


376,996



418,400



0.9
%Subtotal Non-Control/Non-Affiliate Investments











$
25,884,428


$
26,157,302Affiliate Investments  30.1% of net assets(k)Carolina Skiff LLC(g)(m)
Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing)
www.carolinaskiff.com

6.0825% Class A Common Membership Interest.


1/30/04



7
%

$
15,000


$
1,500,000



3.2
%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.


1/4/16



6
%


200,000



200,000



0.4
%Filterworks Acquisition USA,LLC(l)(m)
Deerfield Beach, FL. Provides spray booth equipment, frame repair machines and paint booth filter services for collision shops. (Automotive)
www.filterworksusa.com

$2,283,702 Term Note at 12% (+2% PIK) due December 4, 2023.
562.5 Class A Units.


11/8/19



9
%


2,349,831
562,500



2,349,831
562,500



6.3
%Total Filterworks










2,912,331



2,912,331Knoa 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.
1,876,922 Series B Preferred.


11/20/126/9/14



7
%


750,000479,155



544,860479,155



2.2
%Total Knoa










1,229,155



1,024,015Mezmeriz, Inc.(e)(g)
Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics
Developer) www.mezmeriz.com

1,554,565 Series Seed Preferred.


5/14/15



12
%


742,850







0.0
%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 11% due January 10, 2025.
Membership Interest Purchase Warrant for 5%.


1/10/20 1/10/20



5
%


1,411,997
 110,000



1,411,997
 95,000



3.3
%Total Microcision










1,521,997



1,506,997New Monarch Machine Tool, Inc.(e)(g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com

22.84 Common.


1/17/08



15
%


22,841



22,841



0.1
%OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Patented and proprietary golf balls utilizing technology and innovation. (Consumer Product)
www.oncoregolf.com

300,483 Preferred AA.


11/30/18



5
%


752,712



300,000



0.7
%  67




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Company, Geographic Location, BusinessDescription,
(Industry)and Website

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsSciAps, 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 Preferred. 274,299 Series A1
Convertible Preferred. 117,371 Series B Convertible Preferred.
113,636 Series C Convertible Preferred. 369,698 Series C1
Convertible Preferred. 147,059 Series D Convertible Preferred.
Warrant to purchase Series D-1 Preferred.
$1,500,000 Secured Subordinated Promissory Note at 12% due April 23, 2023.


7/12/134/4/14
8/31/15 4/7/16
4/7/16 5/9/17
5/9/17 4/23/20



6
%


1,500,000504,710
250,000 175,000
399,274 250,000
45,000 1,465,000




 
 250,000
 1,465,000



3.7
%Total SciAps










4,588,984



1,715,000(i) Interest receivable $123,500.Tilson Technology Management, Inc.(g)
Portland, ME. Provides network deployment construction and information system services management for cellular, fiber optic and wireless systems providers. Its
affiliated entity, SQF, LLC is a CLEC supporting small cell 5G deployment. (Professional Services) www.tilsontech.com

*120,000 Series B Preferred. *21,391 Series C
Preferred. *70,176 Series D Preferred. *15,385 Series E
Preferred. 211,567 SQF Hold Co. Common. 23,077 Series F
Preferred.


1/20/159/28/16
9/29/17 3/15/19
3/15/19 6/15/20



9
%


600,000200,000
800,000 500,012
 750,003



1,950,000347,604
1,140,360 500,012
22,036 750,003



10.2
%Total Tilson










2,850,015



4,710,015*2.5% dividend payable quarterly.Subtotal Affiliate Investments











$
14,835,885


$
13,891,199TOTAL INVESTMENTS  86.9%











$
40,720,313


$
40,048,501OTHER ASSETS IN EXCESS OF LIABILITIES  13.1%















$
6,056,329NET ASSETS  100%















$
46,104,830  68




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2020, restricted securities represented 92% of the fair value of the investment
portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in the form of shares unless otherwise noted as units or interests, i.e., preferred shares,
common shares.  (b)
The Date Acquired column indicates the date on which the Corporation first acquired an investment.  (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 Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2020, ASC 820 designates 92% of the
Corporations investments as Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly traded securities are valued at the average closing 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 our external investment advisor Rand Capital Management, LLC (RCM) 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 3. 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. However, if a debt or a preferred equity investment fails to make its most recent payment, then the investment will also be classified as non-income
producing.  (f)
As of December 31, 2020, the total cost of investment securities was approximately $40.7 million.
Net unrealized depreciation was approximately ($672) thousand, which was comprised of $10.6 million of unrealized appreciation of investment securities and ($11.3) million of unrealized depreciation of investment securities. At
December 31, 2020, the aggregate gross unrealized gain for federal income tax purposes was $10.1 million and the aggregate gross unrealized loss for federal income tax purposes was ($11.3) million. The net unrealized loss for federal
income tax purposes was ($1.2) million based on a tax cost of $40.9 million.  (g)
Rand Capital Sub LLC f/k/a Rand Capital SBIC, Inc. investment.  (h)
Reduction in cost and value from previously reported balances reflects current principal repayment.  (i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the
Corporations Consolidated Statements 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 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)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment and due at
maturity. The amount of PIK earned is included in the interest rate detailed in the Type of Investment column, unless it has been noted with a (+), in which case the PIK is in addition to the face amount of interest due on the security.  (m)
Equity holdings are held in a wholly owned (100%) blocker corporation of Rand Capital Corporation
or Rand Capital Sub LLC f/k/a Rand Capital SBIC, Inc. for federal income tax and Regulated Investment Company (RIC) compliance.  (n)
Publicly traded company.  69




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Investments in and Advances to Affiliates  Company

Type of Investment

December 31,2019 FairValue


NetChange inUnrealized(Depreciation)


GrossAdditions(1)


GrossReductions(2)


December 31,2020 FairValue


NetRealized(Losses)Gains


Amount ofInterest/Dividend/FeeIncome(3)Control Investments:Total Control Investments

$



$



$



$



$



$



$
Affiliate Investments:BeetNPath, LLC

1,119,024 Series A-2 Preferred Membership Units.
1,032,918 Series B Preferred Membership Units. $262,626.64
Convertible Secured Notes at 8%.

$

 


$

 


$

 


$

 


$

 


($
359,000
(261,277 (262,627
)
) )

$

 Total BeetNPath






















(882,904
)


Carolina Skiff LLC

6.0825% Class A Common Membership interest.


1,750,000



(250,000
)










1,500,000







66,230ClearView Social, Inc.

312,500 Series Seed Plus Preferred.


200,000















200,000







Filterworks
Acquisition USA, LLC

$2,283,702 Term Note at 12%. 562.5 Class A
Units.


2,302,653562,500







47,178







2,349,831562,500







330,251Total Filterworks


2,865,153







47,178







2,912,331







330,251Genicon, Inc.

1,586,902 Series B Preferred. $3,250,000
Promissory Notes at 10%. $250,000 Promissory Note at 10%
Warrant for Common.


500,000
250,000 



(500,000
(250,000 
) )



 




 




 



(1,000,000(3,743,377
(262,184 (120,000
) ) )
)


17,054
 Total Genicon


750,000



(750,000
)














(5,125,561
)


17,054G-TEC Natural Gas Systems

16.639% Class A Membership Interest. 8% cumulative dividend.






















(400,000
)


Knoa Software, Inc.

973,533 Series A-1 Convertible Preferred.
1,876,922 Series B Preferred.


750,000479,155



(205,140
)










544,860479,155







Total Knoa


1,229,155



(205,140
)










1,024,015







Mezmeriz, Inc.

1,554,565 Series Seed Preferred.


























Microcision LLC

$1,500,000 Subordinated Promissory Note at 10%.
Membership Interest Purchase Warrant for 5%








 (15,000
)


1,500,000
 110,000



(88,003

)


1,411,997
95,000




116,991



187,414
Total Microcision






(15,000
)


1,610,000



(88,003
)


1,506,997



116,991



187,414New Monarch Machine Tool, Inc.

22.84 Common.


22,841















22,841



OnCore Golf Technology, Inc.

300,483 Series AA Preferred.


300,000















300,000







SciAps, Inc.

187,500 Series A Preferred. 274,299 Series A-1 Convertible Preferred. 117,371 Series B Convertible Preferred.
113,636 Series C Convertible Preferred. 369,698 Series C-1 Convertible Preferred. 147,059 Series D Convertible Preferred.
Warrant to Purchase Series D-1 Preferred.
$1,500,000 Subordinated Promissory Note at 12%.


