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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, 2018  ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from
 to Commission File Number: 814-00235   Rand Capital Corporation (Exact name of registrant as specified in its charter)    New York

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

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

14203(Address of Principal executive offices)

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

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

Nasdaq Capital Market Securities registered pursuant to Section 12(g) of the Act: None   Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities
Act.    Yes  ☐    No  ☒ Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  ☒    No  ☐ Indicate by check mark whether the registrant
has submitted electronically 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. 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 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, 2018 was approximately $15,361,100 based upon the closing price as reported on the Nasdaq Capital Market on such date. As of
March 1, 2019, there were 6,321,988 shares of the registrants common stock outstanding.




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

Business


1Item 1A.

Risk Factors


7Item 1B.

Unresolved Staff Comments


12Item 2.

Properties


12Item 3.

Legal Proceedings


13Item 4.

Mine Safety Disclosures


13PART IIItem 5.

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


14Item 6.

Selected Financial Data


16Item 7.

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


17Item 7A.

Quantitative and Qualitative Disclosures about Market Risk



33Item 8.

Financial Statements and Supplementary Data


34Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
 Disclosure


77Item 9A.

Controls and Procedures


77Item 9B.

Other Information


77PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


78Item 11.

Executive Compensation


83Item 12.

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


93Item 13.

Certain Relationships and Related Transactions, and Director Independence


94Item 14.

Principal Accountant Fees and Services


95PART IVItem 15.

Exhibits and Financial Statement Schedules


97Item 16

Form 10-K Summary


99




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PART I  Item 1.
Business Overview of Our Business Rand Capital
Corporation (Rand, we, us and our) was incorporated under the laws of New York in February 1969. Throughout our history, our principal business has been to make venture capital investments in early or
expansion stage companies, often in upstate New York and regions in close proximity. In accordance with our strategic growth plan, we look for companies with strong leadership that are bringing to market new or unique products, technologies or
services and have a high potential for growth. We invest in a mixture of debt and equity instruments. The debt securities typically have an equity component in the form of warrants or options to acquire stock or the right to convert the debt
securities into stock. We established our small business investment company (SBIC) in 2002, Rand Capital SBIC, Inc. (Rand SBIC), whereby we utilized funds borrowed from the Small Business Administration (SBA)
combined with our capital to invest in our portfolio companies. Recent Developments As previously announced, on January 24, 2019, Rand entered into a Stock Purchase Agreement (the Stock Purchase Agreement) by
and among Rand, East Asset Management, LLC (East), and, solely for purposes of being bound by Sections 7.10 and 10.9(a) and (b) thereof, Rand Capital Management LLC (RCM). Pursuant to the terms of the Stock Purchase
Agreement, at the closing of the transaction (the Closing), East will purchase 8,333,333.33 shares (the Shares) of Rands common stock, par value $0.10 per share, at a purchase price of $3.00 per Share for an aggregate
purchase price of $25,000,000 (the Stock Purchase), which consideration is to be paid to Rand partially in cash and partially through the contribution of existing loans and other securities (the Contributed Assets). As a
condition to Closing, Rand will enter into a Shareholder Agreement with East (the Shareholder Agreement), which provides East with the right to designate two or three persons, depending upon the size of Rands board of directors
(the Board), for nomination for election to the Board. The Stock Purchase Agreement also contemplates that, at the Closing,
Rand will enter into an investment advisory and management agreement (the Advisory Agreement) with RCM pursuant to which RCM will serve as Rands external investment adviser. Pursuant to the terms of the Advisory Agreement, Rand
will pay RCM a base management fee and an incentive fee. At the Closing, Rand will also enter into an administration agreement (the Administration Agreement) with RCM pursuant to which RCM will serve as Rands administrator. The transactions contemplated by the Stock Purchase Agreement including the entry into the Advisory Agreement with RCM (which we refer to as
the Transactions) are subject to shareholder approval. Rand has agreed to hold a special meeting of shareholders for purposes of obtaining these approvals. Additional information regarding the Stock Purchase Agreement and the Transactions is available in Rands Current Reports on Form 8-K filed with the Securities and Exchange Commission on January 25, 2019. Rand is in the process of preparing and intends to file in the near future a proxy statement with the Securities and Exchange
Commission for purposes of seeking to obtain shareholder approval of the Transactions. In the event the Transactions are completed, Rand
intends to accelerate its shift to an investment strategy focused on higher yielding debt investments, to elect tax treatment as a regulated investment company (RIC), and in connection with such RIC election to pay a special dividend to
shareholders, and to adopt a new dividend policy that may include regular cash dividends to shareholders.  1




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Our Investment Objectives and Strategy Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow
from our debenture and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our investment
portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest. Our investment strategy is to partner with other investors to invest in small companies that either have a new product, service or technology
they are trying to commercialize or are working to accelerate their rate of growth. We define small companies as businesses that may not yet be generating revenue up to companies with $20 million in revenue. We have historically made an initial investment of $500,000 to $1,000,000 directly in a company through equity or in debt or loan instruments
and frequently provide follow-on investments during our investment tenure. The loan and debt instruments we acquire generally have a maturity of not more than five years and usually are convertible or have
detachable equity warrants. Interest is either paid currently or deferred. We fund new investments and operating expenses through existing cash balances, proceeds from investment exits, and interest and principal payments from our portfolio
companies. Our Investment Process Our primary business is making debt and equity investments in small companies that meet some or all of the following criteria: 1) a qualified and experienced management team; 2) a new or unique product or service; and 3) high potential for growth in revenue and cash flow. Our management team identifies investment opportunities through a network of investment referral relationships. Investment proposals may come
to us from other sources, including unsolicited proposals from companies and referrals from accountants, bankers, lawyers and other members of the financial community. We believe that our reputation in the investment community and our experience
provide a competitive advantage in originating quality investments. In a typical private financing, our management team will review,
analyze, and confirm, through due diligence, the business plan and operations of the potential portfolio company. Additionally, we familiarize ourselves with the portfolio companys industry and competition and may conduct reference checks with
its customers and suppliers. Following our initial investment, we may make follow-on investments
in the portfolio company, if needed. Follow-on investments may be made to take advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio
company, or provide additional funds to allow a portfolio company to fully implement its business plans, develop a new line of business or recover from unexpected business problems. Follow-on investments in a
portfolio company are evaluated individually and may be subject to SBA restrictions.  2




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Disposition of Investments We may exit investments through the maturation of a debt security or when a liquidity event takes place, such as the sale, recapitalization, or
initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return. We generally expect to dispose of our equity securities through private
sales of securities to other investors or through the sale or merger of the portfolio company. We anticipate our debt investments will be repaid with interest and expect to realize further appreciation from the warrants or other equity type
instruments received in connection with the investment. Current Portfolio Companies For a description of our current portfolio company investments, see Item 7. Managements Discussion and Analysis of Financial
Conditions and Results of Operations  Composition of the Investment Portfolio. Competition We compete for quality investments with other venture capital firms, individual investors, business development companies, and investment funds
(including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks. We believe we are able to compete with these entities primarily on the basis of our referral network, our investing
reputation and experience, our responsive, quick and efficient investment analysis and decision-making process, the investment terms we offer, and our willingness to make smaller investments. For information concerning the competitive risks we face, see Item 1A. Risk Factors. Employees As of December 31, 2018,
we had four employees, unchanged from 2017. Organization and History We completed our initial public offering in 1971 as an internally managed, closed-end, diversified,
management investment company. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC we are required to comply with certain
regulatory requirements as provided for in the 1940 Act and the rules and regulations promulgated thereunder. For instance, we generally have to invest at least 70% of our total assets in qualifying assets and provide managerial
assistance to the portfolio companies in which we invest. See Item 1. Business  Regulations, Business Development Company Regulations. We historically made the majority of our investments through Rand SBIC, an SBIC that has been licensed by the SBA since 2002. Rand SBICs
predecessor was organized as a Delaware limited partnership and was converted into a New York corporation in 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC had operated as if it were a BDC, it was registered
as an investment company under the 1940 Act. In 2012, the Securities and Exchange Commission (SEC) granted an Order of Exemption for Rand with respect to the operations of Rand SBIC and Rand SBIC then filed an election to be regulated as
a BDC under the 1940 Act. Rand SBICs board of directors is comprised of the directors of Rand, a majority of whom are not interested persons of Rand Capital or Rand SBIC. During 2017 we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (Rand SBIC II), and began making investments
through this SBIC subsidiary. During 2018, together with the SBA, we determined that the optimal structure was to revert back to investing in small businesses through our original SBIC, Rand SBIC, and the assets of Rand SBIC II were transferred to
Rand SBIC.  3




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




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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 kinds of investments may not exceed 30% of the BDCs total asset value at the time of the investment. At December 31, 2018, we were in
compliance with this rule. Managerial Assistance to Portfolio Companies In order to count portfolio securities as qualifying assets for the purpose of the 70% test discussed above, a BDC must either control the
issuer of the securities or must offer to make available significant managerial assistance; except that, where the BDC purchases the securities in conjunction with one or more other persons acting together, one of the other persons in the group may
make available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide and, if accepted, does so
provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings,
consulting with and advising a portfolio companys officers or other organizational or financial guidance. Small Business
Investment Company Regulations SBA Lending Restrictions SBICs are designed to stimulate the flow of private debt and/or equity capital to small businesses. The types and dollar amounts of the loans
and other investments we may make are limited by the 1940 Act, the Small Business Act (the SBA Act) and SBA regulations. Rand SBIC uses funds borrowed from the SBA that can be combined with our own capital to provide loans to, and make
equity investments in, businesses that meet the following criteria: (a) have a tangible net worth not in excess of $19.5 million and
average net income after U.S. federal income taxes for the preceding two completed fiscal years not in excess of $6.5 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which
the businesses are primarily engaged.  5




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In addition, at the end of each fiscal year, an SBIC must have at least 20% (in total
dollars) invested in smaller enterprises. The SBA defines smaller enterprises as businesses that: (a) do not have
a net worth in excess of $6 million and have average net income after U.S. federal income taxes for the preceding two years no greater than $2 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry in which
the concerns are primarily engaged. We have complied with these requirements since the inception of Rand SBIC. The SBA prohibits an SBIC from providing funds to small businesses with specific characteristics, such as businesses with the majority of
their employees located outside the United States, or from investing in passive or non-operating businesses, real estate, project financing, farmland, or financial lenders. Without prior SBA approval, an SBIC
may not invest an amount equal to more than approximately 30% of the SBICs regulatory capital in any one company and its affiliates. The SBA places limitations on the financing terms of investments by SBICs in portfolio companies such as limiting the prepayment options, the
financing fees that can be charged to a portfolio company, the allowable interest rate on loan and debt securities that an SBIC can charge a portfolio company, and the maximum term of such financing. An SBIC may exercise control over a small
business for a period of up to seven years from the date on which the SBIC initially acquires its control position. The SBA restricts the
ability of an SBIC to lend money to any of its officers, directors and employees or to invest in associates. The SBA also prohibits, without prior SBA approval, a change of control of an SBIC or transfers that would result in any person,
or a group of persons acting together, owning 10% or more of a class of capital stock of a licensed SBIC. A change of control is any event which would result in the transfer of the power, direct or indirect, to direct the management and
policies of an SBIC, whether through ownership, contractual arrangements or otherwise. Rand SBIC may invest directly in a portfolio
companys equity, but may not become a general partner of a non-incorporated entity or otherwise become jointly or severally liable for the general obligations of a
non-incorporated entity. Rand SBIC may acquire options or warrants in portfolio companies, and the options or warrants may have redemption provisions, subject to certain restrictions. Pursuant to SBA
regulations, the maximum cash which may be invested in any one portfolio company by Rand SBIC is currently $4.8 million. In addition
the SBA regulations require an examination of a licensed SBIC by an SBA examiner to determine the SBICs compliance with the relevant SBA regulations. Our annual report, submitted to the SBA, must be audited by an independent public accounting
firm. SBA Leverage The SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold to purchasers of
the government guaranteed securities. The amount of funds that the SBA may lend to SBICs is determined by annual Congressional appropriations. SBA debentures are issued with ten year maturities. Interest only is payable semi-annually until maturity. All of our outstanding SBA
debentures may be prepaid without penalty. To reserve the approved SBA debenture leverage, we paid an upfront 1% commitment fee to the SBA as a partial prepayment of the SBAs nonrefundable 3% leverage fee. These fees are expensed over the life
of the corresponding SBA debenture  6




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instruments. The SBA, as a creditor, will have a superior claim to Rand SBICs assets over our shareholders in the event we liquidate Rand SBIC or the SBA exercises its remedies under the SBA-guaranteed debentures issued by Rand SBIC upon an event of default. At December 31, 2018, we
had $8,750,000 in outstanding SBA debenture instruments.  Item 1A.
Risk Factors Risks related to our business and structure Our financial results will depend on our skill to manage and deploy capital effectively Our ability to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and
pass-through equity instruments depends on our capability to effectively identify, invest and manage our capital. Accomplishing this
investment objective effectively will be based on our management teams handling of the investment process, starting with its ability to find investments that offer favorable terms and meet our investment objective. They will also have to
monitor the portfolio companys performance and may be called upon to provide managerial assistance. These demands on their time may distract them or may slow the rate of investment. Even if we are able to grow and build on our investment, any failure to manage our growth effectively could have a material adverse effect on
our business, financial condition, results of operations and prospects. If we cannot successfully operate our business or implement our investment objective, it could negatively impact our stock price. We are subject to risks created by our regulated environment We are regulated by the SEC and the SBA. Changes in the laws or regulations that govern BDCs and SBICs could significantly affect our
business. Regulations and laws may be changed periodically, and the interpretations of the relevant regulations and laws are also subject to change. Any change in the regulations and laws governing our business could have a material impact on our
financial condition and our results of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place conflicting demands on the manner in which we operate, and the resolution of those conflicts may restrict or otherwise
adversely affect our operations. We are subject to risks created by borrowing funds from the SBA Our liabilities include debt instruments issued through the SBA which have fixed interest rates. Until and unless we are able to invest
substantially all of the proceeds from debentures at annualized interest or other rates of return that substantially exceed annualized interest rates that Rand SBIC must pay the SBA, our operating results may be adversely affected which may, in
turn, depress the market price of our common stock. In addition, our outstanding $8,750,000 in SBA debentures will reach maturity and
become payable between 2022 and 2029. In order to repay our outstanding SBA debentures, we will need to identify sources of additional funding if the proceeds received upon the exits of our investments are insufficient to fund our operations and
repay our SBA obligations. We cannot be assured that the proceeds to be received upon the exits from our investments will be sufficient to meet our funding needs or, if such proceeds are insufficient, that we will be able to obtain access to the
necessary funding on terms that are acceptable to us.  7




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We are subject to risks created by the valuation of our portfolio investments At December 31, 2018, 100% of our investments are in private securities that are not publicly traded. There is typically no public market
for securities of the small privately held companies in which we invest. Investments are valued in accordance with our established valuation policy and are stated at fair value as determined in good faith by management and approved by our Board of
Directors. In the absence of a readily ascertainable market value, the estimated value of our 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 depreciation or appreciation on investments. We are dependent upon key management personnel for future success We are dependent on the skill, diligence, and the network of business contacts of our executive officers for the sourcing and selection,
structuring, closing, monitoring and valuation of our investments. Our future success depends, to a significant extent, on the continued employment of these officers and their departure could materially adversely affect our ability to implement our
business strategy. We do not maintain key man life insurance or employment agreements on the officers. We operate in a competitive market for
investment opportunities We operate in a competitive market for investment opportunities. We face competition in our investing
activities from many entities including other SBICs, private venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign investors. The competition is not limited to entities that operate in the
same geographical area as we do. As a regulated BDC, we are required to disclose quarterly and annually the name and business description of our portfolio companies and the value of their portfolio securities. Most of our competitors are not subject
to this disclosure requirement. This obligation to disclose this information could hinder our ability to invest in potential portfolio companies. Additionally, other regulations, current and future, may make us less attractive as a potential
investor to a given portfolio company than a private venture capital fund. We are subject to cyber security risks and incidents that may adversely
affect the operations of our company or the companies in which we invest. A failure in our cyber security systems could impair our ability to conduct business and damage our business relationships, compromise or corrupt our confidential information
and ultimately negatively impact business, financial condition and operating results. Our operations are dependent on secure
information technology systems for data processing, storage and reporting. Increased cyber security vulnerabilities, threats and more sophisticated and targeted cyber-attacks pose a risk to the security of our information and the information of our
portfolio companies. These cyber-attacks could affect our computer network, our website or our service providers (such as, but not limited to, accountants, lawyers, and transfer agents) and could result in 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 our company but we remain potentially vulnerable to additional known and unknown threats.  8




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We may experience fluctuations in our quarterly results Our quarterly operating results may fluctuate significantly as a result of a number of factors. These factors include, among others,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which portfolio companies encounter competition in their markets, their ability to raise additional capital, if needed, and general economic
conditions. As a result of these factors, results for any quarter cannot be relied upon as being indicative of performance in future quarters or for a full year. Risks related to our investments We
have a limited number of companies in our portfolio of investments, and may be subjected to greater risk if any of these companies default Our portfolio investment values are concentrated in a small number of companies and as such, we may experience a significant loss in our net
asset value if one or more of these companies 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 We invest, and will continue to invest, in portfolio companies whose securities are not publicly traded and may be subject to restrictions on
resale, and as a result will be less liquid than publicly traded securities. Most of our investments are or will be either equity securities or subordinated debt securities acquired directly from small, private companies. The illiquidity of most of
our portfolio may adversely affect our ability to dispose of the securities at times when it may be advantageous for us to liquidate investments. In addition, we may not realize the full value of these private investments if we have to liquidate all
or a part of our portfolio investment quickly, given the lack of available markets for their sale. Economic downturns or
recessions may adversely affect our portfolio companies financial performance and therefore harm our operating results The
United States economy has periodically experienced periods of instability and recessions and the financial results of the small companies in which we invest could be more acutely affected negatively by this instability and suffer deterioration in
operational or financial results. This deterioration may have a negative effect on our financial performance. Investing in private companies involves
a high degree of risk We typically invest a substantial portion of our assets in small private companies. These private businesses
may be thinly capitalized, unproven companies with risky technologies, products or services, may lack management depth, and may not have attained profitability. Because of the speculative nature and the lack of a public market for these investments,
there is significantly greater risk of loss than is the case with securities traded on a public exchange. We expect that some of our investments will become worthless and that some will appear likely to become successful but will never realize their
potential. We have been risk seeking rather than risk averse in our approach to our investments. Even if our portfolio companies are able
to develop commercially viable technologies, products or services, the market for those new technologies, products and services is likely to be highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing
efforts of the portfolio companies may not be successful.  9




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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 minority
shareholders in our portfolio companies We typically invest as a minority shareholder in our portfolio companies. As a minority
shareholder we are unable to require the company to seek or entertain liquidity events as a way to exit our investments. This may cause us to hold investments longer than planned or to seek a sale that may not reflect the full value of our
investment. We may not have the funds or ability to make follow-on investments in our portfolio companies We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a
company, we may be asked to participate in another round of financing to the company. There is no assurance that we will make, or have sufficient funds to make, these follow-on investments. Any decision to not
make an additional investment in a portfolio company may have a negative impact on the portfolio company in need of the capital, and have a negative impact on our ownership in the company. Risks related to our common stock Investing in our shares may be inappropriate for an investors risk tolerance Our venture capital investments, in accordance with our investment objective and principal strategies, result in a greater than average amount
of risk and volatility and may result in loss of principal. Our investments in portfolio companies are highly speculative and aggressive and, therefore, an investment in our shares may not be suitable for investors for whom such risk is
inappropriate. Neither our investments nor an investment in our shares constitutes a balanced investment program. Sales of substantial amounts of our
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.  10




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##### Table of Contents

Risks related to the transactions contemplated by the Stock Purchase Agreement The failure to complete the Transactions may result in a decrease in the market value of our shares. After the Transactions were announced on January 24, 2019, the market price for our shares of common stock rose significantly. The
Transactions are subject to a number of contingencies, including approval by our shareholders and the other closing conditions set forth in the Stock Purchase Agreement. As a result, there is a risk that the Transactions will not be completed. If
the Transactions are not completed for any reason or are delayed for a significant period of time, the market price of our shares may decline, including to a price per share that is below the price per share on the date that the Transactions were
announced. If the Transactions are not consummated, there may not be any other offers from potential acquirers or parties interested in a potential
strategic transaction. If the Transactions are not consummated, we may seek another strategic transaction. Although we have had prior
discussions with other parties regarding a strategic transaction, these parties may no longer have an interest in a strategic transaction with Rand, or be willing to offer acceptable terms in a transaction. If we do not complete the Transactions, we may continue to face challenges and uncertainties in our ability to achieve business success. Historically, Rand has focused on a total return strategy that involved seeking long-term capital appreciation on its equity investments,
while maintaining a current cash flow from debt investments and pass-through equity instruments to fund expenses. Rand has observed that this total return strategy has become disfavored among investors resulting in an increasingly larger spread
between the share price for the Common Stock and our Net Asset Value (NAV) per share. If the Transactions are not completed, we will not engage an external investment adviser to manage our investment strategy and will remain, for the time being, an
internally managed BDC that is likely to continue the same legacy total return strategy. Therefore, if we are unable to complete the Transactions, we may continue to operate our business in a manner that is substantially similar to the manner in
which it is currently operated, and would continue to face the same business challenges and uncertainties associated with our current business strategy. Under certain circumstances, a termination fee may be payable by Rand upon termination of the Stock Purchase Agreement. The Stock Purchase Agreement provides for the payment by Rand of a termination fee of up to $750,000 if the Stock Purchase Agreement is
terminated under certain circumstances. Given our financial condition and amount of cash and cash equivalents on hand, payment of the termination fee in an amount up to $750,000 would likely have a material adverse effect on our financial condition
and on our ability to make any significant new investments or follow-on investments in the near future. The
Stock Purchase Agreement contains restrictions limiting our ability to pursue alternatives to theTransactions. The Stock Purchase Agreement contains provisions that limit our ability to actively solicit, discuss or negotiate competing third-party
proposals for strategic transactions. These provisions, which are typical for transactions of this type, and include the termination fee payable under certain circumstances, might discourage a competing acquirer that might have an interest in
acquiring all or a significant part of Rand from considering or proposing a transaction even if it were prepared to pay consideration with a higher price than that to be paid by East in the Stock Purchase Agreement or might result in a potential
competing acquirer proposing to pay a lower price to acquire Rand than it might otherwise have proposed to pay without Rands requirement to pay the termination fee in order to terminate the Stock Purchase Agreement to accept a superior
proposal.  11




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##### Table of Contents

The failure of satisfy the closing conditions under the Stock Purchase Agreement, including receipt of
shareholder approvals, will result in the Transactions not being completed. The Transactions are subject to closing conditions,
including certain approvals of shareholders and approval of the SBA, which, if not satisfied, will prevent the Transactions from being completed. The closing condition requiring shareholder approvals may not be waived under applicable law and must
be satisfied for the Transactions to be completed. In addition to the required approvals from the shareholders, the Transactions are subject to a number of other conditions, some of which are beyond our direct control. We cannot predict when the
conditions set forth in the Stock Purchase Agreement will be satisfied or if they will be satisfied at all. The Company will be subject to operational
uncertainties and contractual restrictions while the Transactions are pending. Uncertainty about the effect of the Transactions may
have an adverse effect on Rand while the Transactions are pending. These uncertainties may impair Rands ability to retain key personnel until the Transactions are consummated and could cause those that deal with Rand to seek to change their
existing relationships with Rand. In addition, the Stock Purchase Agreement imposes limitations on Rand with respect to actions that it can take while the Transactions are pending, which may result in us not pursuing or being unable to pursue
certain business opportunities that may arise prior to the completion of the Transactions. If the Transactions do not close, the Company will not
benefit from the expenses incurred in furtherance of the Transactions. If the Transactions are not completed, Rand will have incurred
substantial expenses for which no ultimate benefit will have been received. Rand has incurred, and will continue to incur, out-of-pocket expenses in connection with the
Transactions for investment banking, legal and accounting fees and other expenses, much of which will be incurred even if the Transactions are not completed. If we complete the Transactions, we will face risks associated with the terms and structure of the Transactions. If the Transactions are completed, there are risks arising from the terms and structure of the Transactions, including the following:  

Despite our expressed intentions, we may not declare or pay a special dividend or regular cash dividends to
shareholders.  

East will exercise significant influence in connection with its ownership of Common Stock.  

RCM has no prior experience managing or acting as an investor adviser for a BDC.  

We will be dependent upon RCM for our future success.  

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.  

Our ability to enter into transactions with affiliates of RCM will be restricted.  Item 1B.
Unresolved Staff Comments Not applicable.  Item 2.
Properties We currently lease office space in Buffalo, New York for our corporate headquarters. We believe that these leased facilities are adequate to
support our current staff and expected future needs.  12




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##### Table of Contents

Item 3.
Legal Proceedings None.  Item 4.
Mine Safety Disclosures Not applicable.  13




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##### 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. We have historically not paid any cash dividends to shareholders. Unless the transactions contemplated
by the Stock Purchase Agreement are completed, we have no present intention of paying cash dividends in the foreseeable future. Issuer Purchases of Equity Securities  Period

Total number ofshares purchased(1)


Average price paidper share (2)


Total number of sharespurchased as part ofpubliclyannounced plan (3)


Maximum number ofshares that may yet bepurchased under the sharerepurchase plan (3)10/1  10/31/2018














458,95411/1  11/30/2018














458,95412/1  12/31/2018














458,954  (1)
There were no shares repurchased during the fourth quarter of 2018. (2)
The average price paid per share is calculated on a settlement basis and includes commission. (3)
On October 25, 2018, the Board of Directors extended the repurchase authorization of up to 1,000,000
shares of the Common Stock on the open market at prices no greater than the then current net asset value through October 25, 2019. Shareholders of Record On March 1,
2019, we had a total of approximately 908 shareholders, which included 77 record holders of our Common Stock, and an estimated 831 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks.  14




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##### Table of Contents

Corporation Performance Graph The following graph shows a five-year comparison of cumulative total shareholder returns for our Common Stock, the Nasdaq Market Index, and an
old and new Peer Group, assuming a base index of $100 at the end of 2013. 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.  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

2013


2014


2015


2016


2017


2018Rand Capital Corporation

$
100.00


$
133.22


$
122.80


$
102.93


$
98.37


$
81.46NASDAQ Market Index

$
100.00


$
114.75


$
122.74


$
133.62


$
173.22


$
168.30New Peer Group Index

$
100.00


$
90.09


$
69.29


$
46.63


$
54.92


$
54.75Old Peer Group Index

$
100.00



99.36


$
52.83


$
45.78


$
51.88


$
60.37 The New Peer Group was comprised of the following companies: Equus Total Return, Inc. (NYSE: EQS) Firsthand Technology Value Fund, Inc. (NasdaqGS: SVVC) GSV Capital Corp. (NasdaqCM: GSVC) 180 Degree Capital Corp. (NasdaqGM: TURN) The
Old Peer Group was comprised of the following companies: Capital Southwest Corporation (NasdaqGS: CSWC) Firsthand Technology Value Fund, Inc. (NasdaqGS: SVVC) GSV Capital Corp. (NasdaqCM: GSVC) 180 Degree Capital Corp. (NasdaqGM: TURN) We selected the New Peer Group because it is our belief that the four issuers in the group have investment objectives that are similar to
ours, and among the publicly traded companies, they are relatively similar in size to us. Capital Southwest was removed from our peer group to reflect the change in their business strategy. The performance graph information provided above will not be deemed to be soliciting material or filed with the SEC or
subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act, unless in the future we specifically request that the information be treated as soliciting material or specifically incorporate it by reference
into any filing under the Securities Act or the Exchange Act.  15




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##### Table of Contents

Item 6.
Selected Financial Data The following table provides selected consolidated financial data for the periods indicated. You should read the selected financial data set
forth below in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and with the consolidated financial statements and related notes appearing within Item 8 of this Annual
Report.  Balance Sheet Data as of December 31:2018


2017


2016


2015


2014Total assets

$
40,521,724


$
40,133,913


$
42,418,530


$
44,562,060


$
45,525,987Total liabilities

$
8,997,537


$
8,215,228


$
9,789,167


$
10,708,400


$
13,172,546Net assets

$
31,524,187


$
31,918,685


$
32,629,363


$
33,853,660


$
32,353,441Net asset value per outstanding share

$
4.99


$
5.05


$
5.16


$
5.35


$
5.11Shares of common stock outstanding


6,321,988



6,321,988



6,321,988



6,328,538



6,328,538Operating Data for the Years Ended December 31:2018


2017


2016


2015


2014Investment income

$
2,106,954


$
1,454,782


$
1,031,858


$
2,824,337


$
2,584,475Total expenses

$
2,193,672


$
2,010,977


$
3,401,037


$
1,817,279


$
2,499,297Net investment (loss) gain, net of tax

($
68,406
)

($
19,298
)

($
1,553,268
)

$
842,902


$
21,835Net realized (loss) gain on sales and dispositions of investments, net of tax

($
994,295
)

$
88,684


$
8,864,653


($
27,973
)