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




(250,000 (175,000
(399,274 
( 45,000 

)
) )
 )



 
 
45,000 
1,500,000




 
 
 (35,000
)



 
 250,000
 
1,465,000




 
 
 




 
 
 147,667Total SciAps


1,074,274



(869,274
)


1,545,000



(35,000
)


1,715,000







147,667Teleservices Solutions Holdings, LLC

250,000 Class B Preferred Units. 1,000,000
Class C Preferred Units. 80,000 Class D Preferred Units.
PIK Dividend for Series C and D at 12% and 14%, respectively.



 




 




 




 




 



(250,000(1,190,680
(91,200 (104,198
) ) )
)



 Total Teleservices






















(1,636,078
)


  70




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Company

Type of Investment

December 31,2019 FairValue


NetChange inUnrealizedAppreciation(Depreciation)


GrossAdditions(1)


GrossReductions(2)


December 31,2020 FairValue


NetRealized(Losses)Gains


Amount ofInterest/Dividend/FeeIncome(3)Tilson Technology Management, Inc.

120,000 Series B Preferred. 21,391 Series C
Preferred. 70,176 Series D Preferred. 15,385 Series E
Preferred. 23,077 Series F Preferred. 211,567 SQF Hold Co.
Common.


1,950,000347,604
1,140,360 500,012
 22,036




 
 




 
750,003 




 
 



1,950,000347,604
1,140,360 500,012
750,003 22,036




 
 



52,500
 
 Total Tilson


3,960,012







750,003







4,710,015







52,500Total Affiliate Investments

$
12,151,435


($
2,089,414
)

$
3,952,181


($
123,003
)

$
13,891,199


($
7,927,552
)

$
801,116Total Control and Affiliate Investments

$
12,151,435


($
2,089,414
)

$
3,952,181


($
123,003
)

$
13,891,199


($
7,927,552
)

$
801,116 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements,
including the Notes to the Consolidated Financial Statements and the Consolidated Schedule of Portfolio Investments.  (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 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, 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.  71




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2020 (Continued)  Industry Classification

Percentage of TotalInvestments (at fair value)as of December 31, 2020Software


29.3
%Manufacturing


16.2Professional Services


14.6Healthcare


11.6Consumer Product


10.3BDC Investment Funds


8.2Automotive


7.3Oil and Gas


1.2Contact Center


1.2Marketing


0.1Total Investments


100
%  72




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS SCHEDULE For the Five Years Ended December 31, 2021, 2020, 2019, 2018 and 2017 The following is a schedule of financial highlights for the years ended:  2021


2020


2019 (2)(3)


2018 (2)


2017 (2)Per Share Data: (1)Income from investment operations:Investment income

$
1.58


$
1.20


$
1.67


$
3.00


$
2.07Expenses


2.59



0.76



1.70



3.12



2.86Net investment (loss) income before income taxes


(1.01
)


0.44



(0.03
)


(0.12
)


(0.79
)Income tax (benefit) expense


0.00



(0.24
)


0.03



(0.02
)


(0.76
)Net investment (loss) income


(1.01
)


0.68



(0.06
)


(0.10
)


(0.03
)Net realized and unrealized gain (loss) on investments


7.13



(0.39
)


(1.35
)


(0.46
)


(0.98
)Increase (decrease) in net assets from operations


6.12



0.29



(1.41
)


(0.56
)


(1.01
)Purchase of treasury shares


(0.00
)


(0.03
)


0.00



0.00



0.00Payment of cash dividend


(0.44
)


(3.17
)


0.00



0.00



0.00Effect of the stock dividend


0.00



(12.16
)


0.00



0.00



0.00Dilutive effect of issuance of common stock


0.00



0.00



(10.54
)


0.00



0.00Increase (decrease) in net assets


5.68



(15.07
)


(11.95
)


(0.56
)


(1.01
)Net asset value, beginning of year


17.86



32.93



44.88



45.44



46.45Net asset value, end of year

$
23.54


$
17.86


$
32.93


$
44.88


$
45.44Per share market value, end of year

$
16.99


$
17.60


$
24.12


$
22.50


$
27.18Total return based on market value


(3.47
%)


(27.03
%)


7.20
%


(17.22
%)


(4.43
%)Total shareholder return (includes dividends paid)


6.59
%


(20.32
%)


7.20
%


(17.22
%)


(4.43
%)Total return based on net asset value


31.81
%


(45.79
%)


(14.11
%)


(1.24
%)


(2.18
%)Supplemental Data:Ratio of expenses before income taxes to average net assets


12.49
%


3.96
%


7.70
%


6.92
%


6.23
%Ratio of expenses including taxes to average net assets


12.11
%


6.62
%


6.00
%


5.73
%


6.29
%Ratio of net investment (loss) income to average net assets


(4.88
%)


3.52
%


(0.24
%)


(0.22
%)


(0.06
%)Portfolio turnover


37.8
%


29.4
%


8.8
%


7.4
%


18.1
%Net assets end of year

$
60,745,416


$
46,104,830


$
53,628,516


$
31,524,187


$
31,918,685  (1)
Per share data are based on shares outstanding and results are rounded.  (2)
Share and per share data included in this schedule has been retroactively restated to reflect the effect of the
Reverse Stock Split in May 2020.  (3)
Average net assets are computed on a quarterly basis for 2019.  73




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Rand Capital Corporation (Rand or the Corporation) 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 regulated as a business development company (BDC) under the
Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, Rand is required to comply with certain regulatory requirements specified in the 1940 Act. For instance, they generally have to invest at least 70% of our total assets
in qualifying assets and provide managerial assistance to the portfolio companies in which they invest. In 2002, Rand formed a
wholly owned subsidiary Rand Capital SBIC, Inc. (Rand SBIC) for the purpose of operating it as a small business investment company (SBIC) licensed by the U.S. Small Business Administration (SBA) and received an
SBA license to operate as an SBIC in 2002. 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. In November 2021, Rand SBIC repaid its $11,000,000 in outstanding debentures to the
SBA. In addition, in November 2021, Rand SBIC received approval from the SBA to surrender its SBA license. This subsidiary was renamed Rand Capital Sub, Inc., and merged with and into Rand Capital Sub LLC (Rand Sub). All of Rands
investments going forward, are expected to be made out of Rand Capital Corporation. In November 2019, Rand completed (the
Closing) a stock sale transaction with East Asset Management (East). The transaction consisted of a $25 million investment in Rand by East, in exchange for approximately 8.3 million shares of Rand common stock. The
consideration paid by East for the shares of Rand common stock was comprised of approximately $15.5 million of cash and a contribution of $9.5 million of portfolio assets (the Contributed Assets). Concurrent with the Closing,
Rands management and staff became employees of Rand Capital Management, LLC (RCM), a registered investment adviser that has been retained by Rand as its external investment adviser. In connection with retaining RCM as our
investment adviser, on November 8, 2019, Rand entered into an investment advisory and management agreement (the Prior Investment Management Agreement) and an administration agreement (the Prior Administration Agreement)
with RCM pursuant to which RCM serves as Rands investment adviser and administrator (the Closing and the retention of RCM as our investment adviser and administrator are collectively referred to herein as the Transaction). In
connection with a change of control of RCM, Rands shareholders were asked to approve a new investment advisory and management agreement (the Investment Management Agreement) with RCM at a special meeting of shareholders held on
December 16, 2020 (the Special Meeting). The terms of the Investment Management Agreement are identical to those contained in the Prior Investment Management Agreement, with RCM continuing to provide investment advisory and
management services to Rand. Following approval by Rands shareholders at the Special Meeting, Rand, on December 31, 2020, entered into the Investment Management Agreement and a new administration agreement (the Administration
Agreement) with RCM and terminated the Prior Administration Agreement. Pursuant to the terms of the Investment Management Agreement, Rand pays RCM a base management fee and may pay an incentive fee, if specified benchmarks are met. After the completion of the Transaction, Rand is an externally managed, closed-end, diversified
management investment company. In connection with the completion of the Transaction, Rand shifted to an investment strategy focused on higher yielding debt investments and elected U.S. Federal tax treatment as a regulated investment company
(RIC) as of January 1, 2020 on its U.S. Federal tax return for the 2020 tax year. As required for the RIC election, Rand paid a special dividend to shareholders to distribute all of its accumulated earnings and profits since
inception to 2019. Rands Board of Directors declared a special dividend of $23.7 million, or approximately $1.62 per share, on March 3, 2020. The cash and shares of Rands common  74




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  stock comprising the special dividend were distributed on May 11, 2020 to shareholders. In addition, Rands Board of Directors declared a 2020 cash dividend of $1.33 per share on
December 21, 2020. This cash dividend was paid on January 19, 2021 to shareholders of record as of December 31, 2020. The cash dividend represented over 90% of Rands estimated investment company taxable income for 2020. The Board of Directors declared the following quarterly cash dividends during the year ended December 31, 2021:  Quarter