$
4,767,484Net increase (decrease) in unrealized depreciation or appreciation on investments, net of
tax

$
668,203


($
780,064
)

($
8,514,068
)

$
685,290


($
247,838
)Net (decrease) increase in net assets from operations

($
394,498
)

($
710,678
)

($
1,202,683
)

$
1,500,219


$
4,541,481  16




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##### Table of Contents

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 and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as believes, forecasts, intends,
possible, expects, estimates, anticipates, or plans and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements are
based are assumptions concerning the state of the United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of our portfolio companies could be traded, liquidity
within the United States financial markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties described under the caption Risk Factors contained in Part I, Item 1A. of this Annual Report. There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement
speaks only as of the date when it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and we cannot predict all of them. Overview Currently, we are an internally
managed investment company that lends to and invests in small companies often concurrently with other investors. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended
(the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements. We have historically made the majority of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (Rand SBIC),
which operates as a small business investment company (SBIC) and has been licensed by the U.S. Small Business Administration (SBA) since 2002. Rand SBIC was approved for an additional $6.0 million in new SBA
leverage commitments during 2018. Our principal investment objective has historically been to achieve long-term capital appreciation on
our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund our operating expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion
of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest. We have historically made initial investments of $500,000 to $1,000,000 directly in companies through equity or in debt or loan instruments
and frequently provided follow-on investments during our investment tenure. The debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants. Interest may
be paid currently or deferred, based on the investment structure negotiated.  17




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##### Table of Contents

We may exit investments through the maturation of a debt security or when a liquidity event
takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return. We generally expect
to dispose of our equity securities through private sales of securities to other investors or through an outright sale of the portfolio company or a merger. We anticipate our debt investments will be repaid with interest and hope to realize further
appreciation from the warrants or other equity type instruments we receive in connection with the investment. We fund new investments and operating expenses through existing cash balances, investment returns, and interest and principal payments from
our portfolio companies In January 2019, we entered into a stock purchase agreement to sell approximately 8.3 million shares of our
common stock to East Asset Management, LLC (East) for $25 million in cash and portfolio assets. The portfolio assets will be income-producing instruments that were originated in the last 48 months. Additionally, a new entity, Rand
Capital Management, LLC (RCM), will be established as an external management company and will be retained by Rand Capital to be its investment advisor. RCM will have the same management team that is currently at Rand. The sale and
issuance of common stock pursuant to the stock purchase agreement as well as the externalization of the management structure are subject to shareholder and other regulatory approvals. Following the closing of the above-described transactions ( the Transactions) and contingent upon meeting certain tax-related conditions, we intend to elect to become a regulated investment company (RIC) for U.S. federal tax purposes. This will enable the pass through of capital gains and investment income to
shareholders without payment of corporate-level U.S. federal income tax by Rand. 2018 Portfolio and Investment Activity We believe the change in net asset value over time is the leading valuation metric of our performance. Exits from our portfolio holdings are
the key driver of growth in net asset value over time.  

Net asset value of our portfolio decreased to $4.99 per share, or $31.5 million, at December 31, 2018,
down ($0.06) per share, or (1.2%), compared with net asset value of $5.05 per share, or $31.9 million, at the end of the prior year.  

At year end, the estimated value of our portfolio, which included investments in securities from 30 active
companies, was $34.7 million. This value included $3.6 million in net pre-tax unrealized depreciation.  

Approximately 59% of the portfolio was equity investments with the remainder being debt and loan investments.  

The portfolio generated approximately $2.1 million in interest, fee, dividend and other income in 2018.  

During 2018, we made $2.5 million of new investments in 8 companies, of which one was a new portfolio
company. Outlook At the end of 2018, we had $4.0 million in cash available for future investments and expenses, a decrease from $6.3 million at the
end of 2017. The decrease was primarily due to $2.5 million of investments originated during 2018 as well as funding ongoing operating expenses. We received SBA approval during 2018 for an additional $6.0 million in leverage and we drew down $750,000 of that leverage as of
December 31, 2018 and an additional $2,250,000 in January 2019. We believe the combination of cash on hand, proceeds from portfolio
exits, SBA leverage, and prospective investment income provide sufficient capital for us to continue to add new investments to our  18




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##### Table of Contents

portfolio while reinvesting in existing portfolio companies that demonstrate continued growth potential. Additionally, upon the anticipated closing of the Transactions described above, we will
have additional investments in our portfolio and additional cash to invest. The following short and long-term trends provide us confidence in our ability to grow Rand:  

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

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

We are 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 infrastructure.  

We have sufficient cash to invest in new opportunities and to repurchase shares. At year end, we had
authorization to repurchase an additional 458,954 shares of our Common Stock. However, our prioritized use of cash continues to be growing our portfolio.  

We believe the anticipated receipt of cash and portfolio assets from East, as well as the establishment of RCM as
an external management company, will broaden our potential pipeline of investment opportunities in order to build our portfolio and grow further. Strategically, we expect to advance our efforts to increase our income producing investments that can
support a regular cash dividend for shareholders and complement our equity investments that drive capital appreciation. Critical
Accounting Policies We prepare our consolidated financial statements in accordance with United States generally accepted accounting
principles, or GAAP, which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. For a summary of all significant accounting policies, including critical accounting policies, see Note 1 to the
consolidated financial statements in Item 8 of this Annual Report. The increasing complexity of the business environment and applicable
authoritative accounting guidance require us to 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 Investments are
valued at fair value as determined in good faith by management and approved by our Board of Directors. We invest in loan, debt, and equity instruments and there is no single standard for determining fair value of these investments. As a result,
determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio 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. Our
investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with
GAAP, and expands disclosures about fair value measurements.  19




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##### Table of Contents

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. 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 changes in estimated fair value are recorded in the statement of operations as Net
change in unrealized 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. There were no Level 1 or Level 2 investments as of December 31, 2018. 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;  20




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##### Table of Contents



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

Pending debt or capital restructuring of the portfolio company;  

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

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

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

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

Qualitative assessment of key management;  

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

Other factors deemed relevant by our management to assess valuation. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that led
to a reduction in valuation are overcome, the valuation may be readjusted. Equity Securities Equity Securities may include preferred stock, common stock, warrants and limited liability company membership interests. The significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest, taxes and
depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the senior equity preferences that may exist in a deemed liquidation event. Standard industry multiples
may be used when available; however, our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational performance of the
portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes to the unobservable inputs, such as variances in financial performance
from expectations, may result in a significantly higher or lower fair value measurement. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate. Another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic unrelated new investor entered into by the portfolio company. The terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us, and the impact
of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify. When
appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for
the valuation of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate. 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  21




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companies, current market rates for underlying risks associated with the particular company, as well as the market acceptance of the portfolio companys products or services and its future
performance. These inputs will likely provide an indicator as to the probability of principal recovery of the investment. Our debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other
criteria where appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent investments,
we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified causing us to depart from this basis. Revenue Recognition Interest income
generally is recognized on the accrual basis except where the investment is in default or otherwise presumed to be in doubt. In such cases, interest income is recognized at the time of receipt. A reserve for possible losses on interest receivable is
maintained when appropriate. Our SBICs interest accrual is also regulated by the SBAs Accounting Standards and
Financial Reporting Requirements for Small Business Investment Companies. Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be
in doubt when there is substantial doubt about a portfolio companys ability to continue as a going concern or the loan is in default more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of
a portfolio investment and the collectability of any accrued interest. We hold debt securities in our investment portfolio that contain payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal
balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. We may receive distributions from portfolio companies that are limited liability companies or corporations. These distributions are classified
as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated. We hold preferred equity securities that may contain cumulative dividend provisions. Cumulative dividends are recorded as dividend income when
they are declared and deemed a contractual obligation. Any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred
security is redeemed.  22




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##### Table of Contents

Financial Condition  12/31/18


12/31/17


Increase(Decrease)


% Increase(Decrease)Overview:Total assets

$
40,521,724


$
40,133,913


$
387,811



1.0
%Total liabilities


8,997,537



8,215,228



782,309



9.5
%Net assets

$
31,524,187


$
31,918,685


($
394,498
)


(1.2
%) Net asset value was $4.99 per share at December 31, 2018 versus $5.05 per share at December 31,
2017. The outstanding SBA debentures at December 31, 2018 and 2017 are $8,750,000 and $8,000,000, respectively. The debentures
mature from 2022 through 2029. Cash approximated 13% of net assets at December 31, 2018 compared to 20% at December 31, 2017. 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.  12/31/18


12/31/17


Change


% ChangeInvestments, at cost

$
38,292,143


$
36,689,319


$
1,602,824



4.4
%Unrealized depreciation, net


(3,625,339
)


(4,405,257
)


779,918



(17.7
%)Investments, at fair value

$
34,666,804


$
32,284,062


$
2,382,742



7.4
%Number of Active Portfolio Companies


30



30 Our total investments at fair value, as estimated by management and approved by the Board of Directors,
approximated 110% of net assets at December 31, 2018 and 101% of net assets at December 31, 2017. The change in investments, at
cost, during the year ended December 31, 2018, is comprised of the following:  CostIncrease (Decrease)New investments:KnowledgeVision Systems, Inc. (Knowledgevision)

$
775,000Tech 2000, Inc. (Tech 2000)


600,000BeetNPath, LLC (Beetnpath)


262,627Genicon Inc. (Genicon)


250,000SciAps, Inc. (Sciaps)


250,000Centivo Corporation (Centivo)


200,000Tilson Technology Management, Inc. (Tilson)


100,000Empire Genomics, LLC (Empire Genomics)


50,000Total of new investments


2,487,627Other changes to investments:Empire Genomics capitalized fee income and interest conversion


298,287Genicon interest conversion and OID amortization


231,807OnCore Golf Technology, Inc. (Oncore) interest conversion


77,712Microcision LLC (Microcision) interest conversion


19,213Tech 2000 interest conversion


10,777GoNoodle, Inc. (GoNoodle) interest conversion


10,333Centivo interest conversion


1,342Total of other changes to investments


649,471  23




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##### Table of Contents

Investments repaid, sold or liquidated:Intrinsiq Material, Inc. (Intrinsiq) realized loss


(1,125,673
)First Wave Technologies, Inc. (First Wave) realized loss


(338,469
)Knoa Software Inc. (Knoa) repayment


(48,466
)Empire Genomics repayment


(21,667
)Total of investments repaid, sold or liquidated


(1,534,274
)Net change in investments, at cost

$
1,602,824 Our top five portfolio companies represented 39% of total assets at December 31, 2018:  Company

Industry

Fair Value atDecember 31,2018


% of TotalAssets atDecember 31,2018Genicon, Inc.

Health Care  Testing Device

$
4,423,086



11
%eHealth Global Technologies, Inc.

Health Care

$
3,500,000



9
%ACV Auctions, Inc.

Software

$
2,776,907



7
%Tilson Technology Management, Inc.

Professional Services

$
2,600,000



6
%Microcision, LLC

Manufacturing

$
2,543,353



6
% Our top five portfolio companies represented 37% of total assets at December 31, 2017:  Company

Industry

Fair Value atDecember 31,2017


% of TotalAssets atDecember 31,2017Genicon, Inc.

Health Care  Testing Device

$
4,023,779



10
%eHealth Global Technologies, Inc.

Health Care

$
3,500,000



9
%Rheonix, Inc.

Health Care  Testing Device

$
2,938,731



7
%Tilson Technology Management, Inc.

Professional Services

$
2,500,000



6
%Outmatch Holdings, LLC

Software

$
2,145,496



5
%  Below
is the geographic breakdown of our investments at fair value as of December 31, 2018 and 2017:  Geographic Region

% of Net Asset Valueat December 31, 2018


% of Net Asset Valueat December 31, 2017USA  East


94
%


86
%USA - South


16
%


15
%Total investments as a % of net asset value


110
%


101
%  24




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##### Table of Contents

As of December 31, 2018 and 2017, the investment portfolio consisted of the following
types of investments:  Cost


Percentage ofTotalPortfolio


Fair Value


Percentageof TotalPortfolioDecember 31, 2018:Subordinated Debt and Promissory Notes

$
14,017,541



36
%

$
13,296,948



38
%Convertible Debt


1,866,615



5



1,036,808



3Equity and Membership Interests


22,155,337



58



20,260,523



59Equity Warrants


252,650



1



72,525



0Total

$
38,292,143



100
%

$
34,666,804



100
%December 31, 2017:Subordinated Debt and Promissory Notes

$
12,924,321



35
%

$
11,796,289



37
%Convertible Debt


1,849,955



5



1,849,955



6Equity and Membership Interests


21,640,393



59



18,482,793



57Equity Warrants


274,650



1



155,025



0Total

$
36,689,319



100
%

$
32,284,062



100
%  25




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##### Table of Contents

Results of Operations Investment Income Our principal
investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial
instruments to provide a current return on a portion of the investment portfolio. Comparison of the years ended December 31, 2018 and 2017  December 31,2018


December 31,2017


Increase


% IncreaseInterest from portfolio companies

$
1,498,740


$
1,155,316


$
343,424



30
%Interest from other investments


37,614



30,761



6,853



22
%Dividend and other investment income


384,382



243,614



140,768



58
%Fee income


186,218



25,091



161,127



642
%Total investment income

$
2,106,954


$
1,454,782


$
652,172



45
% Investment income increased 45%, or $652,172, from $1,454,782 for the year ended December 31, 2017 to
$2,106,954 for the year ended December 31, 2018. The total investment income that is received on a current basis for the year ended December 31, 2018 is received from 9 portfolio companies. This contrasts with the 11 portfolio companies generating
current income for the year ended December 31, 2017. Interestfromportfoliocompanies  Interest from portfolio companies was approximately 30% higher during the year ended December 31, 2018 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last
year. The new debt instruments were originated from KnowledgeVision Systems, Inc. (Knowledgevision), Tech 2000, Inc. (Tech 2000), Genicon Inc. (Genicon) and several other portfolio companies. In addition, during 2018 the Empire Genomics loans were
modified and resulted in a recording of interest that had previously not been accrued of approximately $91,000. This amount was capitalized into the loan balance as part of the debt modification and is
non-recurring. The following investments are on non-accrual status: G-TEC Natural Gas Systems (G-Tec) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding
loan balances. Interestfromotherinvestments - The increase in interest from other investments was
primarily due to higher average cash balances during the year ended December 31, 2018 versus the year ended December 31, 2017. Dividendandotherinvestmentincome - Dividend income is comprised of cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain
LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the LLCs profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend income will fluctuate
based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact of new investments or divestitures. The dividend distributions for the respective periods were:  December 31, 2018


December 31, 2017Carolina Skiff LLC (Carolina Skiff)

$
251,913


$
178,532Advantage 24/7 LLC (Advantage 24/7)


60,000



Tilson Technology Management, Inc. (Tilson)


39,002



21,579New Monarch Machine Tool, LLC (Monarch)


27,409



27,409Empire Genomics, LLC (Empire Genomics)


6,058



10,070SOMS Technologies, LLC (SOMS)






6,024Total dividend and other investment income

$
384,382


$
243,614  26




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##### Table of Contents

Fee income  Fee income typically consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of SBIC financings and income from portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated with the fees.
The unamortized fees are carried on the balance sheet under the line item Deferred revenue. The income associated with the
amortization of financing fees was $41,872 and $24,091 for the years ended December 31, 2018 and 2017, respectively. The financing fee income based on the existing portfolio is expected to be approximately $46,000 in 2019, $21,000 in 2020 and
$6,000 in 2021. Fees paid for board service at the portfolio companies were $2,000 and $1,000 for the years ended December 31, 2018
and 2017, respectively. In addition, we recorded a one-time debt modification fee of
approximately $142,000 from Empire Genomics which was capitalized into the Empire Genomics loan balances as part of the debt modification. Comparison
of the years ended December 31, 2017 and 2016  December 31,2017


December 31,2016


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
1,155,316


$
767,153


$
388,163



51
%Interest from other investments


30,761



45,139



(14,378
)


(32
%)Dividend and other investment income


243,614



192,932



50,682



26
%Fee income


25,091



26,634



(1,543
)


(6
%)Total investment income

$
1,454,782


$
1,031,858


$
422,924



41
% Investment income increased 41%, or $422,924, from $1,031,858 for the year ended December 31, 2016 to
$1,454,782 for the year ended December 31, 2017. Interest from portfolio companies  Interest from portfolio companies was 51% higher
during the year ended December 31, 2017 versus the same period in 2016 due to the fact that more income-producing debt investments were originated in the last year. These new debt instruments were originated from Genicon Inc. (Genicon), eHealth
Global Technologies, Inc. (eHealth), Empire Genomics, LLC (Empire Genomics) and several other portfolio companies. The following
investments were on non-accrual status at December 31, 2017: G-TEC Natural Gas Systems (G-Tec), First Wave Products Group,
LLC (First Wave) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance. Interest from other investments
 The decrease in interest from other investments was primarily due to lower average cash balances during the year ended December 31, 2017 versus the year ended December 31, 2016.  27




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##### Table of Contents

Dividend and other investment income  The dividend distributions for the respective periods
were:  December 31,2017


December 31,2016Carolina Skiff LLC (Carolina Skiff)

$
178,532


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


27,409



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


21,579



16,250Empire Genomics, LLC (Empire Genomics)


10,070



4,024SOMS Technologies, LLC (SOMS)


6,024



13,464Total dividend and other investment income

$
243,614


$
192,932 Fee income - The income associated with the amortization of financing fees was $24,091 and $22,634 for the years ended
December 31, 2017 and 2016, respectively. The financing fee income based on the existing portfolio is expected to be approximately $21,000 in 2018, $15,000 in 2019 and $2,000 in 2020. Fees paid for board service at the portfolio companies were $1,000 and $4,000 for the years ended December 31, 2017 and 2016,
respectively. Expenses Comparison of the years
ended December 31, 2018 and 2017  December 31,2018


December 31,2017


Increase


% IncreaseTotal expenses

$
2,193,672


$
2,010,977


$
182,695



9
% Expenses predominately consist of interest expense on outstanding SBA borrowings, compensation expense, and
general and administrative expenses, including stockholder and office operating expenses and professional fees. The increase in expenses
during the year ended December 31, 2018 versus the same period in 2017 was primarily caused by a 14%, or approximately $50,000, increase in professional fees. Professional fees are higher during 2018 primarily as a result of expenses incurred
in the consideration of strategic alternatives. These expenses included external legal, tax consulting and other advisory expenses to support analysis of our strategic alternatives, which involved assessing options relative to the complex regulatory
environment in which we operate. In addition bonus and profit sharing expense went from $12,000 during the year ended December 31,
2017 to $125,000 during the year ended December 31, 2018, an $113,000 increase. Comparison of the years ended December 31, 2017 and 2016  December 31,2017


December 31,2016


Decrease


% DecreaseTotal expenses

$
2,010,977


$
3,401,037


($
1,390,060
)


(41
%) The decrease in expenses during the year ended December 31, 2017 versus the same period in 2016 was
primarily caused by a decrease of $1,373,052 in bonus and profit sharing expense related to the Gemcor II, LLC (Gemcor) exit in early 2016. Gemcor sold its assets in March 2016 and based on our ownership percentage, we received gross cash proceeds
of approximately $13.8 million, excluding an escrow receivable, and realized a gain, before income taxes, of approximately $13.2 million from the sale. As a result of this sale, we recognized $1,385,052 under our Profit Sharing Plan during
the year ended December 31, 2016. There were no amounts earned pursuant to the Profit Sharing Plan for the year ended December 31, 2017. Net
Realized Gains and Losses on Investments  December 31,2018


December 31,2017


December 31,2016Net realized (loss) gain on sales and dispositions, before income tax (benefit) expense

($
1,464,142
)

$
138,240


$
14,138,203  28




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##### Table of Contents

During the year ended December 31, 2018, we recognized a realized loss of $1,125,673 on
our investment in Intrinsiq Material, Inc. (Intrinsiq) when the company was sold and we did not receive any proceeds. In addition we restructured our notes in First Wave Technologies, Inc. (First Wave) and converted the notes into equity. As part of
that restructuring we recognized a realized loss of $338,469 on the junior note and the warrants. During the year ended December 31,
2017, one of our portfolio companies, Athenex Inc. (Athenex) completed an initial public offering and its common stock became publicly traded on the Nasdaq Global Select Market under the symbol ATNX. We sold our shares in Athenex and
recognized a net realized gain, before income taxes, of $638,240 on the sale of the 46,296 Athenex shares. In addition, during 2017, we
recognized a realized loss of $500,000 on our investment in City Dining Cards (Loupe) when the company ceased operations. During 2016 our
portfolio company, Gemcor II, LLC, sold its assets, and we received gross cash proceeds of approximately $14.1 million, excluding amounts held in escrow, and recognized a realized gain, before income taxes, of $14,620,063. The escrow holdback
at December 31, 2016 was $1,100,000. The escrow was released, in full, during 2017. In addition, we recognized a realized gain of
$168,140 during the year ended December 31, 2016 from the earn out provision in connection with the 2014 sale of QuaDPharma, LLC to Athenex Inc. We recognized a realized loss of $650,000 on our investment in Statisfy, Inc. (Statisfy) during the
year ended December 31, 2016 when the company ceased operations. Net Change in Unrealized Depreciation on Investments The change in unrealized depreciation, before income taxes, for the year ended December 31, 2018 was comprised of the following:  Year endedDecember 31, 2018Empire Genomics, LLC (Empire Genomics)

($
901,360
)Rheonix, Inc. (Rheonix)


(735,999
)SOMS Technologies, LLC (SOMS)


(528,348
)BeetNPath, LLC (Beetnpath)


(388,723
)KnowledgeVision Systems, Inc. (Knowledgevision)


(300,000
)Mercantile Adjustment Bureau, LLC (Mercantile)


(249,040
)G-Tec Natural Gas Systems (Gtec)


(100,000
)Genicon, Inc. (Genicon)


(82,500
)OnCore Golf Technology, Inc. (Oncore)


(77,712
)First Wave Products Group (First Wave)


121,469GiveGab, Inc. (Givegab)


191,907Microcision LLC (Microcision)


610,000Intrinsiq Material, Inc. (Intrinsiq) reclassed to a realized loss


725,673ACV Auctions, Inc. (ACV)


2,494,551Total change in net unrealized depreciation of investments before income taxes during the year
ended December 31, 2018

$
779,918  29




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##### Table of Contents

The valuations of our investments in Beetnpath, Empire Genomics, Gtec, Mercantile, Oncore,
Rheonix, and SOMS were decreased after we reviewed each of the portfolio companys operations, commercial progress against their business plan, and past and projected financial condition and determined that a valuation adjustment was necessary. Our valuation of First Wave was changed to reflect a conversion from debt instruments to equity holdings. As part of this restructure we
recognized a realized loss on the junior note and the warrants. Givegabs value was increased to the cost basis of the investment
after a financial analysis of the portfolio company indicating continued improved performance. Our valuation of Knowledgevision and
Genicon were decreased during the year ended December 31, 2018 to revalue our holdings based upon liquidation preferences of our securities and on a recent round of financing. In accordance with our valuation policy, we increased the value of our holdings in ACV and Microcision. ACV was increased based on a
significant equity financing during 2018 with sophisticated new non-strategic outside investors at a higher valuation than their prior financing round valuation. Microcision was increased based on a financial
analysis of the company indicating positive cash flow from operations for the past two years. The Intrinsiq investment was written off
after the company was sold during 2018 and we did not receive any proceeds. The change in unrealized depreciation, before income taxes,
for the year ended December 31, 2017 was comprised of the following:  Year endedDecember 31, 2017SciAps, Inc. (Sciaps)

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


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


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


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


(250,000
)BeetNPath, LLC (Beetnpath)


29,723ACV Auctions, Inc. (ACV)


119,356Carolina Skiff LLC (Carolina Skiff)


650,000Knoa Software, Inc. (Knoa)


779,700Total change in net unrealized depreciation on investments before income taxes during the year
ended December 31, 2017

($
274,708
) The valuations of our investments in Intrinsiq, Mercantile and Teleservices were decreased after we reviewed
each portfolio company and its current and projected financial condition and determined that a valuation adjustment was necessary. In
accordance with our valuation policy, we adjusted the value of our investments in ACV, Beetnpath and Sciaps based on a significant equity financing by a new non-strategic outside entity, and consideration of
the related affect on the liquidation preferences of our existing investment instrument in each of the companies. In addition, our investments in Carolina Skiff and Knoa were increased based on a financial analysis of each portfolio company
indicating improved performance.  30




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##### Table of Contents

The change in net unrealized depreciation, before income taxes, for the year ended
December 31, 2016 was comprised of the following:  Year endedDecember 31,2016Gemcor II, LLC (Gemcor) reclassed to a realized gain

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


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


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


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


69,444Intrinsiq Materials, Inc. (Intrinsiq)


254,329Carolina Skiff LLC (Carolina Skiff)


500,000Total change in net unrealized depreciation of investments before income taxes during the year
ended December 31, 2016

($
13,552,207
) During the first quarter of 2016 Gemcor II, LLC sold its assets and we received gross cash proceeds of
approximately $14.1 million. The realized gain from the sale, before income taxes, was $14,620,063 and included $1,100,000 that was held in escrow at December 31, 2016. Our investment in Teleservices was revalued after we reviewed their operations and their current and past financial performance. This review
indicated that a further deterioration of their business had occurred. The portfolio company remains in operation and is developing new business strategies. The valuation of our investment in Knoa was decreased during 2016 to value our equity at liquidation value. The valuation of our investment in
Oncore was decreased after we reviewed the portfolio company and its financial condition and determined that a valuation adjustment was necessary. In accordance with our valuation policy, we increased the value of our investment in Athenex based on a significant equity financing by a new non-strategic outside entity. This new financing used a higher valuation for Athenex than had been used for its prior financing rounds. Intrinsiqs value was increased based on the completion of an equity refinancing in the third quarter of 2016. Carolina Skiffs
value was increased based on a financial analysis of the portfolio company indicating continued improved performance. All of these value
adjustments resulted from a review by management using the guidance set forth by ASC 820 and our established valuation policy. Net Decrease in Net
Assets from Operations We account for our operations under GAAP for investment companies. The principal measure of our financial
performance is Net decrease in net assets from operations on our consolidated statements of operations. During the year ended December 31, 2018, the net decrease in net assets from operations was ($394,498) as compared with net
decreases of ($710,678) in 2017 and ($1,202,683) in 2016. Liquidity and Capital Resources Historically, our principle objective has been to achieve capital appreciation. Therefore, a significant portion of the investment portfolio is
structured to maximize the potential for capital appreciation and may provide little or no current yield in the form of dividends or interest payments. As discussed above, on the closing of the Transactions contemplated by the Stock Purchase
Agreement with East, we expect to receive interest bearing investments and subsequently to position the portfolio to earn a current yield.  31




---

##### Table of Contents

As of December 31, 2018, our total liquidity consisted of $4,033,792 in cash and cash
equivalents. In addition we had an outstanding SBA leverage commitment of $5,250,000 at December 31, 2018. Net cash used by
operating activities has averaged approximately $820,000 over the last three years. The cash used for investments in portfolio companies has averaged approximately $4,600,000 over the last three years. Our cash flow may fluctuate based on the timing
of the receipt of dividend income, realized exits and the associated income taxes paid. We will generally use cash to fund our operating expenses and to invest in companies as we build our portfolio. We anticipate that we will continue to exit
investments. However, the timing of liquidation events within the portfolio is difficult to project. Starting in 2022 (See Note 5. in the Notes to the Consolidated Financial Statements), our outstanding SBA debt begins to reach maturity and this
will require us to identify sources of future funding if liquidation of investments is not sufficient to fund operations and repay the SBA debt obligation. The following table summarizes the SBA leverage at the year ends indicated:  December 31, 2018


December 31, 2017Outstanding SBA leverage

$
8,750,000


$
8,000,000Outstanding SBA commitment

$
5,250,000


$
0 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, 2018. 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 year2019


2020


2021


2022


2023 andbeyondScheduled cash receipts from portfolio companies

$
1,507,000


$
12,709,000


$
2,026,000


$
1,100,000


$
2,500,000Number of companies contributing to the scheduled cash receipts


10



10



4



2



1 We believe that the cash on hand at December 31, 2018, the outstanding SBA leverage commitment and the
scheduled interest payments on our portfolio investments will be sufficient to meet our cash needs throughout 2019. We continue to pursue potential exits from portfolio companies to increase the amount of liquidity available for new investments,
operating activities and future SBA debenture obligations. Contractual Obligations The following table shows our specified contractual obligations at December 31, 2018. We do not have any capital lease obligations or
other long-term liabilities reflected on our consolidated statement of financial position.  Payments due by periodTotal


Less than1 year


1-3years


4-5years


Morethan 5 yrsSBA debentures

$
8,750,000


$
0


$
3,000,000


$
4,000,000


$
1,750,000SBA interest expense

$
1,706,000


$
304,000


$
943,000


$
301,000


$
158,000Operating lease obligations (Rent of office space)