Dividend/Share
Amount

Record Date

Payment Date1st

$0.10

March 15, 2021

March 29, 20212nd

$0.10

June 2, 2021

June 16, 20213rd

$0.10

September 2, 2021

September 16, 20214th

$0.14

December 20, 2021

December 31, 2021 In order to qualify to make the RIC election, Rand placed several of its equity investments in newly formed
holding companies that facilitate a tax structure that is advantageous to the RIC election. Rand has the following wholly-owned blocker companies in place at December 31, 2021: Rand Somerset Holdings Corp., Rand Carolina Skiff Holdings Corp.,
Rand DSD Holdings Corp., Rand Filterworks Holdings Corp., Rand ITA Holdings Corp., and Rand BMP Swanson Hold Co., LLC (the Blocker Corps). These subsidiaries are consolidated using United States generally accepted accounting principles
(GAAP) for financial reporting purposes. The following discussion describes the operations of Rand and its wholly owned
subsidiaries Rand Sub, Rand Somerset Holdings Corp., Rand Carolina Skiff Holdings Corp., Rand DSD Holdings Corp., Rand Filterworks Holdings Corp., Rand ITA Holdings Corp., and Rand BMP Swanson Hold Co., LLC. (collectively, the
Corporation). Rand effected a 1-for-9 reverse
stock split of its common stock effective May 21, 2020. The reverse stock split affected all issued and outstanding shares of Rands common stock, including shares held in treasury. The reverse stock split reduced the number of issued and
outstanding shares of Rands common stock from 23,845,470 shares and 23,304,424 shares, respectively, to 2,648,916 shares and 2,588,800 shares, respectively. The reverse stock split affected all shareholders uniformly and did not alter any
shareholders percentage interest in Rands outstanding common stock, except for adjustments for fractional shares. On
October 7, 2020, Rand, RCM and certain of their affiliates received exemptive relief from the Securities and Exchange Commission (SEC) to permit Rand to co-invest in portfolio companies with
certain other funds, including other BDCs and registered investment companies, managed by RCM and certain of its affiliates in a manner consistent with Rands investment objective, positions, policies, strategies and restrictions as well as
regulatory requirements, subject to compliance with certain conditions (the Order). Pursuant to the Order, Rand is generally permitted to co-invest with affiliated funds if a required
majority (as defined in Section 57(o) of the 1940 Act) of Rands independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms
of the transaction, including the consideration to be paid, are reasonable and fair to Rand and its shareholders and do not involve overreaching in respect to Rand or its shareholders on the part of any person concerned and (2) the transaction
is consistent with the interests of Rands shareholders and is consistent with Rands investment objective and strategies. On March 29, 2021, the SEC granted approval for a new exemptive relief order (the New Order) that
supersedes the Order and permits the Corporation to co-invest with affiliates of RCM and Callodine Group, LLC (Callodine). 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 and cash equivalents, interest receivable, accounts payable and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial instruments.  75




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  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 RCM and approved by Rands
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 RCMs assumptions and judgments differ from results of actual liquidation events. (See Note 2 Investments.) Qualifying Assets  The Corporations portfolio of investments includes both qualifying and non-qualifying assets. A majority of the Corporations investments represent qualifying investments in privately held businesses, principally based in the United States, and represent qualifying assets as
defined by Section 55(a) of the 1940 Act. The non-qualifying assets generally include investments in other publicly traded BDC investment companies and other publicly traded securities. Cash and Cash Equivalents  Temporary cash investments having a maturity of less than a year when purchased are
considered to be cash equivalents. 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. Interest income is not recognized if collection is doubtful, and a 100% reserve is 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. RCM also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of
any accrued interest. 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 cash 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 may hold preferred equity securities that contain cumulative dividend provisions. Cumulative
dividends are recorded as dividend income, if declared and deemed collectible, and any dividends in arrears are recognized into income and 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 a financing and income associated with  76




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  portfolio company board attendance fees. The income associated with the amortization of financing fees was $87,018, $29,188 and $69,252, for the years ended December 31, 2021, 2020 and 2019,
respectively, and is estimated to be approximately $112,000 in 2022, $91,000 in 2023 and $81,000 in 2024. The board fees earned were $14,096, $0 and $1,000 for the years ended December 31, 2021, 2020 and 2019, respectively. During the year
ended December 31, 2021, the Corporation recorded $55,500 in non-recurring fees related to prepayment fees, application fees and loan monitoring fees. During the year ended December 31, 2020, the
Corporation recorded non-recurring fees of approximately $96,000 that represented prepayment fees. During the year ended December 31, 2019, the Corporation recorded
non-recurring fees in the amount of $387,500 that represented closing and incentive fees and a change of control fee. 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 OID and the OID is accreted into interest income over the life of the loan. The Corporation
recognized $112,175, $47,801 and $40,767 in OID income for the years ended December 31, 2021, 2020 and 2019, respectively. OID income is estimated to be approximately $25,000 for 2022. Deferred Debenture Costs  SBA debenture origination and commitment costs, which are netted against the debenture
obligation (See Note 5 SBA Debenture Obligations), are amortized ratably over the term of the SBA debentures. In November 2021, Rand SBIC repaid its $11,000,000 in outstanding debentures to the SBA and expensed all remaining SBA
debenture origination and commitment costs. In addition, in November 2021, Rand SBIC received approval from the SBA to surrender its SBA license. Amortization expense was approximately $175,400, $37,700, and $37,000 for the years ended
December 31, 2021, 2020 and 2019, respectively. 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 refunded during the years ended December 31, 2021, 2020 and 2019 amounted to $131,934, $121,277 and $728,523, respectively. Interest paid during the years ended December 31, 2021, 2020 and
2019 was $567,070, $380,124 and $339,605, respectively. During 2021, 2020 and 2019, the Corporation converted $346,045, $361,662, and $595,286, respectively, of interest receivable and
payment-in-kind (PIK) interest into debt investments. 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, 2021, 48% of the Corporations total investment value was held in debt and equity securities of five portfolio
companies. As of December 31, 2020, 50% of the Corporations total investment value was held in debt and equity securities in five portfolio companies.  77




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The following are the concentrations of the top five portfolio company values to the fair
value of the Corporations total investment portfolio:  December 31,2021Tilson Technology Management, Inc. (Tilson)


14
%ACV Auctions, Inc. (ACV)


13
%Open Exchange, Inc. (Open Exchange)


9
%Caitec, Inc. (Caitec)


6
%DSD Operating, LLC (DSD)


6
%December 31,2020ACV Auctions, Inc. (ACV)


16
%Tilson Technology Management, Inc. (Tilson)


12
%Caitec Acquisition, Inc. (Caitec)


10
%Filterworks Acquisition USA, LLC (Filterworks)


7
%Science and Medicine Group, Inc. (SMG Group)


5
% 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 $0 and $11,000,000 in outstanding SBA debentures at December 31, 2021 and
December 31, 2020, respectively, with a weighted average interest rate of 3.45% as of December 31, 2020. In November 2021, Rand SBIC repaid its $11,000,000 in outstanding debentures to the SBA. In connection with the payoff of the
outstanding SBA debentures in November 2021, the Corporation expensed approximately $144,000 in remaining SBA commitment and draw fees. NOTE 2. 
INVESTMENTS The Corporations investments are carried at fair value in accordance with FASB 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 Payment in Kind (PIK) feature, 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.  78




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  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. 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. 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. At December 31, 2021, 22% of the Corporations investments
were Level 1 investments and 78% were Level 3 investments. At December 31, 2020, 8% of the Corporations investments were Level 1 investments and 92% were Level 3 investments. There were no Level 2 investments at
December 31, 2021 and 2020. 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;  79




---

##### Table of Contents

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

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 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. 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 investments made within the last year,
the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair 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 securities. Fair  80




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  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 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, 2021:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate
Equity

$



$
500,000


$



$
6,640,938


$
7,140,938Non-Control/Non-Affiliate Loan and
Debt


3,120,557



2,348,578







7,277,471



12,746,606Total
Non-Control/Non-Affiliate

$
3,120,557


$
2,848,578


$



$
13,918,409


$
19,887,544Affiliate Equity

$
1,681,994


$



$
1,450,155


$
10,360,848


$
13,492,997Affiliate Loan and Debt


2,446,617











14,340,259



16,786,876Total Affiliate

$
4,128,611


$



$
1,450,155


$
24,701,107


$
30,279,873Control Equity

$



$



$



$



$
Control Debt


















$



$



$



$



$
Total Level 3 Investments

$
7,249,168


$
2,848,578


$
1,450,155


$
38,619,516


$
50,167,417Range


5-5.5X



1X



1.5X-5X



Not ApplicableUnobservable Input


EBITDAMultiple



AssetValue



RevenueMultiple



TransactionPriceWeighted Average


5.4X



1X



2.7X



Not Applicable The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value
at December 31, 2021:  Fair Value Measurements at Reported Date UsingDescription