$
39,180


$
19,440


$
19,740


$
0


$
0Total

$
10,495,180


$
323,440


$
3,962,740


$
4,301,000


$
1,908,000  32




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##### Table of Contents

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 our management and approved by our Board of Directors. This is in accordance with our investment valuation policy. (The discussion of valuation policy contained in Note 1-
Summary of Significant Accounting Policies - Investments in the consolidated financial statements contained in Item 8 of this report is incorporated herein by reference.) In the absence of readily ascertainable market values, the estimated
value of the portfolio may differ significantly from the values that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated statement of operations as Net
change in unrealized depreciation on investments. At times, a portion of our portfolio may include marketable securities traded in
the over-the-counter market or on stock exchange. In addition, there may be a portion of the portfolio for which no regular trading market exists. In order to realize
the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow markets to trade in an orderly fashion, we may
not be able to realize the fair value of our marketable investments or other investments in a timely manner. As of December 31,
2018, we did not have any off-balance sheet arrangements or hedging or similar derivative financial instrument investments.  33




---

##### 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, 2018 and 2017


35Consolidated Statements of Operations for the three years in the period ended
 December 31, 2018


36Consolidated Statements of Changes in Net Assets for the three years in the
 period ended December 31, 2018


37Consolidated Statements of Cash Flows for the three years in the period ended
 December 31, 2018


38Consolidated Schedule of Portfolio Investments as of December 
31, 2018


39Consolidated Schedule of Portfolio Investments as of December 
31, 2017


47Financial Highlights Schedule for the five years in the period ended December 31,
 2018


55Notes to the Consolidated Financial Statements


56Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized
 Loss for the year ended December 31, 2018


74Report of Independent Registered Public Accounting Firm


75  34




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31,     2018


2017ASSETSInvestments at fair value:Control investments (cost of $ 99,500)

$
99,500


$
99,500Affiliate investments (cost of $20,708,659 and $20,871,129, respectively)


17,026,091



17,016,795Non-Control/Non-Affiliate
investments (cost of $17,483,984 and $15,718,690, respectively)


17,541,213



15,167,767Total investments, at fair value (cost of $38,292,143 and $36,689,319, respectively)


34,666,804



32,284,062Cash and cash equivalents


4,033,792



6,262,039Interest receivable (net of allowance: $161,000)


145,532



231,048Deferred tax asset


525,198



551,863Prepaid income taxes


1,138,708



762,047Other assets


11,690



42,854Total assets

$
40,521,724


$
40,133,913LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA (net of debt issuance costs)

$
8,554,443


$
7,855,173Profit sharing and bonus payable


125,000



144,000Accounts payable and accrued expenses


245,758



178,348Deferred revenue


72,336



37,707Total liabilities


8,997,537



8,215,228Commitments and contingencies (See Note 9)Stockholders equity (net assets):Common stock, $0.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding
of 6,321,988 at 2018 and 2017


686,304



686,304Capital in excess of par value


10,581,789



10,581,789Accumulated net investment loss


(1,665,552
)


(1,597,146
)Undistributed net realized gain on investments


26,221,443



27,215,738Net unrealized depreciation on investments


(2,830,692
)


(3,498,895
)Treasury stock, at cost: 541,046 shares


(1,469,105
)


(1,469,105
)Total stockholders equity (net assets) (per share 2018: $4.99, 2017: $5.05)


31,524,187



31,918,685Total liabilities and stockholders equity (net assets)

$
40,521,724


$
40,133,913 See accompanying notes  35




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, 2018, 2017 and 2016  2018


2017


2016Investment income:Interest from portfolio companies:Control investments

$



$



$
11,828Affiliate investments


741,432



563,708



403,850Non-Control/Non-Affiliate
investments


757,308



591,608



351,475Total interest from portfolio companies


1,498,740



1,155,316



767,153Interest from other investments:Non-Control/Non-Affiliate
investments


37,614



30,761



45,139Total interest from other investments


37,614



30,761



45,139Dividend and other investment income:Control investments


60,000







Affiliate investments


318,324



233,544



188,908Non-Control/Non-Affiliate
investments


6,058



10,070



4,024Total dividend and other investment income


384,382



243,614



192,932Fee income:Control investments










2,000Affiliate investments


15,667



8,416



5,862Non-Control/Non-Affiliate
investments


170,551



16,675



18,772Total fee income


186,218



25,091



26,634Total investment income


2,106,954



1,454,782



1,031,858Expenses:Salaries


679,499



661,650



621,749Profit sharing and bonuses


125,000



12,000



1,385,052Employee benefits


194,818



160,779



174,796Directors fees


128,750



142,499



184,750Professional fees


407,159



356,936



339,823Shareholders and office operating


230,050



249,085



227,631Insurance


34,187



31,876



32,134Corporate development


62,117



65,202



64,412Other operating


21,092



20,675



21,4141,882,672



1,700,702



3,051,761Interest on SBA obligations


311,000



310,275



310,276Bad debt expense










39,000Total expenses


2,193,672



2,010,977



3,401,037Investment loss before income taxes


(86,718
)


(556,195
)


(2,369,179
)Income tax benefit


(18,312
)


(536,897
)


(815,911
)Net investment loss


(68,406
)


(19,298
)


(1,553,268
)Net realized (loss) gain on sales and dispositions of investments:Control investments










14,620,063Affiliate investments


(1,464,142
)






(650,000
)Non-Control/Non-Affiliate
investments






138,240



168,140Net realized (loss) gain on sales and dispositions, before income taxes


(1,464,142
)


138,240



14,138,203Income tax (benefit) expense


(469,847
)


49,556



5,273,550Net realized (loss) gain on sales and dispositions of investments


(994,295
)


88,684



8,864,653Net change in unrealized depreciation on investments:Control investments










(12,775,000
)Affiliate investments


608,207



129,315



(846,651
)Non-Control/Non-Affiliate
investments


171,711



(404,023
)


69,444Change in unrealized depreciation before income taxes


779,918



(274,708
)


(13,552,207
)Deferred income tax expense (benefit)


111,715



505,356



(5,038,139
)Net change in unrealized depreciation or appreciation on investments


668,203



(780,064
)


(8,514,068
)Net realized and unrealized (loss) gain on investments


(326,092
)


(691,380
)


350,585Net decrease in net assets from operations

($
394,498
)

($
710,678
)

($
1,202,683
)Weighted average shares outstanding


6,321,988



6,321,988



6,325,792Basic and diluted net decrease in net assets from operations per share


(0.06
)


(0.11
)


(0.19
) See accompanying notes  36




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS For The Years Ended December 31, 2018, 2017 and 2016     2018


2017


2016Net assets at beginning of year

$
31,918,685


$
32,629,363


$
33,853,660Net investment loss


(68,406
)


(19,298
)


(1,553,268
)Net realized (loss) gain on sales and dispositions of investments


(994,295
)


88,684



8,864,653Net increase (decrease) in unrealized depreciation or appreciation on investments


668,203



(780,064
)


(8,514,068
)Net decrease in net assets from operations


(394,498
)


(710,678
)


(1,202,683
)Purchase of treasury stock










(21,614
)Total decrease in net assets


(394,498
)


(710,678
)


(1,224,297
)Net assets at end of year

$
31,524,187


$
31,918,685


$
32,629,363Accumulated net investment loss

($
1,665,552
)

($
1,597,146
)

($
1,577,848
) See accompanying notes.  37




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, 2018, 2017 and 2016     2018


2017


2016Cash flows from operating activities:Net decrease in net assets from operations

($
394,498
)

($
710,678
)

($
1,202,683
)Adjustments to reconcile net decrease in net assets to net cash (used in) provided by operating
activities:Investments originated


(2,487,627
)


(5,400,000
)


(5,883,012
)Proceeds from sale of portfolio investments






781,525



15,413,203Proceeds from loan repayments


70,131







416,972Net realized loss (gain) on portfolio investments


1,464,142



(138,240
)


(14,138,203
)Change in unrealized depreciation on investments


(779,918
)


274,708



13,552,207Deferred tax expense (benefit)


26,665



613,301



(3,526,350
)Depreciation and amortization


29,686



31,433



33,390Original issue discount accretion


(39,653
)


(32,129
)


(9,996
)Change in interest receivable allowance










39,000Non-cash conversion of debenture interest


(609,817
)


(269,445
)


(19,252
)Changes in operating assets and liabilities:Decrease (increase) in interest receivable


85,516



93,189



(148,013
)Decrease in other assets


28,936



1,101,621



450,752(Increase) decrease in prepaid income taxes


(376,661
)


(762,047
)


65,228(Decrease) increase in income taxes payable






(320,008
)


320,008(Decrease) increase in profit sharing and bonus payable


(19,000
)


(1,126,052
)


988,052Increase (decrease) in accounts payable and accrued liabilities


67,410



(146,189
)


85,626Increase (decrease) in deferred revenue


34,629



(9,090
)


20,867Total adjustments


(2,505,561
)


(5,307,423
)


7,660,479Net cash (used in) provided by operating activities


(2,900,059
)


(6,018,101
)


6,457,796Cash flows from investing activities:Capital expenditures










(837
)Net cash used in investing activities










(837
)Cash flows from financing activities:Proceeds from SBA debentures


750,000







Origination costs to SBA


(78,188
)






Purchase of treasury shares










(21,614
)Net cash provided by (used in) financing activities


671,812







(21,614
)Net (decrease) increase in cash


(2,228,247
)


(6,018,101
)


6,435,345Cash:Beginning of year


6,262,039



12,280,140



5,844,795End of year

$
4,033,792


$
6,262,039


$
12,280,140 See accompanying notes  38




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018  Company, Geographic Location, Business
Description, (Industry) and
Website

(a)
Type of
Investment

(b)
Date
Acquired


(c)
Equity


Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsNon-Control/Non-Affiliate Investments  55.7% of net assets: (j)ACV Auctions, Inc. (e)(g)

1,181,160 Series A Preferred.


8/12/16



<1
%

$
163,000


$
2,776,907



8.8
%Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software)
www.acvauctions.comCentivo Corporation (e)(g)

190,967 Series A-1 Preferred.


7/5/17



<1
%


200,000



200,000



1.0
%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

337,808 Series A-2 Preferred.










101,342



101,342Total Centivo










301,342



301,342eHealth Global Technologies, Inc. (g)
Henrietta, NY. eHealth Connect® improves health care delivery through intelligently aggregated
clinical record and images for patient referrals. (Health Care) www.ehealthtechnologies.com

$3,500,000 Term Note at 13% due December 31, 2020.


6/28/16



0
%


3,500,000



3,500,000



11.1
%Empire Genomics, LLC (g)(m) 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% (8% PIK through September 30, 2019) due December 31, 2020.
$444,915 Promissory Note at 9% (4% PIK) due December 31, 2020.


6/13/14



0
%


1,233,195 
 
444,915



474,181 
 
302,569



2.4
%Total Empire










1,678,110



776,750GiveGab, Inc. (e)(g)

5,084,329 Series Seed Preferred.


3/13/13



4
%


616,221



616,221



2.0
%Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)
www.givegab.comGoNoodle, Inc. (g)(m)

$1,000,000 Secured Note at 12%


2/6/15



<1
%


1,039,663



1,039,663



3.3
%Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software)
www.gonoodle.com

due January 31, 2020, (1% PIK). Warrant for
47,324 Series C Preferred.










25



25Total GoNoodle










1,039,688



1,039,688Mercantile Adjustment Bureau, LLC (g)
Williamsville, NY. Full service

$1,199,039 Subordinated Secured Note at 13% (3%
for the calendar year 2018) due January 31, 2019.


10/22/12



4
%


1,199,040



700,000



2.2
%accounts receivable management and collections company. (Contact Center)

(e)$150,000 Subordinated Debenture at
8% due June 30, 2018.










150,000



www.mercantilesolutions.com

Warrant for 3.29% Membership Interests. Option for 1.5% Membership Interests.










97,625



(i)Interest receivable $50,254.Total Mercantile










1,446,665



700,000Outmatch Holdings, LLC (e)(g)

2,798,883 Class P1 Units.


11/18/10



4
%


2,140,007



2,140,007



6.8
%(Chequed Holdings, LLC)

109,788 Class C1 Units.










5,489



5,489Dallas, TX. Web based predictive employee selection and reference checking. (Software)
www.outmatch.comTotal Outmatch










2,145,496



2,145,496PostProcess Technologies LLC (e)(g)

$300,000 Convertible Promissory


7/25/16



0
%


300,000



300,000



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

Note at 5% due July 28, 2020.  39




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Company, Geographic Location, BusinessDescription, (Industry) and
Website

(a)
Type of Investment

(b)DateAcquired

(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsRheonix, Inc. (e)

9,676 Common.

10/29/09


4
%










7.0
%Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care)
www.rheonix.com

(g)1,839,422 Series A Preferred.








2,099,999



1,500,000(g)50,593 Common.












(g)589,420 Series B Preferred.








702,732



702,732Total Rheonix








2,802,731



2,202,732SocialFlow, 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.

4/5/13


4
%


500,000750,000500,000



731,431839,648500,221



6.6
%Total Social Flow








1,750,000



2,071,300Somerset Gas Transmission Company, LLC (e)

26.5337 Units.

7/10/02


3
%


719,097



500,000



1.6
%Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.comTech 2000, Inc. (g)(m)

$600,000 Term Note at 14% (PIK through December 31, 2018) due
November 15, 2021.

11/16/18


0
%


610,777



610,777



1.9
%Herndon, VA. Develops and delivers IT training. (Software)
www.t2000inc.comOther Non-Control/Non-Affiliate Investments:DataView, LLC (e)(Software)

Membership Interest.

10/1/98


5
%


310,357







0.0
%UStec/Wi3 (e)(Manufacturing)

Common stock.

12/17/98


<1
%


100,500







0.0
%Subtotal Non-Control/Non-Affiliate Investments









$
17,483,984


$
17,541,213Affiliate Investments  54.0% of net assets (k)BeetNPath, LLC (Grainful) (e)(g)

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

10/20/14


9
%

$
359,000


$




1.7
%Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com1,032,918 Series B Preferred Membership Units.261,277



261,277$262,626.64 Convertible Secured Notes at 8% due December 21, 2019.








262,627



262,627Total BeetNPath








882,904



523,904Carolina Skiff LLC (g) 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



1,750,000



5.6
%ClearView Social, Inc. (e)(g)

312,500 Series Seed Plus Preferred.

1/4/16


6
%


200,000



200,000



0.6
%Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software)
www.clearviewsocial.comFirst Wave Technologies, Inc. (e)(g)

670,443.2 Class A Common.

4/19/12


5
%


661,563



33,000



0.1
%Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds pills for nursing homes and medical institutions. (Health
Care) www.firstwaveproducts.com  40




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Company, Geographic Location, BusinessDescription, (Industry) and
Website

(a)
Type of Investment

(b)DateAcquired

(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsGenicon, Inc. (g) (m)

1,586,902 Series B Preferred.