December 31,2021


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservableInputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
15,503,404


$



$



$
15,503,404Debt investments


14,030,078











14,030,078Equity investments


34,534,980



13,901,045







20,633,935Total

$
64,068,462


$
13,901,045


$



$
50,167,417  81




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The following table provides a summary of changes in Assets Measured at Fair Value Using
Significant Unobservable Inputs (Level 3) for the year ended December 31, 2021:  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Description

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance December 31, 2020, of Level 3 Assets

$
6,771,394


$
9,799,365


$
20,181,405


$
36,752,164Realized gains (losses)included in net change in net assets from operations:Centivo Corporation (Centivo)










1,614,433



1,614,433ClearView Social, Inc. (Clearview Social)










135,430



135,430Empire Genomics, Corp. (Empire Genomics)










(308,676
)


(308,676
)First Wave Technologies, Inc. (First Wave)










(661,563
)


(661,563
)GiveGab, Inc. (GiveGab)










1,846,705



1,846,705Mercantile Adjustment Bureau, LLC (Mercantile)










36,000



36,000Microcision, LLC (Microcision)










57,215



57,215Total realized gains










2,719,544



2,719,544Unrealized gains/(losses) included in net change in net assets from
operations:Carolina Skiff LLC (Carolina Skiff)










(200,000
)


(200,000
)Centivo










(584,832
)


(584,832
)Empire Genomics










1,151,021



1,151,021Filterworks Acquisition USA, LLC (Filterworks)










(369,249
)


(369,249
)First Wave










628,563



628,563ITA Acquisition, LLC (ITA)










(375,000
)


(375,000
)Knoa Software, Inc. (Knoa)










(544,860
)


(544,860
)Mercantile






849,040



97,625



946,665Microcision










(10,000
)


(10,000
)New Monarch Machine Tool, Inc. (New Monarch)










(22,841
)


(22,841
)Open Exchange, Inc. (Open Exchange)










4,918,061



4,918,061Post Process Technologies, Inc. (Post Process)










(122,728
)


(122,728
)Rheonix, Inc. (Rheonix)










(702,732
)


(702,732
)SciAps, Inc. (Sciaps)










721,000



721,000SocialFlow, Inc. (Socialflow)










(201,487
)


(201,487
)Tilson Technology Management, Inc. (Tilson)










4,215,000



4,215,000Total unrealized gains (losses)






849,040



8,597,541



9,446,581Purchases of securities/changes to
securities/non-cash conversions:Applied Image, Inc. (Applied Image)






1,750,000







1,750,000Caitec, Inc. (Caitec)


71,854











71,854DSD Operating, LLC (DSD)


2,759,183







1,067,500



3,826,683Filterworks






96,786



63,743



160,529GoNoodle, Inc. (GoNoodle)






15,234







15,234HDI Acquisition LLC (Hilton Displays)






26,055







26,055ITA


3,436,611







500,000



3,936,611Mattison Avenue Holdings LLC (Mattison)


691,547



5,611







697,158Microcision






88,003







88,003  82




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Description

LoanInvestments


DebtInvestments


EquityInvestments


TotalNailbiter, Inc. (Nailbiter)






2,250,000







2,250,000Seyberts Billiards Corporation (Seyberts)






3,314,466



50,000



3,364,466SciAps, Inc. (Sciaps)






15,000







15,000BMP Swanson Holdco, LLC (Swanson)


1,600,000







233,333



1,833,333Total purchases of securities/changes to
securities/non-cash conversions


8,559,195



7,561,155



1,914,576



18,034,926Repayments and sale of securities:Advantage 24/7, LLC (Advantage 24/7)


(55,000
)










(55,000
)Centivo










(2,415,775
)


(2,415,775
)Clearview Social










(335,430
)


(335,430
)Givegab










(2,462,926
)


(2,462,926
)GoNoodle






(44,972
)






(44,972
)Mercantile






(1,349,040
)


(133,625
)


(1,482,665
)Microcision






(1,500,000
)


(57,215
)


(1,557,215
)Science and Medicine Group, Inc. (SMG)


(1,900,000
)










(1,900,000
)Total repayments and sale of securities


(1,955,000
)


(2,894,012
)


(5,404,971
)


(10,253,983
)Transfers within Level 3


2,127,815



(1,285,470
)


(842,345
)


Transfers out of Level 3










(6,531,815
)


(6,531,815
)Ending Balance December 31, 2021, of Level 3 Assets

$
15,503,404


$
14,030,078


$
20,633,935


$
50,167,417Change in unrealized appreciation/depreciation on investments for the period included
in changes in net assets


$
12,369,606Net realized gain on investments for the period included in changes in net
assets


$
5,820,354 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, 2020:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate
Equity

$



$
500,000


$
1,026,219


$
9,990,815


$
11,517,034Non-Control/Non-Affiliate Loan and
Debt


2,897,344



2,378,316



602,569



5,465,702



11,343,931Total
Non-Control/Non-Affiliate

$
2,897,344


$
2,878,316


$
1,628,788


$
15,456,517


$
22,860,965Affiliate Equity

$
2,062,500


$
22,841


$
1,474,015


$
5,105,015


$
8,664,371Affiliate Loan and Debt


2,349,831











2,876,997



5,226,828Total Affiliate

$
4,412,331


$
22,841


$
1,474,015


$
7,982,012


$
13,891,199Total Level 3 Investments

$
7,309,675


$
2,901,157


$
3,102,803


$
23,438,529


$
36,752,164Range


5 -5.5X



1X



1X-4X



Not ApplicableUnobservable Input


EBITDAMultiple



AssetValue



RevenueMultiple



TransactionPriceWeighted Average


5.3X



1X



2.6X



Not Applicable  83




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES 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 at December 31, 2020:  Fair Value Measurements at Reported Date UsingDescription

December 31,2020


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservableInputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
6,771,394


$



$



$
6,771,394Debt investments


9,799,365











9,799,365Equity investments


23,477,742



3,296,337







20,181,405Total

$
40,048,501


$
3,296,337


$



$
36,752,164 The following table provides a summary of changes in Assets Measured at Fair Value Using Significant
Unobservable Inputs (Level 3) for the year ended December 31, 2020:  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2019, of Level 3 Assets

$
1,570,692


$
13,647,107


$
21,802,993


$
37,020,792Realized gains (losses) included in net change in net assets from
operations:Advantage 24/7 LLC (Advantage 24/7)


36,877











36,877BeetNPath, LLC (Beetnpath)






(262,627
)


(620,277
)


(882,904
)DataView, LLC (Dataview)










(310,357
)


(310,357
)Genicon, Inc. (Genicon)






(4,005,561
)


(1,120,000
)


(5,125,561
)G-TEC Natural Gas Systems
(G-tec)










(400,000
)


(400,000
)Microcision LLC (Microcision)






116,991







116,991Outmatch Holdings, LLC (Outmatch)










2,318,253



2,318,253Teleservices Solutions Holdings, LLC (Teleservices)










(1,636,078
)


(1,636,078
)USTec/Wi3 (Ustec)










(100,500
)


(100,500
)Total Realized Gains (Losses)


36,877



(4,151,197
)


(1,868,959
)


(5,983,279
)Unrealized gains (losses) included in net change in net assets from
operations:Beetnpath






262,627



620,277



882,904Carolina Skiff LLC (Carolina Skiff)










(250,000
)


(250,000
)Centivo Corporation (Centivo)










584,832



584,832Dataview










310,357



310,357Genicon






3,239,757



1,120,000



4,359,757G-tec










400,000



400,000Knoa Software, Inc. (Knoa)










(205,140
)


(205,140
)Microcision










(15,000
)


(15,000
)SciAps, Inc. (Sciaps)










(869,274
)


(869,274
)SocialFlow, Inc. (Socialflow)










(426,513
)


(426,513
)Teleservices










1,636,078



1,636,078Ustec










100,500



100,500Total Unrealized Gains (Losses)






3,502,384



3,006,117



6,508,501  84




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalPurchases of Securities/Changes to
Securities/Non-cash conversions:AIKG LLC (Andretti)






177,574







177,574Caitec Acquisition, Inc.