4/10/15


6
%


1,000,000



1,000,000



14.0
%Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care)
www.geniconendo.com

$3,250,000 Promissory Notes at 10%due May 1, 2020, (8% PIK).








3,385,586



3,385,586Warrants for 500,000 Common.








120,000



37,500Total Genicon








4,505,586



4,423,086Knoa Software, Inc. (e)(g)

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

11/20/12


7
%


750,000



750,000



3.9
%New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software)
www.knoa.com








479,155



479,155Total Knoa








1,229,155



1,229,155KnowledgeVision Systems, Inc. (g)

200,000 Series A-1 Preferred.

11/13/13


7
%


250,000







3.2
%Lincoln, MA. Online presentation and training software. (Software)

214,285 Series A-2 Preferred.








300,000



129,033 Series A-3 Preferred.








165,001



165,001www.knowledgevision.com

Warrant for 46,743 Series A-3.








35,000



35,000$75,000 Subordinated Promissory Notes at 8% payable on demand of majority of holders after August 31, 2019.(e) $750,000 Term Note at 11% due April








75,000



75,00030, 2021.








750,000



750,000Total KnowledgeVision








1,575,001



1,025,001Mezmeriz, Inc. (e)(g)

1,554,565 Series Seed Preferred.

1/9/08


12
%


742,850



351,477



1.1
%Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification.
(Electronics Developer) www.mezmeriz.comMicrocision LLC (g)(m)

$1,500,000 Subordinated Promissory

9/24/09


15
%


1,933,353



1,933,353



8.1
%Pennsauken Township, NJ. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing)

Note at 12% (1% PIK) due December31, 2024.15% Class A Common Membershipwww.microcision.com

Interest.












610,000Total Microcision








1,933,353



2,543,353New Monarch Machine Tool, Inc. (g)

22.84 Common.

9/24/03


15
%


22,841



22,841



0.1
%Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)www.monarchmt.comOnCore Golf Technology, Inc. (e)(g)

300,483 Preferred AA.

12/31/14


8
%


752,712



300,000



1.0
%Buffalo, NY. Patented and Proprietary Golf Balls utilizing breakthrough technology and innovation, inspiring golfers at all skill levels and abilities. (Consumer Product)www.oncoregolf.comSciAps, Inc. (e)(g)

187,500 Series A Preferred.

7/12/13


6
%


1,500,000



700,000



6.4
%Woburn, MA. Instrumentation company
producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com

274,299 Series A-1 Convertible Preferred.








504,710



250,000117,371 Series B Convertible Preferred.








250,000



250,000113,636 Series C Convertible Preferred.








175,000



175,000369,698 Series C-1 Convertible Preferred.








399,274



399,274147,059 Series D Convertible Preferred.








250,000



250,000Total SciAps








3,078,984



2,024,274  41




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Company, Geographic Location, BusinessDescription, (Industry) and
Website

(a)
Type of Investment

(b)DateAcquired

(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsTeleservices Solutions Holdings, LLC (e)(g)(m)

250,000 Class B Preferred Units.

5/30/14


6
%


250,000







0.0
%Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact
Center) www.ipacesetters.com

1,000,000 Class C Preferred Units.
80,000 Class D Preferred Units. 104,198 Class E Preferred
Units. PIK dividend for Series C and D at 12% and 14%, respectively.








1,190,680



91,200



104,198



Total Teleservices








1,636,078



Tilson Technology Management, Inc.
(g)

120,000 Series B Preferred.

1/20/15


11
%


600,000



600,000



8.2
%Portland, ME. Cellular, fiber optic and wireless

21,391 Series C Preferred.








200,000



200,000information systems, construction, and

70,176 Series D Preferred.








800,000



800,000management. (Professional Services)

$800,000 Subordinated Promissorywww.tilsontech.com

Notes at 8% due December 1, 2022.








800,000



800,000$200,000 Subordinated PromissoryNote at 8% due September 28, 2021.








200,000



200,000Total Tilson








2,600,000



2,600,000Other Affiliate Investments:G-TEC Natural Gas Systems(e)

Membership Interest

8/31/99


17
%


400,000







0.0
%(Manufacturing)SOMS Technologies, LLC (e)(g)

Membership Interest

12/2/08


9
%


472,632







0.0
%(Consumer Products)Subtotal Affiliate Investments









$
20,708,659


$
17,026,091Control Investments  0.3% of net assets (l)Advantage 24/7 LLC (g)

45% Membership Interest.

12/30/10


45
%

$
99,500


$
99,500



0.3
%Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.comSubtotal Control Investments









$
99,500


$
99,500TOTAL INVESTMENTS  110%









$
38,292,143


$
34,666,804LIABILITIES IN EXCESS OF OTHER ASSETS  (10%)














(3,142,617
)NET ASSETS  100%













$
31,524,187  42




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2018, restricted securities represented 100% of the fair value of the investment
portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in form of shares unless otherwise noted as units or interests, i.e., preferred shares,
common shares. (b)
The Date Acquired column indicates the date in which the Corporation first acquired an investment in the
company or a predecessor company. (c)
Each equity percentage estimates the Corporations ownership interest in the applicable portfolio
investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion of
debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an equity interest of less than one percent. (d)
The Corporations investments are carried at fair value in accordance with Accounting Standards
Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2018, ASC 820 designates 100% of the Corporations investments as
Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period.
Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the
Corporation may reasonably expect to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future
sales or other dispositions of securities and these favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results,
projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio
company (see Note 2 Investments to the Consolidated Financial Statements). (e)
These investments are non-income producing. All other investments are
income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last
twelve months, or are not expected to do so going forward. However, if a debt or a preferred equity fails to make its most recent payment, then the investment will also be classified as non-income producing. (f)
As of December 31, 2018 the total cost of investment securities was approximately $38.3 million. Net
unrealized depreciation was approximately ($3.6) million, which was comprised of $5.3 million of unrealized appreciation of investment securities and ($8.9) million of unrealized depreciation of investment securities. At December 31, 2018,
the aggregate gross unrealized gain for federal income tax purposes was $5.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($5.9) million. The net unrealized loss for federal income tax purposes was ($0.7)
million based on a tax cost of $35.4 million. (g)
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 Investment Company Act of 1940, as amended (1940 Act), as
those Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation. (l)
Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the
voting securities are owned by the Corporation or where greater than 50% of the board representation is maintained. (m)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.  43




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Investments in and Advances to Affiliates   Company

Type of Investment

December 31,2017Fair Value


GrossAdditions (1)


GrossReductions(2)


December 31,2018Fair Value


NetRealized(Losses)


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

45% Membership Interest.

$
99,500


$



$



$
99,500


$



$
60,000Total Control Investments

$
99,500


$



$



$
99,500


$



$
60,000Affiliate Investments:BeetNPath, LLC

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

$
359,000


$



($
359,000
)

$



$



$
1,032,918 Series B Preferred Membership Units.


291,000







(29,723
)


261,277







$262,626.64 Convertible Secured Note at 8%






262,627







262,627







5,413Total BeetNPath


650,000



262,627



(388,723
)


523,904







5,413Carolina Skiff LLC

6.0825% Class A Common Membership interest.


1,750,000











1,750,000







251,913ClearView Social, Inc.

312,500 Series Seed Plus Preferred.


200,000











200,000







First Wave Technologies, Inc.

$500,000 senior term notes at 10%.


250,000







(250,000
)






(316,469
)


$280,000 junior term notes at 10%






















Warrant for 41,619 capital securities.


















( 22,000
)


670,443.2 Class A Common.






33,000







33,000







Total First Wave


250,000



33,000



(250,000
)


33,000



(338,469
)


Genicon, Inc.

1,586,902 Series B Preferred.


1,000,000











1,000,000







$3,250,000 Promissory Notes at 8%.


2,903,779



481,807







3,385,586







348,512Warrant for 250,000 Common.


120,000







(82,500
)


37,500







Total Genicon


4,023,779



481,807



(82,500
)


4,423,086







348,512GiveGab, Inc.

5,084,329 Series Seed Preferred.


424,314



191,907



(616,221
)










G-TEC Natural Gas Systems

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


100,000







(100,000
)






(1,125,673
)


Intrinsiq Materials, Inc.

4,161,747 Series A Preferred.


400,000







(400,000
)










Knoa Software, Inc.

973,533 Series A-1 Convertible Preferred.


750,000











750,000







1,876,922 Series B Preferred.


479,155











479,155







$48,466 Convertible Promissory Note at 8%.


48,466







(48,466
)










773Total Knoa


1,277,621







(48,466
)


1,229,155







773KnowledgeVision

200,000 Series A-1 Preferred.






















Systems, Inc.

214,285 Series A-2 Preferred.


300,000







(300,000
)










129,033 Series A-3 Preferred.


165,001











165,001







$75,000 Subordinated Promissory Notes at8%


50,000



25,000







75,000







5,408$750,000 term note at 11%






750,000







750,000







60,241Warrant for 46,743 Series A-3.


35,000











35,000







Total KnowledgeVision


550,001



775,000



(300,000
)


1,025,001







65,649Mezmeriz, Inc.

1,554,565 Series Seed Preferred.


351,477











351,477







Microcision LLC

$1,500,000 Subordinated Promissory Note at 12% (1% PIK) due December 31, 2024.


1,914,140



19,213







1,933,353







230,55915% Class A Common Membership Interest.






610,000







610,000







Total Microcision


1,914,140



629,213







2,543,353







230,559New Monarch Machine Tool, Inc.

22.84 Common.


22,841











22,841







29,409  44




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)  Investments in and Advances to Affiliates   Company

Type of Investment

December 31,2017 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2018 FairValue


NetRealized(Losses)


Amount ofInterest/Dividend/Fee Income(3)OnCore Golf
Technology, Inc.

150,000 Series AA Preferred. $300,000
Subordinated Convertible






300,000







300,000







Promissory notes at 6%.


300,000







(300,000
)










27,370Total OnCore


300,000



300,000



(300,000
)


300,000







27,370SciAps, Inc.

187,500 Series A Convertible Preferred.


700,000











700,000







274,299 Series A-1 Convertible Preferred.


250,000











250,000







117,371 Series B Convertible Preferred.


250,000











250,000







113,636 Series C Preferred.


175,000











175,000







369,698 Series C-1 Preferred.


399,274











399,274







147,059 Series D Convertible Preferred






250,000







250,000







Total SciAps


1,774,274



250,000







2,024,274







SOMS
Technologies, LLC

5,959,490 Series B membership Interests.


528,348







(528,348
)










Teleservices
Solutions
Holdings, LLC

250,000 Class B Preferred Units.






















1,000,000 Class C Preferred Units.






















80,000 Class D Preferred Units.






















104,198 Class E Preferred Units.






















Total Teleservices






















Tilson Technology
Management, Inc.

120,000 Series B Preferred.


600,000











600,000







20,00021,391 Series C Convertible Preferred.


200,000











200,000







70,176 Series D Preferred.


750,000



50,000







800,000







19,003$200,000 Subordinated Promissory Noteat 8%.


200,000











200,000







16,000$800,000 Subordinated Promissory Noteat 8%.


750,000



50,000







800,000







60,822Total Tilson


2,500,000



100,000







2,600,000







115,825Total Affiliate Investments

$
17,016,795


$
3,023,554


($
3,014,258
)

$
17,026,091


($
1,464,142
)

$
1,075,423Total Control and Affiliate Investments

$
17,116,295


$
3,023,554


($
3,014,258
)

$
17,125,591


($
1,464,142
)

$
1,135,423 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.  (1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments,
follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into
this category and out of another category. (2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales,
note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another
category. (3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an
investment was included in Control or Affiliate categories, respectively.  45




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2018 (Continued)     Industry Classification

Percentage of TotalInvestments (at fair value)as of December 31, 2018Software


33.8
%Healthcare


32.4Manufacturing


19.2Professional Services


7.5Consumer Product


2.4Contact Center


2.0Oil and Gas


1.4Electronics


1.0Marketing


0.3Total Investments


100
%  46




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##### Table of Contents

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

(a)
Type of Investment

(b)DateAcquired


(c)Equity


Cost


(d)(f)FairValue


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

1,181,160 Series A preferred shares.


8/12/16



<1
%

$
163,000


$
282,356



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


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


7/5/17



0
%


100,000



100,000



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

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


6/28/16



0
%


1,500,000



1,500,000



11.0
%2,000,000



2,000,000Total eHealth










3,500,000



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

$1,101,489 senior secured convertible term notes at 10% due April 30, 2018.
$250,000 promissory note at 12% due December 31, 2019.


6/13/14



0
%


1,101,489



1,101,489



4.2
%250,000



250,000(i)Interest receivable $65,906.Total Empire










1,351,489



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

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


2/6/15



<1
%


1,029,330



1,029,330



3.2
%25



25Total GoNoodle










1,029,355



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

$1,199,039 subordinated secured note at 13% (3% for the calendar year 2017) due January 31, 2018.


10/22/12



4
%


1,199,040



949,040



3.0
%(e)$150,000 subordinated debenture at 8% due June 30, 2018.










150,000



Warrant for 3.29% membership interests. Option for 1.5% membership interests.
(i)Interest receivable $55,983.










97,625



Total Mercantile










1,446,665



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

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


11/18/10



4
%


2,140,007



2,140,007



6.7
%5,489



5,489Total Outmatch










2,145,496



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

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


7/25/16



0
%


300,000



300,000



0.9
%  47




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##### Table of Contents

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

(a)
Type of Investment

(b)
DateAcquired


(c)
Equity


Cost


(d)(f)
Fair
Value


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

9,676 common shares.


10/29/09



4
%






11,000



9.2
%(g)1,839,422 Series A preferred shares.










2,099,999



2,165,999(g)50,593 common shares.














59,000(g)589,420 Series B preferred shares.










702,732



702,732Total Rheonix










2,802,731



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

1,049,538 Series B preferred shares.


4/5/13



4
%


500,000



731,431



6.5
%1,204,819 Series B-1 preferred shares.










750,000



839,648717,772 Series C preferred shares.










500,000



500,221Total Social Flow










1,750,000



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

26.5337 units.


7/10/02



3
%


719,097



500,000



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

Membership Interest.










310,357







0.0
%UStec/Wi3(Manufacturing) (e)

Common Stock.










100,500







0.0
%Subtotal Non-Control/Non-Affiliate Investments











$
15,718,690


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

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


10/20/14



9
%

$
359,000


$
359,000



2.0
%1,032,918 Series B Preferred Membership Units.










261,277



291,000Total BeetNPath










620,277



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

6.0825% Class A common membership interest.


1/30/04



7
%


15,000



1,750,000



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

312,500 Series seed plus preferred shares.


1/4/16



6
%


200,000



200,000



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

$500,000 senior term notes at 10% due July 31, 2017.


4/19/12



7
%


661,563



250,000



0.8
%$280,000 junior term notes at 10% due July 31, 2017.










316,469



Warrant for 41,619 capital securities.










22,000



Total First Wave










1,000,032



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

(g)1,586,902 Series B preferred shares.


4/10/15



6
%


1,000,000



1,000,000



12.6
%(g)$2,000,000 promissory note at 8% due May 1, 2020.










1,936,002



1,936,002(g)Warrant for 250,000 common shares.










80,000



80,000(n)$1,000,000 promissory note at 8% due May 1, 2020.










967,777



967,777(n)Warrant for 125,000 common shares.










40,000



40,000Total Genicon










4,023,779



4,023,779  48




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##### Table of Contents

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

(a)
Type of Investment

(b)DateAcquired

(c)Equity


Cost


(d)(f)FairValue


Percentof NetAssetsGiveGab, Inc. (e)(g)

5,084,329 Series Seed preferred shares.

3/13/13


6
%


616,221



424,314



1.3
%Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)
www.givegab.comG-TEC Natural Gas Systems (e) Buffalo,
NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing) www.gas-tec.com

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

8/31/99


17
%


400,000



100,000



0.3
%Intrinsiq Materials, Inc. (e)(g)

4,161,747 Series A preferred shares.

9/19/13


12
%


1,125,673



400,000



1.3
%Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment.
(Manufacturing) www.intrinsiqmaterials.comKnoa Software, Inc. (g) New York, NY.
End user experience

973,533 Series A-1 convertible preferred shares.

11/20/12


7
%


750,000



750,000



4.0
%management and performance (EMP) solutions utilizing enterprise applications. (Software)

1,876,922 Series B preferred shares. $48,466 convertible promissory note at








479,155



479,155www.knoa.com

8% due May 9, 2018.








48,466



48,466Total Knoa








1,277,621



1,277,621KnowledgeVision Systems, Inc. (e)(g)

200,000 Series A-1 preferred shares.

11/13/13


7
%


250,000







1.7
%Lincoln, MA. Online presentation and training software. (Software)

214,285 Series A-2 preferred shares.








300,000



300,000129,033 Series A-3 preferred shares.








165,001



165,001www.knowledgevision.com

Warrant for 46,743 Series A-3 shares.








35,000



35,000$50,000 subordinated promissory noteat 8% payable on demand of majority ofnoteholders after August 31, 2017.








50,000



50,000Total KnowledgeVision








800,001



550,001Mezmeriz, Inc. (e)(g)

1,554,565 Series Seed preferred shares.

1/9/08


14
%


742,850



351,477



1.1
%Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning.
(Electronics Developer) www.mezmeriz.comMicrocision LLC (g)(m) Pennsauken
Township, NJ. Manufacturer of precision machined medical implants,

$1,500,000 subordinated promissory note at 12% (1% PIK) due December 31, 2024.

9/24/09


15
%


1,914,140



1,914,140



6.0
%components and assemblies. (Manufacturing)
www.microcision.com

15% Class A common membership interest.












Total Microcision








1,914,140



1,914,140New Monarch Machine Tool, Inc. (g)

22.84 common shares.

9/24/03


15
%


22,841



22,841



0.1
%Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com  49




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##### Table of Contents

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

(a)
Type of Investment

(b)
Date
Acquired

(c)
Equity


Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsOnCore Golf Technology, Inc. (e)(g)
Buffalo, NY. Maker of patented golf balls. (Consumer Product) www.oncoregolf.com

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

12/31/14


9
%


375,000







0.9
%(i)Interest receivable $50,342.








300,000



300,000Total OnCore








675,000



300,000SciAps, Inc. (e)(g) Woburn, MA.
Instrumentation

187,500 Series A convertible preferred shares.

7/12/13


8
%


1,500,000



700,000



5.6
%company producing portable analytical devices using XRF, LIBS and

274,299 Series A-1 convertible preferred shares.








504,710



250,000RAMAN spectroscopy to identify compounds, minerals, and elements.

117,371 Series B convertible preferred shares.








250,000



250,000(Manufacturing)

113,636 Series C preferred shares.








175,000



175,000www.sciaps.com

369,698 Series C-1 preferred shares.








399,274



399,274Total SciAps








2,828,984



1,774,274SOMS Technologies, LLC (e)(g) Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com

5,959,490 Series B membership interests.

12/2/08


9
%


472,632



528,348



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

250,000 Class B preferred units.

5/30/14


6
%


250,000







0.0
%1,000,000 Class C preferred units.








1,190,680



80,000 Class D preferred units.








91,200



104,198 Class E preferred units.








104,198



PIK dividend for Series C and D at 12% and 14%, respectively.Total Teleservices








1,636,078



Tilson Technology Management, Inc

(g)120,000 Series B preferred shares.

1/20/15


11
%


600,000



600,000



7.8
%Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com

21,391 Series C convertible preferred shares.








200,000



200,000(g)$200,000 subordinated promissory note at 8% due September 28, 2021.








200,000



200,000(n)65,790 Series D preferred shares.








750,000



750,000(n)$750,000 subordinated promissorynote at 8% due December 1, 2022.








750,000



750,000Total Tilson








2,500,000



2,500,000Subtotal Affiliate Investments









$
20,871,129


$
17,016,795Control Investments  0.3% of net assets (l)Advantage 24/7 LLC (e)(g)

53% Membership interest.

12/30/10


53
%

$
99,500


$
99,500



0.3
%Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company)www.advantage24-7.comSubtotal Control Investments









$
99,500


$
99,500TOTAL INVESTMENTS  101.1%









$
36,689,319


$
32,284,062LIABLITIES IN EXCESS OF OTHER ASSETS  (1.1%)














(365,377
)NET ASSETS  100%













$
31,918,685  50




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments  (a)
At December 31, 2017, restricted securities represented 100% of the fair value of the investment
portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable. (b)
The Date Acquired column indicates the year in which the Corporation first acquired an investment in the
company or a predecessor company. (c)
Each equity percentage estimates the Corporations ownership interest in the applicable portfolio
investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion of
debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an equity interest of less than one percent. (d)
The Corporations investments are carried at fair value in accordance with Accounting Standards
Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2017, ASC 820 designates 100% of the Corporations investments as
Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period.
Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the
Corporation may reasonably expect to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future
sales or other dispositions of securities and these favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results,
projected operations, and other analytical data relating to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio
company (see Note 2 Investments to the Consolidated Financial Statements). (e)
These investments are non-income producing. All other investments are
income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last
twelve months, or are not expected to do so going forward. (f)
As of December 31, 2017, the total cost of investment securities was approximately $36.7 million. Net
unrealized depreciation was approximately ($4.4) million, which was comprised of $2.4 million of unrealized appreciation of investment securities and ($6.8) million of unrealized depreciation of investment securities. At December 31, 2017,
the aggregate gross unrealized gain for federal income tax purposes was $2.8 million and the aggregate gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized loss for federal income tax purposes was ($1.6)
million based on a tax cost of $33.9 million. (g)
Rand Capital SBIC, Inc. investment. (h)
Reduction in cost and value from previously reported balances reflects current principal repayment. There were
no principal repayments during the year ended December 31, 2017. (i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the
Corporations 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)
Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the
voting securities are owned by the Corporation or where greater than 50% of the board representation is maintained. (m)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment. (n)
Rand Capital SBIC II, L.P. investment.  51




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##### Table of Contents

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

Type of Investment

December 31,2016Fair Value


GrossAdditions(1)


GrossReductions(2)


December 31,2017 FairValue


NetRealizedGains(Losses)


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

53% Membership interest.

$
99,500


$



$



$
99,500


$



$
Total Control Investments

$
99,500


$



$



$
99,500


$



$
Affiliate Investments:BeetNPath, LLC

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

$
359,000


$



$



$
359,000


$



$



$
291,000







291,000



  



150,000







(150,000
)










4,800Total BeetNPath


509,000



291,000



(150,000
)


650,000







4,800Carolina Skiff LLC

6.0825% Class A common membership interest.


1,100,000



650,000







1,750,000







178,532ClearView Social, Inc.

312,500 Series seed plus preferred shares.


200,000











200,000







First Wave Products Group, LLC

$500,000 senior term notes at 10%.


250,000











250,000







$280,000 junior term notes at 10%.






















Warrant for 41,619 capital securities.






















Total First Wave


250,000











250,000







Genicon, Inc.

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


1,000,000











1,000,000







1,100,000







(1,100,000
)










50,234600,000







(600,000
)










32,200



2,016,002



(80,000
)


1,936,002







129,752



1,007,777



(40,000
)


967,777







60,860



80,000







80,000







40,000







40,000







Total Genicon


2,700,000



3,143,779



(1,820,000
)


4,023,779







273,046GiveGab, Inc.

5,084,329 Series Seed preferred shares.


424,314











424,314







G-TEC Natural Gas Systems

16.639% Class A membership interest. 8% cumulative dividend


100,000











100,000







Intrinsiq Materials, Inc.

4,161,747 Series A preferred shares.


780,000







(380,000
)


400,000







Knoa Software, Inc.

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






750,000







750,000







449,455



29,700







479,155







48,466











48,466







3,877Total Knoa


497,921



779,700







1,277,621







3,877KnowledgeVision Systems,
Inc.

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






















300,000











300,000







165,001











165,001











50,000







50,000







3,74835,000











35,000







Total Knowledge Vision


500,001



50,000







550,001







3,748Mezmeriz, Inc.

1,554,565 Series seed preferred shares.


351,477











351,477







Microcision LLC

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


1,891,964



22,176







1,914,140







228,239New Monarch Machine Tool,
Inc.

22.84 common shares.


22,841











22,841







28,409  52




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##### Table of Contents

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

Type of Investment

December 31,2016 FairValue


GrossAdditions(1)


GrossReductions(2)


December 31,2017 FairValue


NetRealizedGains(Losses)


Amount ofInterest/Dividend/Fee Income (3)OnCore Golf Technology,
Inc.

150,000 Series AA preferred shares.






















$300,000 subordinated convertible promissory notes at 6%.


300,000











300,000







29,211Total OnCore


300,000











300,000







29,211SciAps, Inc.

187,500 Series A convertible preferred shares.


1,000,000







(300,000
)


700,000







274,299 Series A-1 convertible preferred shares.


504,710







(254,710
)


250,000







117,371 Series B convertible preferred shares.


250,000











250,000







113,636 Series C preferred shares.






175,000







175,000







369,698 Series C-1 preferred shares.






399,274







399,274







$200,000 subordinated promissory note at 10%.


200,000







(200,000
)










4,731$100,000 secured subordinated convertible note at 10%.


100,000







(100,000
)










2,376Total SciAps


2,054,710



574,274



(854,710
)


1,774,274







7,107SOMS Technologies, LLC

5,959,490 Series B membership interests.


528,348











528,348







6,024Teleservices
Solutions Holdings, LLC

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






















200,000







(200,000
)










91,200







( 91,200
)










104,198







(104,198
)










Total Teleservices


395,398







(395,398
)










Tilson Technology
Management, Inc.

120,000 Series B preferred shares.


600,000











600,000







20,00021,391 Series C convertible preferred shares.
$200,000 subordinated promissory note at 8%. 65,790 Series D
preferred shares. $750,000 subordinated promissory note at 8%.


200,000











200,000







200,000











200,000







16,000



750,000







750,000







1,579



750,000







750,000







5,096Total Tilson


1,000,000



1,500,000







2,500,000







42,675Total Affiliate Investments

$
13,605,974


$
7,010,929


($
3,600,108
)

$
17,016,795


$



$
805,668Total Control and Affiliate Investments

$
13,705,474


$
7,010,929


($
3,600,108
)

$
17,116,295


$



$
805,668 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.  (1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments,
follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation, and the movement of an existing portfolio company into
this category and out of another category. (2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales,
note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another
category. (3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an
investment was included in Control or Affiliate categories, respectively.  53




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##### Table of Contents

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

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


37.7
%Software


24.7Manufacturing


19.4Professional Services


7.7Consumer Product


4.6Contact Center


2.9Oil and Gas


1.6Electronics


1.1Marketing


0.3Total Investments


100
%  54




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS SCHEDULE For the Five Years Ended December 31, 2018, 2017, 2016, 2015 and 2014    The following is a schedule of financial highlights
for the years ended:  2018


2017


2016


2015


2014Per Share Data:Income from investment operations (1):Investment income

$
0.33


$
0.23


$
0.16


$
0.45


$
0.40Expenses


0.34



0.32



0.54



0.29



0.39Investment (loss) gain before income taxes


(0.01
)


(0.09
)


(0.38
)


0.16



0.01Income tax (benefit) expense


(0.00
)


(0.09
)


(0.13
)


0.02



0.01Net investment (loss) gain


(0.01
)


(0.00
)


(0.25
)


0.14



0.00Purchase of treasury stock (2)


0.00



0.00



0.00



0.00



0.02Net realized and unrealized (loss) gain on investments


(0.05
)


(0.11
)


0.06



0.10



0.71(Decrease) increase in net asset value


(0.06
)


(0.11
)


(0.19
)


0.24



0.73Net asset value, beginning of year, based on weighted average shares


5.05



5.16



5.35



5.11



4.38Net asset value, end of year, based on weighted average shares

$
4.99


$
5.05


$
5.16


$
5.35


$
5.11Per share market value, end of year

$
2.50


$
3.02


$
3.16


$
3.77


$
4.09Total return based on market value


(17.22
%)


(4.43
%)


(16.1
%)


(7.8
%)


33.2
%Total return based on net asset value


(1.24
%)


(2.18
%)


(3.62
%)


4.64
%


15.26
%Supplemental Data:Ratio of expenses before income taxes to average net assets


6.92
%


6.23
%


10.23
%


5.49
%


8.27
%Ratio of expenses including taxes to average net assets


5.73
%


6.29
%


8.48
%


7.89
%


16.28
%Ratio of net investment (loss) gain to average net assets


(0.22
%)


(0.06
%)


(3.62
%)


2.55
%


0.07
%Portfolio turnover


7.4
%


18.1
%


18.4
%


21.4
%


21.5
%Net assets end of year

$
31,524,187


$
31,918,685


$
32,629,363


$
33,853,660


$
32,353,441Weighted average shares outstanding, end of year


6,321,988



6,321,988



6,325,792



6,328,538



6,391,175  (1)
Per share data are based on shares outstanding and results are rounded. (2)
Net increase is due to purchase of common stock at prices less than beginning of period net asset value per
share.  55