3,510,702







300,000



3,810,702Centivo










500,000



500,000Filterworks Acquisition USA, LLC






47,178







47,178Genicon






15,804







15,804GoNoodle, Inc. (GoNoodle)






15,081







15,081HDI Acquisition LLC (Hilton Displays)






25,601







25,601Mattison Avenue Holdings LLC (Mattison)






85,526







85,526Microcision






(88,003
)


110,000



21,997SciAps, Inc. (Sciaps)






1,465,000



45,000



1,510,000Science and Medicine Group, Inc. (SMG)


1,900,000











1,900,000Tilson Technology Management, Inc. (Tilson)










750,003



750,003Total Purchases of Securities/Changes to
Securities/Non-cash conversions


5,410,702



1,743,761



1,705,003



8,859,466Repayments and Sale of Securities:Advantage 24/7


(46,877
)










(46,877
)Andretti






(4,575,699
)






(4,575,699
)Microcision LLC (Microcision)






(116,991
)






(116,991
)Open Exchange, Inc. (Open Exchange)


(450,000
)










(450,000
)Outmatch Holdings, LLC (Outmatch)










(4,463,749
)


(4,463,749
)Total Repayments and Sale of Securities


(496,877
)


(4,692,690
)


(4,463,749
)


(9,653,316
)Transfers within Level 3


250,000



(250,000
)






Ending Balance December 31, 2020, of Level 3 Assets

$
6,771,394


$
9,799,365


$
20,181,405


$
36,752,164  Change in unrealized appreciation/depreciation on investments for the period included in changes in
net assets

$
6,926,859Net realized (loss) on investments for the period included in changes in net assets

($
5,983,279
) NOTE 3.  OTHER ASSETS Other assets was comprised of the following at December 31:  2021


2020Dividend receivables

$
99,720


$
65,700Escrow receivables


71,765



Prepaid expenses


9,972



8,400Total other assets

$
181,457


$
74,100 NOTE 4.  INCOME TAXES The Corporation elected to be treated, for income tax purposes, as a RIC for the 2021 and 2020 tax years under Subchapter M of the Code. As a
result, the Corporation did not pay corporate-level federal income taxes on any net ordinary income or capital gains that the Corporation distributed to its stockholders as dividends. The Corporation must distribute substantially all of its
respective investment company taxable income each tax year as dividends to its stockholders to maintain its RIC status. Accordingly, no provision for federal income tax has been made in the financial statements for the years ended December 31,
2021 or 2020, respectively.  85




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Distributions from net investment income and distributions from net realized capital gains
are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with GAAP and those differences could be material. These
book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-tax differences,
including the offset of net operating losses against short-term gains and nondeductible meals and entertainment, have no impact on net assets. The following differences were reclassified for tax purposes for the years ended December 31, 2021 and December 31, 20201:  2021


2020Decrease in capital in excess of par value

($
323,736
)

($
2,421,682
)Increase in total distributable earnings (losses)


323,736


$
2,421,682 Taxable income generally differs from net increase (decrease) in net assets for financial reporting purposes
due to temporary and permanent differences in the recognition of income and expenses and generally excludes unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are
realized. The following table reconciles net increase in net assets resulting from operations to taxable income for the years ended
December 31, 2021 and December 31, 2020:  2021


2020Net increase in net assets resulting from operations

$
15,797,428


$
743,766Net change in unrealized appreciation/depreciation on investments


(12,581,982
)


(4,970,917
)Net change in deferred tax liability


(89,768
)


(60,620
)GAAP versus tax basis consolidation of subsidiaries


(214,965
)


4,864,442Distribution from Rand SBIC subsidiary






2,547,500Other permanent book income and tax income differences


102,462



(13,833
)Temporary book income and tax income differences


(2,266,409
)


402,042Taxable income2

$
746,766


$
3,512,380 For tax purposes, distributions paid to stockholders are reported as ordinary income, long term capital gains
and return of capital, or a combination thereof. The tax character of distributions paid and deemed paid during the years ended December 31, 2021 and December 31, 2020 was as follows:  2021


2020Ordinary income

$
825,029


$
24,806,704Long-term capital gains





$
2,412,046Return of Capital


311,042



Total

$
1,136,071


$
27,218,750   1
The Corporations permanent
book-to-tax reclassifications for 2021 are an estimate and will not be finalized until the Corporation files its 2021 federal income tax returns in 2022. Therefore, the
Corporations actual permanent book-to tax reclassifications may be different than this estimate. 2
The Corporations taxable income for 2021 is an estimate and will not be finalized until the Corporation
files its 2021 federal income tax returns in 2022. Therefore, the Corporations actual taxable income and the Corporations actual taxable income that was earned in 2021 and carried forward for distribution in 2022 may be different than
this estimate.  86




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The determination of the tax attributes of the Corporations distributions is made
annually as of the end of the Corporations fiscal year based upon the Corporations taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to shareholders are reported to
shareholders annually on Form 1099-DIV. The tax basis components of distributable
earnings/(accumulated losses) and reconciliation to accumulated earnings/(deficit) on a book basis for the years ended December 31, 2021 and December 31, 2020 were as follows:  2021


2020Undistributed ordinary income  tax basis

$



$
78,263Net change in unrealized appreciation on investments


12,011,534



570,448GAAP vs tax basis consolidation of subsidiaries


214,965



(4,864,442
)Other temporary differences


3,573,476



(402,042
)Total accumulated earnings  book basis

$
15,799,975



(4,617,773
) The differences between components of distributable earnings on a tax basis and the amounts reflected in the
consolidated statement of changes in net assets are primarily due to temporary book-tax differences that will reverse in subsequent periods. At December 31, 2021, the Corporation had a deferred tax asset of $181,003 that related to unrealized appreciation on investments held in
the blocker corporations. At December 31, 2020, the Corporation had a deferred tax liability of $121,141 pertaining to the unrealized depreciation on investments held in the blocker corporations. Income Taxes on Blocker Corporations 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 (liability) at December 31, 2021 and 2020 are approximately as follows:  2021


2020Operations

$
0


$
0Investments


116,810



(140,789
)NOL & tax credit carryforwards


64,193



31,789Valuation allowance


0



(12,141
)Deferred tax asset (liability), net

$
181,003


($
121,141
) 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.  87




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The components of income tax expense (benefit) reported in the consolidated statements of
operations are as follows for the years ended December 31:  2021


2020


2019Current:Federal

$
85,829


($
2,743
)

$
55,677State


14,835



5,159



11,402100,664



2,416



67,079Deferred:Federal


(279,167
)


1,234,069



(633,735
)State


(22,977
)


91,270



(45,265
)(302,144
)


1,325,339



(679,000
)Total

($
201,480
)

$
1,327,755


($
611,921
) A reconciliation of the (benefit) expense from income taxes at the federal statutory rate to the expense
reported is as follows:  2021


2020


2019Net investment gain (loss) gain, realized (loss) gain and unrealized gain (loss) before income
taxes

$
15,595,948


$
2,071,521


($
2,901,591
)Expected tax benefit at statutory rate

$
3,275,149


$
435,019


($
609,334
)State - net of federal effect


7,652



76,179



(27,920
)Pass-through (benefit) expense from portfolio investment


(46,210
)






20,251Dividend received deduction










(10,491
)Tax effect of change to RIC






1,335,251



Valuation allowance






12,141



Tax benefit of RIC status


(3,442,529
)


(417,780
)


Carryback benefit from tax law change






(90,141
)


Other


4,458



(22,914
)


15,573Total

($
201,480
)

$
1,327,755


($
611,921
) At December 31, 2021 and 2020, the Corporation had $258,774 and $215,307, respectively, of federal net
operating loss carryforwards and no capital loss carryforwards. For state tax purposes, there were various state net operating loss carryforwards totaling $226,681 and $215,307 at December 31, 2021 and 2020, respectively. Other than
the $215,307 reported for December 31,2020, all state net operating losses were forfeited with the change to a RIC. Under the
provisions of Section 382 of the Internal Revenue Code (IRC), net operating loss and credit carryforwards and other tax attributes may be subject to limitations if there has been a significant change in ownership in the Corporation,
as defined by the IRC. Prior to the completion of the transaction with East in November 2019, the Corporation was able to utilize the remaining federal net operating losses. However, state net operating losses may be subject to similar limitations. The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended
December 31, 2018 through 2021. In general, the Corporations state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2017 through 2021.  88




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  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, 2021, 2020 and 2019 were de minimis. No amounts were recorded for interest and
penalties related to unrecognized tax positions for the years ended December 31, 2021 and 2020 and $2,627 was recorded in interest for the year ended December 31, 2021 for a late payment of federal taxes owing. NOTE 5.  SBA DEBENTURE OBLIGATIONS In November 2021, Rand SBIC repaid its $11,000,000 in outstanding debentures to the SBA and the balance was $0 at December 31, 2021. In
addition, in November 2021, Rand SBIC received approval from the SBA to surrender its SBA license. At December 31, 2020, Rand SBIC had debentures payable to and guaranteed by the SBA totaling $11,000,000. 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 31,2021


December 31,2020Debentures guaranteed by the SBA

$



$
11,000,000Less unamortized issue costs






(175,413
)Debentures guaranteed by the SBA, net

$



$
10,824,587 NOTE 6.  STOCKHOLDERS EQUITY (NET ASSETS) At December 31, 2021 and 2020, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued. On April 22, 2021, the Board of Directors approved a new share repurchase plan, which authorizes the Corporation to repurchase shares of
the Corporations outstanding common stock with an aggregate cost of up to $1,500,000 at prices per share of common stock no greater than the then current net asset value per share. This new share repurchase authorization lasts for a period of
12 months from the authorization date until April 22, 2022. This new share repurchase plan replaces the share repurchase authorization that was previously approved by the Board of Directors in April 2020. During the year ended December 31,
2021, the Corporation repurchased 1,148 shares of common stock for the treasury at a cost of $20,771. The Corporation purchased 6,631 shares of common stock for the treasury at a total cost of $76,729 during the year ended December 31, 2020. The Corporation paid a special dividend to shareholders, as a means to distribute all of the Corporations accumulated earnings and
profits from inception to 2019, in May 2020, in preparation for the Corporations RIC election. The Corporations Board of Directors declared a special dividend of $23.7 million, or approximately $1.62 per share, on March 3,
2020. The cash and shares of Rands common stock representing the special dividend were distributed on May 11, 2020 to shareholders. In addition, the Corporations Board of Directors declared a 2020 cash dividend of $1.33 per share on
December 21, 2020. The 2020 cash dividend was paid on January 19, 2021 to shareholders of record as of December 31, 2020. The cash 2020 dividend represents over 90% of Rands estimated investment company taxable income for 2020.  89




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The Corporations Board of Directors declared the following quarterly cash dividends
during the year ended December 31, 2021:  Quarter

Dividend/Share
Amount

Record Date

Payment Date1st

$0.10

March 15, 2021

March 29, 20212nd

$0.10

June 2, 2021

June 16, 20213rd

$0.10

September 2, 2021

September 16, 20214th

$0.14

December 20, 2021

December 31, 2021 On May 21, 2020, the Corporation effected a 1-for-9 reverse stock split of its common stock (the Reverse Stock Split). The Reverse Stock Split affected all issued and outstanding shares of its common stock, including shares held in
treasury. The Reverse Stock Split reduced the number of issued and outstanding shares of the Corporations common stock from 23,845,470 shares and 23,304,424 shares, respectively, to 2,648,916 shares and 2,588,800 shares, respectively. The
Reverse Stock Split did not change the authorized number of shares or the par value of the common stock. Share and per share data included herein has been retroactively restated to reflect the effect of the Reverse Stock Split, as applicable. The
Reverse Stock Split affected all shareholders uniformly and did not alter any shareholders percentage interest in the Corporations outstanding common stock, except for minor adjustments resulting from the cash payment received for any
fractional shares that would have been received as a result of the Reverse Stock Split. Summary of changes in equity accounts:  CommonStock


Capital inexcess of parvalue


TreasuryStock, at cost


Totaldistributable(losses) earnings


TotalStockholdersEquity (NetAssets)January 1, 2020

$
1,519,637


$
34,142,455


($
1,469,105
)

$
19,435,529


$
53,628,516Dividend declaration


864,910



18,163,117







(27,218,750
)


(8,190,723
)Tax reclassification of stockholders equity in accordance with generally accepted accounting
principles






(2,421,682
)






2,421,682



Reclassification for par value


(2,119,655
)


2,119,655











Purchase of treasury shares










(76,729
)






(76,729
)Net increase in net assets from operations














743,766



743,766December 31, 2020

$
264,892


$
52,003,545


($
1,545,834
)

($
4,617,773
)

$
46,104,830January 1, 2021

$
264,892


$
52,003,545


($
1,545,834
)

($
4,617,773
)

$
46,104,830Dividend declaration














(1,136,071
)


(1,136,071
)Tax reclassification of stockholders equity in accordance with generally accepted accounting
principles






(323,736
)






323,736



Purchase of treasury shares










(20,771
)






(20,771
)Net increase in net assets from operations














15,797,428



15,797,428December 31, 2021

$
264,892


$
51,679,809


($
1,566,605
)

$
10,367,320


$
60,745,416  90




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 7.  EMPLOYEE BENEFIT PLANS Prior to the completion of the Transaction, the Corporation had a defined contribution 401(k) Plan (the 401K Plan). The 401K Plan
provided a base contribution of 1% for eligible employees and also provided up to 5% matching contributions. The Corporations contributions to the 401K Plan amounted to $45,077 for the year ended December 31, 2019. Effective
November 8, 2019, the Corporation entered into the Prior Investment Management Agreement and the Prior Administration Agreement with Rand Capital Management, LLC (RCM) and, all employees transferred to RCM as of this date. As a
result, RCM assumed the obligations for the 401K Plan expenses on a going forward basis as all employees became employees of RCM. NOTE 8. 
COMMITMENTS AND CONTINGENCIES The Corporation had no commitments at December 31, 2021 or 2020. In addition, the Corporation analyzed the new Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 842 standard,
Leases, and deemed the effect on the Corporations consolidated financial statements to be immaterial. NOTE 9.  QUARTERLY OPERATIONS AND
EARNINGS DATA  UNAUDITED  4thQuarter


3rdQuarter


2ndQuarter


1stQuarter2021Investment income

$
1,236,531


$
1,012,343


$
811,037


$
1,016,392Net increase in net assets from operations

$
944,635


$
2,321,200


$
4,500,834


$
8,030,759Basic and diluted net increase in net assets from operations per weighted share
outstanding

$
0.37


$
0.90


$
1.74


$
3.112020Investment income

$
1,055,680


$
736,868


$
674,545


$
635,826Net (decrease) increase in net assets from operations

($
372,465
)

$
262,523


$
423,571


$
430,137Basic and diluted net (decrease) increase in net assets from operations per weighted share
outstanding

($
0.14
)

$
0.10


$
0.20


$
0.26 NOTE 10.  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:  2021


2020


2019Balance at beginning of year

($
15,000
)

($
166,413
)

($
161,000
)Provision for losses










(5,413
)Write offs/Recoveries


15,000



151,413



Balance at end of year

$



($
15,000
)

($
166,413
)  91




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  NOTE 11.  RELATED PARTY TRANSACTIONS Investment Management Agreement Effective
with the Closing, RCM, a registered investment adviser, has been retained by the Corporation as its external investment adviser and administrator. Under the terms of the Investment Management Agreement, the Corporation pays RCM, as compensation for
the investment advisory and management services, fees consisting of two components: (i) the Base Management Fee and (ii) the Incentive Fee. The Base Management Fee is calculated at an annual rate of 1.50% of the Corporations total assets (other than cash or cash
equivalents but including assets purchased with borrowed funds). For the years ended December 31, 2021, 2020 and 2019, the Base Management Fees earned by RCM were $858,144, $589,519 and $85,483, respectively. As of December 31, 2021, and
2020, the Corporation had $238,862 and $155,318, respectively, payable for the Base Management Fees on its Consolidated Statements of Financial Position. In addition, at December 31, 2021 and 2020, the Corporation had $0 and $1,681,
respectively, payable to RCM for the expenses associated with the Administration Agreement. The Incentive Fee is comprised of
two parts: (1) the Income Based Fee and (2) the Capital Gains Fee. The Income Based Fee is calculated and payable quarterly in arrears based on the Pre-Incentive Fee Net
Investment Income (as defined in the agreement) for the immediately preceding calendar quarter, subject to a hurdle rate of 1.75% per quarter (7% annualized) and is payable promptly following the filing of the Corporations financial
statements for such quarter. The Corporation pays RCM an Incentive Fee with respect to its
Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (i) no Income Based
Fee in any quarter in which the Pre-Incentive Fee Net Investment Income for such quarter does not exceed the hurdle rate of 1.75% (7.00% annualized); (ii) 100% of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that
portion of the Pre-Incentive Fee Net Investment Income for such calendar quarter, if any, that exceeds the hurdle rate of 1.75% (7.00% annualized) but is less than 2.1875% (8.75% annualized); and (iii) 20% of the amount of the Pre-Incentive Fee Net Investment Income for any calendar quarter with
respect to that portion of the Pre-Incentive Fee Net Investment Income for such calendar quarter, if any, that exceeds 2.1875% (8.75% annualized). The Income Based Fee paid to RCM for any calendar quarter that begins more than two years and three months after the effective date of the
Prior Investment Management Agreement shall not be in excess of the Incentive Fee Cap. The Incentive Fee Cap for any quarter is an amount equal to (1) 20.0% of the Cumulative Net Return (as defined below) during the relevant Income Based
Fee Calculation Period (as defined below) minus (2) the aggregate Income Based Fee that was paid in respect of the calendar quarters included in the relevant Income Based Fee Calculation Period. For purposes of the calculation of the Income Based Fee, Income Based Fee Calculation Period is defined as, with reference to a
calendar quarter, the period of time consisting of such calendar quarter and the additional quarters that comprise the lesser of (1) the number of quarters immediately preceding such calendar quarter that began more than two years after
November 8, 2019 or (2) the eleven calendar quarters immediately preceding such calendar quarter. For purposes of the
calculation of the Income Based Fee, Cumulative Net Return is defined as (1) the aggregate net investment income in respect of the relevant Income Based Fee Calculation Period minus (2) any Net Capital Loss, if any, in respect
of the relevant Income Based Fee Calculation Period. If, in any quarter, the Incentive Fee Cap is zero or a negative value, we pay no Income Based Fee to RCM for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive
value but is less than the Income Based Fee that is  92




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  payable to RCM for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we pay an Income Based Fee to RCM equal to the Incentive Fee Cap for such quarter.
If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Income Based Fee that is payable to RCM for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we pay an Income Based
Fee to the Adviser equal to the Income Based Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. For purposes of the calculation of the Income Based Fee, Net Capital Loss, in respect of a particular period, means the difference,
if positive, between (1) aggregate capital losses, whether realized or unrealized, in such period and (2) aggregate capital gains, whether realized or unrealized, in such period. Any Income Based Fee otherwise payable under the Investment Management Agreement with respect to Accrued Unpaid Income (such fees being the
Accrued Unpaid Income Based Fees) shall be deferred, on a security by security basis, and shall become payable to RCM only if, as, when and to the extent cash is received by us in respect of any Accrued Unpaid Income. Any Accrued Unpaid
Income that is subsequently reversed by us in connection with a write-down, write-off, impairment or similar treatment of the investment giving rise to such Accrued Unpaid Income will, in the applicable period
of reversal, (1) reduce Pre-Incentive Fee Net Investment Income and (2) reduce the amount of Accrued Unpaid Income Based Fees. Subsequent payments of Accrued Unpaid Income Based Fees deferred
pursuant to this paragraph shall not reduce the amounts otherwise payable for any quarter as an Income Based Fee. For the years ended
December 31, 2021 and 2020, there were no Income Based Fees earned under the Investment Management Agreement. The second part of the
Incentive Fee is the Capital Gains Fee. This fee is determined and payable in arrears as of the end of each calendar year. Under the terms of the Investment Management Agreement, the Capital Gains Fee is calculated at the end of each
applicable year by subtracting (1) the sum of the cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (2) the cumulative aggregate realized capital gains, in each case calculated from
November 8, 2019. If this amount is positive at the end of any calendar year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the cumulative aggregate amount of Capital Gains Fees paid in all prior years. If such
amount is negative, then there is no Capital Gains Fee payable for that calendar year. If the Investment Management Agreement is terminated as of a date that is not a calendar year end, the termination date shall be treated as though it were a
calendar year end for purposes of calculating and paying the Capital Gains Fee. For purposes of the Capital Gains Fee:  

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive,
between (a) the net sales price of each investment in the Corporations portfolio when sold minus (b) the accreted or amortized cost basis of such investment.  

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the
net sales price of each investment in the portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.  

The aggregate unrealized capital depreciation is calculated as the sum of the amount, if negative, between
(a) the valuation of each investment in the portfolio as of the applicable Capital Gains Fee calculation date minus (b) the accreted or amortized cost basis of such investment. No capital gains incentive fees were earned by the Corporations investment adviser, RCM, as calculated under the Investment Management
Agreement, for the year ended December 31, 2020. Realized gains during the year ended December 31, 2021, resulted in
approximately $4,200,000 of net eligible realized capital gains, of which $652,240 is payable to RCM as a Capital Gains Fee under the formula for  93




---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)  the year ended December 31, 2021. In accordance with U.S. generally accepted accounting principles (GAAP), the Corporation is required to cumulatively accrue a capital gains incentive
fee on all realized and unrealized gains and losses, which resulted in an accrual in the amount of $4,200,000 as of December 31, 2021, which represents both the Capital Gains Fee earned of $652,240 and $3,547,760 that would be due based on net
portfolio appreciation. The Capital Gains Fee earned of $652,240 is included in the Due to investment adviser line on the Consolidated Statements of Financial Position and the $3,547,760 cumulative accrued capital gains incentive fee is
recorded in the line item Capital gains incentive fees on the Consolidated Statements of Financial Position at December 31, 2021. In determining whether a capital gains incentive fee accrual is necessary, GAAP requires a company to consider the amount of cumulative
aggregate unrealized capital appreciation that such company has with respect to its investments, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, despite the fact that such unrealized capital
appreciation is not used by the Corporation in determining the amount of Capital Gains Fee actually payable under the Investment Management Agreement. A capital gains incentive fee accrual under GAAP is calculated using the cumulative aggregate
realized capital gains and losses and the aggregate net change in unrealized capital appreciation/depreciation at the close of the period. If the calculated amount is positive, GAAP requires the Corporation to record a capital gains incentive fee
accrual equal to 20% of this cumulative amount, less the aggregate amount of actual capital gains incentive fees paid, or capital gains incentive fees accrued under GAAP, for all prior periods. There can be no guarantee that the Corporation will
realize the unrealized capital appreciation, upon which this accrual has been calculated, in the future. Administration Agreement Under the terms of the Administration Agreement, RCM agreed to perform (or oversee, or arrange for, the performance of) the administrative
services necessary for the Corporations operations, including, but not limited to, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and such other
services as RCM, subject to review by the Corporations Board of Directors, will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. RCM shall also, arrange for the services of,
and oversee, custodians, depositories, transfer agents, dividend disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any
such other capacity deemed to be necessary or desirable. RCM is responsible for our financial and other records that are required to be
maintained and prepares all reports and other materials required to be filed with the SEC or any other regulatory authority, including reports to shareholders. In addition, RCM assists us in determining and publishing the Corporations net
asset value (NAV), overseeing the preparation and filing of our tax returns, and the printing and dissemination of reports to shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional
services rendered by others. RCM provides, on the Corporations behalf, managerial assistance to those portfolio companies that have accepted its offer to provide such assistance. NOTE 12.  SUBSEQUENT EVENT Subsequent to year end, on February 28, 2022, Rands Board of Directors declared a quarterly cash dividend of $0.15 per share. The
cash dividend will be paid on or about March 28, 2022 to shareholders of record as of March 14, 2022.  94




---

##### 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, 2021  CostIncrease(Decrease)


RealizedGain (Loss)New investments:ITA Acquisition, LLC

$
3,900,000


$
DSD Operating, LLC


3,812,500



Seyberts Billiards Corporation


3,300,000



Nailbiter, Inc.


2,250,000



BMP Swanson Holdco, LLC


1,833,333



Applied Image Inc.


1,750,000



Mattison Avenue Holdings LLC


667,130



TCG BDC, Inc.


522,753



PennantPark Investment Corporation


522,082



Apollo Investment Corporation


518,080



FS KKR Capital Corp.


510,458



Filterworks Acquisition USA, LLC


63,743



Total of new investments


19,650,079



Other changes to investments:Filterworks Acquisition USA, LLC interest conversion


96,786



Microcision LLC OID amortization


88,003



Caitec, Inc. interest conversion


71,854



Seyberts Billiards Corporation interest conversion


55,294



ITA Acquisition, LLC interest conversion


36,611



Mattison Avenue Holdings LLC interest conversion


30,028



HDI Acquisition LLC (Hilton Displays) interest conversion


26,055



GoNoodle, Inc. interest conversion


15,234



SciAps, Inc. OID amortization


15,000



DSD Operating, LLC interest conversion


14,183



Seyberts Billiards Corporation OID amortization


9,172



Total of other changes to investments


458,220



Investments repaid, sold or liquidated:Science and Medicine Group, Inc. loan repayment


(1,900,000
)


Microcision LLC loan repayment


(1,500,000
)


57,215Mercantile Adjustment Bureau, LLC loan and warrant repayment


(1,446,665
)


36,000Apollo Investment Corporation sell stock


(882,164
)


175,325Centivo Corporation investment sold


(801,342
)


1,614,433First Wave Technologies, Inc. investment sold


(661,563
)


(661,563
)GiveGab, Inc. investment sold


(616,221
)


1,846,705Empire Genomics, Corp. realized loss


(308,676
)


(308,676
)ClearView Social, Inc. investment sold


(200,000
)


135,430Advantage 24/7 LLC principal payment


(55,000
)


GoNoodle, Inc. principal payment


(44,972
)


ACV Auctions, Inc. sell stock


(41,341
)


2,925,485Total of investments repaid, sold or liquidated


(8,457,944
)


5,820,354Net change in investments, at cost and total realized gain

$
11,650,355


$
5,820,354  95




---

##### 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, 2021 and 2020, 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, 2021, 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, 2021 (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, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2021, and the financial highlights for each of the five years in the period ended December 31, 2021 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, 2021 and 2020, by correspondence with portfolio companies and custodian(s); or by other
appropriate audit procedures when replies were not received. We believe that our audits provide a reasonable basis for our opinion. The
supplemental schedule of consolidated changes in investments at cost and realized gain for the year ended December 31, 2021 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, 2021 is fairly stated, in all material respects, in relation to the financial statements as a whole. Critical
Audit Matters The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgements. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.  96




---

##### Table of Contents

Fair-Value  Level 3 Investments Critical Audit Matter Description At
December 31, 2021, the fair value of the Corporations investments categorized as Level 3 investments within the fair value hierarchy (Level 3 investments) totaled $50,167,417. Management determines the fair value of the
Corporations Level 3 investments by applying the methodologies outlined in Note 2 to the consolidated financial statements and using significant unobservable inputs and assumptions. Determining the fair value of the Level 3
investments requires management to make judgments about the valuation methodologies and significant unobservable inputs and assumptions including, among others, EBITDA multiples and revenue multiples, used in determining the fair value measurements. How the Critical Audit Matter Was Addressed in the Audit Auditing the fair value of the Corporations Level 3 investments was complex, as the unobservable inputs and assumptions used by the
Corporation are highly judgmental, are sensitive to economic factors, and could have a significant effect on the fair value measurement of such investments. Our audit procedures included, among others, obtaining an understanding and evaluated the design of controls over the Corporations
investment valuation process, evaluating the Corporations valuation methodologies, testing the significant unobservable inputs and assumptions used by the Corporation in determining the fair value of the Corporations Level 3
investments, and testing the mathematical accuracy of the Corporations valuation calculations. For Level 3 investment, we reviewed the information considered by the Board of Directors relating to the Corporations determination of
fair value. For a selection of the Corporations Level 3 investments, we independently developed fair value estimates and compared them to the Corporations estimates. We developed our independent fair value estimates by using the
respective investments financial information, which we compared to underlying source documents provided to the Corporation by the investment, and available market information from third-party sources, such as market multiples. We also evaluated
subsequent events and other available information and considered whether they corroborated or contradicted the Corporations year-end valuations. /s/ FREED MAXICK CPAs, P.C. We have served as the
Corporations auditor since 2003. Buffalo, New York March 8, 2022 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 our Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our 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, 2021. 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, 2021. Management Report on Internal Control Over Financial Reporting.The executive officers of the Corporation are
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 executive officers and
Board of Directors regarding the preparation and fair presentation of published financial statements.  97




---

##### Table of Contents

Our Chief Executive Officer and the Chief Financial Officer assessed the effectiveness of
the Corporations internal control over financial reporting as of December 31, 2021. In making this assessment, our Chief Executive Officer and the Chief Financial Officer used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on their assessment, our Chief Executive Officer and the Chief Financial Officer believes that, as of December 31, 2021, 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 on Form 10-K. 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 quarter ended
December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting. Item 9B.Other Information None Item 9C.Disclosure Regarding Foreign Jurisdiction that Prevent Inspections Not applicable  98




---

##### Table of Contents

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, DELINQUENT SECTIONS 16(a) REPORTS and COMMITTEES AND MEETING DATA, provided in the Corporations definitive Proxy Statement for its 2022 Annual Meeting of
Shareholders, to be filed under Regulation 14A (the 2022 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 2022 Proxy
Statement under the heading DIRECTOR COMPENSATION and Compensation Committee Interlocks and Insider Participation.  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 2022 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 2022 Proxy Statement
under the heading DIRECTOR INDEPENDENCE and RELATED PERSON TRANSACTIONS. Item 14.Principal Accountant Fees and Services The Corporations independent registered
public accounting firm is Freed Maxick CPAs, P.C., Buffalo, New York, PCAOB Auditor Firm ID: 317 Information concerning the
Corporations independent registered public accounting firm, the audit committees pre-approval policy for audit services and our independent registered public accounting firm fees and services is
contained in the Corporations 2022 Proxy Statement under the heading INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES.  99




---

##### Table of Contents

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 Consolidated Statements of Financial Position as of December 31, 2021 and 2020 Consolidated Statements of Operations for the three years in the period ended December 31, 2021 Consolidated Statements of Changes in Net Assets for the three years in the period ended December 31, 2021 Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2021 Consolidated Schedule of Portfolio Investments as of December 31, 2021 Consolidated Schedule of Portfolio Investments as of December 31, 2020 Financial Highlights Schedule for the five years in the period ended December 31, 2021 Notes to the Consolidated Financial Statements Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31, 2021 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 Notes 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.  (2.1)
Agreement and Plan of Merger,
 dated as of December 27, 2021, by and between Rand Capital Sub, Inc. and Rand Capital Sub, LLC, incorporated by reference to Exhibit 2.1 to the Corporations Current Report on Form 8-K, as filed
with the SEC on December 30, 2021.  (3.1)(i)
Certificate of Incorporation of the
Corporation, incorporated by reference to Exhibit (a)(1) of Form N-2 filed with the SEC on April 22, 1997. (File No. 333-25617).  (3.1)(ii)
Certificate of Amendment to the
Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Corporations Current Report on Form 8-K filed with the SEC on November 12, 2019.  (3.1)(iii)
Certificate of Amendment to the
Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Corporations Current Report on Form 8-K filed with the SEC on May 21, 2020.  (3.1)(iv)
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 SEC on November 2, 2016. (File No. 814-00235).  (4.1)
Specimen certificate of common stock
 certificate, incorporated by reference to Exhibit (b) of Form N-2 filed with the SEC on April 22, 1997. (File No. 333-25617).  (4.2)
Description of Securities of Rand
 Capital Corporation registered under Section 12 of the Securities Exchange Act of 1934, as amended, incorporated by reference to Exhibit 4.2 to the Corporations Annual Report on Form 10-K for the
year ended December 31, 2019, as filed with the SEC on March 9, 2020.  100




---

##### Table of Contents

(10.1)
Stock Purchase Agreement,
 dated as of January 24, 2019, by and among East Asset Management LLC, Rand Capital Corporation and, solely for purposes of being bound by Sections 7.10 and 10.9(a) and (b) thereof, Rand Capital Management, LLC, incorporated by reference
to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed with the SEC on January 25, 2019.  (10.2)
Investment Advisory and Management
 Agreement, dated as of December 31, 2020, between Rand Capital Corporation and Rand Capital Management LLC,    incorporated by reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed with the SEC on January 4, 2021.  (10.3)
Administration Agreement, dated
 as of December 31, 2020, between Rand Capital Corporation and Rand Capital Management LLC, incorporated by reference to Exhibit 10.2 to the Corporations Current Report on Form 8-K filed with the
SEC on January 4, 2021.  (10.4)
Shareholder Agreement, dated
 as of November 8, 2019, by and between Rand Capital Corporation and East Asset Management, LLC, incorporated by reference to Exhibit 10.3 to the Corporations Current Report on Form 8-K filed with
the SEC on November 12, 2019.  (21.1)#
Subsidiaries of Rand Capital Corporation.  (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.  (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.  (32.1)#
Certification Pursuant to Section 
906 of the Sarbanes-Oxley Act of 2002  Rand Capital Corporation.  #  Filed
herewith.  Item 16.Form
10-K Summary None  101




---

##### 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, 2022

RAND CAPITAL CORPORATIONBy:

/s/  Daniel P. PenberthyDaniel P. Penberthy, Chief Executive Officer and 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/  Daniel P. Penberthy
Daniel P. Penberthy / Chief Executive Office and President


March 8, 2022(ii) Principal Accounting & Financial Officer:/s/  Margaret W. Brechtel
Margaret W. Brechtel / Executive Vice President, Chief Financial Officer and Treasurer


March 8, 2022(iii) Directors:/s/  Benjamin E. Godley
Benjamin E. Godley/ Director


March 8, 2022/s/  Allen F. Grum
Allen F. Grum / Director


March 8, 2022/s/  Adam S. Gusky
Adam S. Gusky / Director


March 8, 2022/s/  Erland E. Kailbourne
Erland E. Kailbourne / Director


March 8, 2022/s/  Robert M. Zak
Robert M. Zak / Director


March 8, 2022  102