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS    NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business -Rand Capital Corporation (Rand) was incorporated under the laws of New York in 1969. Beginning
in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was registered under Section 8 of the Investment Company Act of 1940 (the 1940 Act). In 2001, Rand
elected to be treated as a business development company (BDC) under the 1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the purpose of operating it as a small business investment company (SBIC) licensed by the
U.S. Small Business Administration (SBA). The subsidiary received an SBA license to operate as an SBIC in 2002. The subsidiary, which had been organized as a Delaware limited partnership, was converted into a New York corporation on
December 31, 2008, at which time its operations as a licensed SBIC were continued by the newly formed corporation under the name of Rand Capital SBIC, Inc. (Rand SBIC). In 2012, the SEC granted an Order of Exemption for Rand with
respect to the operations of Rand SBIC. At that time, although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. Upon Rands receipt of the order granting the exemptions, Rand SBIC filed
an election to be regulated as a BDC under the 1940 Act. The following discussion describes the operations of Rand and its wholly-owned subsidiary Rand SBIC (collectively, the Corporation). Principles of Consolidation - The consolidated financial statements include the accounts of Rand and its wholly-owned
subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Fair Value of Financial
Instruments  The carrying amounts reported in the consolidated statement of financial position of cash, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity
of these financial instruments. Fair Value of SBA Debentures -In September 2018, the SBIC Funding
Corporation completed a pooling of SBA debentures that have a coupon rate of 3.548%, excluding a mandatory SBA annual charge estimated to be 0.804%, resulting in a total estimated fixed rate for ten years of 4.352%. The carrying value of
Rands SBA debentures is a reasonable estimate of fair value because their stated interest rates approximate current interest rates that are available for debt with similar terms. Investment Classification In accordance with the provisions of the 1940 Act, the Corporation classifies its investments
by level of control. Under the 1940 Act Control Investments are investments in companies that the Corporation is deemed to Control if it owns more than 25% of the voting securities of the company or has greater than 50%
representation on the companys board. Affiliate Investments are companies in which the Corporation owns between 5% and 25% of the voting securities.
Non-Control/Non-Affiliate Investments are those companies that are neither Control Investments nor Affiliate Investments. Investments - Investments are valued at fair value as determined in good faith by the management of the Corporation and approved
by the Board of Directors. The Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be
applied to the specific  56




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     facts and circumstances of each portfolio investment while employing a consistent valuation process. The Corporation analyzes and values each investment quarterly, and records unrealized
depreciation for an investment that it believes has become impaired, including where collection of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation will record unrealized
appreciation if it believes that an underlying portfolio company has appreciated in value and, therefore, its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been used had a
ready market for the investments existed and these differences could be material if the Corporations assumptions and judgments differ from results of actual liquidation events. (See Note 2 Investments.) Qualifying Assets- All of the Corporations investments have been made in privately held small business enterprises, that
were not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act. 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. Rand SBICs interest accrual is also regulated by the SBAs Accounting Standards and Financial Reporting Requirements for
Small Business Investment Companies. Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial
doubt about a portfolio companys ability to continue as a going concern or a loan is in default for more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the
collectability of any accrued interest. The following investments are on non-accrual status: G-TEC Natural Gas Systems (G-Tec) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance. The Corporation holds debt securities in its investment portfolio that contain
payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the
principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Revenue Recognition - Dividend Income The Corporation may receive 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,  57




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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 Primarily consists of the revenue
associated with the amortization of financing fees charged to the portfolio companies upon successful closing of SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of
financing fees was $41,872, $24,091 and $22,634 for the years ended December 31, 2018, 2017 and 2016, respectively and is estimated to be approximately $46,000 in 2019, $21,000 in 2020 and $6,000 in 2021. The board fees were $2,000, $1,000 and
$4,000 for the years ended December 31, 2018, 2017 and 2016, respectively. In addition, we recorded a fee of approximately $142,000 for modifying a debt instrument during the year ended December 31, 2018. 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 $39,653, $32,129
and $9,996 in OID income for the years ended December 31, 2018, 2017 and 2016, respectively. OID income is estimated to be approximately $41,000 for 2019. Deferred Debenture Costs - SBA debenture origination and commitment costs, which are netted against the debenture obligation
(See Note 5 SBA Debenture Obligations), will be amortized ratably over the terms of the SBA debentures. Amortization expense was $27,400 for each of the years ended December 31, 2018, 2017 and 2016, respectively. Amortization
expense on currently outstanding debentures for the next five years is estimated to average $29,000 per year. Net Assets Per
Share-Net assets per share are based on the number of shares of common stock outstanding. There are no common stock equivalents outstanding. Supplemental Cash Flow Information - Income taxes refunded (paid) during the years ended December 31, 2018, 2017 and 2016
amounted to $26,448, ($486,769) and ($2,560,614), respectively. Interest paid during the years ended December 31, 2018, 2017 and 2016 was $282,875, $282,875 and $283,650, respectively. During 2018, 2017 and 2016, the Corporation converted
$609,817, $269,445 and $19,252, respectively, of interest receivable and payment-in-kind (PIK) interest into debt investments. During the year ended December 31,
2016, the Corporation recorded one escrow receivable for $1,100,000 from the sale of Gemcor II LLC, which was collected during 2017. During the year ended December 31, 2016, the Corporation collected $1,510,248 in escrow receivable from
BinOptics Corporation.  58




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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, 2018, 45% of the Corporations total investment value was held in debt and equity securities of five
portfolio companies. As of December 31, 2017, 47% of the Corporations total investment value was held in debt and equity securities in five portfolio companies. The following are the concentrations of the top five portfolio company values to the fair value of the Corporations total investment
portfolio:  December 31,2018Genicon, Inc. (Genicon)


13
%eHealth Global Technologies, Inc. (eHealth),


10
%ACV Auctions, Inc. (ACV)


8
%Tilson Technology Management, Inc. (Tilson)


7
%Microcision, LLC. (Microcision)


7
%December 31,2017Genicon, Inc. (Genicon)


12
%eHealth Global Technologies, Inc. (eHealth),


11
%Rheonix, Inc. (Rheonix)


9
%Tilson Technology Management, Inc. (Tilson)


8
%Outmatch (Outmatch)


7
% Income Taxes -The Corporation reviews the tax positions it has taken to determine if they meet
the more likely than not threshold for the benefit of the tax position to be recognized in the financial statements. A tax position that fails to meet the more likely than not recognition threshold will result in either a reduction of a
current or deferred tax asset or receivable, or the recording of a current or deferred tax liability. (See Note 4 Income Taxes.) Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SBA
Debenture -The Corporation had $8,750,000 and $8,000,000 in outstanding SBA debentures at December 31, 2018 and December 31, 2017, respectively, with a weighted average interest rate of 3.58% as of December 31, 2018. The
$8,750,000 in outstanding SBA debentures matures from 2022 through 2029.  59




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

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

Equity securities may be valued using the asset approach, market approach or
income approach. The asset approach involves estimating the liquidation value of the portfolio companys assets. 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, 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.  60




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RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     ASC 820 classifies the inputs used to measure fair value into the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporations valuation at the measurement
date. Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3: Unobservable and
significant inputs to determining the fair value. Financial assets are categorized based upon the level of judgment associated with the
inputs used to measure their fair value. Any changes in estimated fair value are recorded in the consolidated statement of operations. There were no Level 1 or 2 investments as of December 31, 2018. In the valuation process, the Corporation values restricted securities, categorized as Level 3 investments, using information from these
portfolio companies, which may include:  

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

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

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

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

Pending debt or capital restructuring of the portfolio company;  

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

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

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

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

Qualitative assessment of key management;  

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

Other factors deemed relevant by the Corporations management to assess valuation. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly.
If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted. Equity Securities Equity securities may include preferred stock, common stock, warrants and limited liability company membership interests.  61




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RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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 recent investments of less than one year
old, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation to depart from this basis. Loan and Debt Securities The significant unobservable inputs used in the fair value measurement of the Corporations loan and debt securities are the
financial and operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio companys products or services. These inputs will likely provide
an indicator as to the probability of principal recovery of the investment. The Corporations loan and debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where
appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation
generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation to depart from this basis.  62




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RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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, 2018:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate
Equity

$



$
25


$
2,645,496


$
7,968,502


$
10,614,023Non-Control/Non-Affiliate
Debt

$
700,000



5,316,413







910,777



6,927,190Total
Non-Control/Non-Affiliate

$
700,000


$
5,316,438


$
2,645,496


$
8,879,279


$
17,541,213Affiliate Equity

$
2,360,000


$
22,841


$
4,690,930


$
2,545,754


$
9,619,525Affiliate Debt


1,933,353







3,385,586



2,087,627



7,406,566Total Affiliate

$
4,293,353


$
22,841


$
8,076,516


$
4,633,381


$
17,026,091Control Equity

$



$



$



$
99,500


$
99,500Total Control

$



$



$



$
99,500


$
99,500Total Level 3 Investments

$
4,993,353


$
5,339,279


$
10,722,012


$
13,612,160


$
34,666,804Range


3.9X-7X



1X



1X-4.0X



Not ApplicableUnobservable Input


EBITDA Multiple



Asset Value



Revenue Multiple



Transaction PriceWeighted Average


5.3X



1X



2.6X



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, 2018:  Fair Value Measurements at Reported Date UsingDescription

December 31,2018


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservable Inputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
4,935,777


$



$



$
4,935,777Debt investments


9,397,979











9,397,979Equity investments


20,330,048











20,330,048Total

$
34,666,804


$



$



$
34,666,804  63




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RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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, 2018:  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital 
InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2017, of Level 3
Assets

$
3,550,000


$
10,096,244


$
18,637,818


$
32,284,062Realized loss included in net change in net assets from operations:First Wave Products Group, LLC (First Wave)






(316,469
)


(22,000
)


(338,469
)Intrinsiq Material, Inc. (Intrinsiq)










(1,125,673
)


(1,125,673
)Total Realized Losses






(316,469
)


(1,147,673
))


(1,464,142
)Unrealized Gains and Losses included in net change in net assets from
operations:ACV Auctions, Inc. (ACV Auctions)










2,494,551



2,494,551BeetNPath, LLC (Beetnpath)










(388,723
)


(388,723
)Empire Genomics, LLC (Empire Genomics)






(901,360
)






(901,360
)First Wave






66,469



55,000



121,469Genicon, Inc. (Genicon)










(82,500
)


(82,500
)GiveGab, Inc. (Givegab)










191,907



191,907G-TEC Natural Gas Systems
(G-tec)










(100,000
)


(100,000
)Intrinsiq










725,673



725,673KnowledgeVision Systems, Inc. (Knowledgevision)










(300,000
)


(300,000
)Mercantile Adjustment Bureau, LLC (Mercantile)






(249,040
)






(249,040
)Microcision LLC (Microcision)










610,000



610,000OnCore Golf Technology, Inc. (Oncore Golf)










(77,712
)


(77,712
)Rheonix, Inc. (Rheonix)










(735,999
)


(735,999
)SOMS Technologies, LLC (SOMS)










(528,348
)


(528,348
)Total Unrealized Gains and Losses






(1,083,931
)


1,863,849



779,918Purchases of Securities/Changes to
Securities/Non-cash conversions:BeetNPath, LLC (Beetnpath)






262,627







262,627Centivo Corporation (Centivo)










201,342



201,342Empire Genomics






348,287







348,287Genicon, Inc. (Genicon)






481,806







481,806GoNoodle, Inc. (GoNoodle)






10,333







10,333Knowledgevision


775,000











775,000Microcision LLC (Microcision)






19,213







19,213Oncore Golf










77,712



77,712SciAps, Inc. (Sciaps)










250,000



250,000Tech 2000, Inc. (Tech 2000)


610,777











610,777Tilson Technology Management, Inc. (Tilson)






50,000



50,000



100,000Total Purchases of Securities/Changes to
Securities/Non-cash conversions


1,385,777



1,172,266



579,054



3,137,097  64




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     Repayments and Sale of Securities:Empire Genomics






(21,665
)






(21,665
)Knoa Software, Inc. (Knoa)






(48,466
)






(48,466
)Total Repayments and Sale of Securities






(70,131
)






(70,131
)Transfers within Level 3






(400,000
)


400,000



Ending Balance, December 31, 2018, of Level 3 Assets

$
4,935,777


$
9,397,979


$
20,333,048


$
34,666,804Change in unrealized depreciation on investments for the
period included in changes in net assets


$
779,918Net realized loss on investments for the period included in changes in net
assets


($
994,295
) The following table provides a summary of the significant unobservable inputs used to determine the fair value
of the Corporations Level 3 portfolio investments as of December 31, 2017:  Investment
Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


Market ApproachRevenue Multiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate 
Equity

$
-


$
25


$
2,145,496


$
5,792,387


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


949,040



2,380,819



3,500,000



400,000



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

$
949,040


$
2,380,844


$
5,645,496


$
6,192,387


$
15,167,767Affiliate Equity

$
4,420,000


$
22,841


$
5,156,092


$
1,001,477


$
10,600,410Affiliate Debt


5,767,919







98,466



550,000



6,416,385Total Affiliate

$
10,187,919


$
22,841


$
5,254,558


$
1,551,477


$
17,016,795Control Equity

$



$



$
99,500


$



$
99,500Control Debt


















Total Control

$



$



$
99,500


$



$
99,500Total Level 3 Investments

$
11,136,959


$
2,403,685


$
10,999,554


$
7,743,864


$
32,284,062Range


4X-9X



1X



0.5X-6.2X



Not ApplicableUnobservable Input


EBITDA Multiple



Asset Value



Revenue Multiple



Transaction PriceWeighted Average


5.8X



1X



2.3X



Not Applicable  65




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##### Table of Contents

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

December 31,2017


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservable Inputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
3,550,000


$



$



$
3,550,000Debt investments


10,096,244











10,096,244Equity investments


18,637,818











18,637,818Total

$
32,284,062


$



$



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

LoanInvestments


DebtInvestments


EquityInvestments


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

$
3,200,000


$
6,700,221


$
17,600,260


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










(500,000
)


(500,000
)Total Realized Loss










(500,000
)


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










119,356



119,356BeetNPath, LLC (Beetnpath)










29,723



29,723Carolina Skiff LLC (Carolina Skiff)










650,000



650,000Intrinsiq Material, Inc. (Intrinsiq)










(380,000
)


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










779,700



779,700Mercantile Adjustment Bureau, LLC (Mercantile)






(250,000
)






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










(554,710
)


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










(395,398
)


(395,398
)Total Unrealized Gains and Losses






(250,000
)


248,671



(1,329
)  66




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     Purchases of Securities/Changes to Securities/Non-cash conversions:Beetnpath






100,000



11,277



111,277Centivo Corporation (Centivo)






100,000







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


2,000,000











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






201,489







201,489Genicon, Inc. (Genicon)


300,000



903,779



120,000



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






10,229







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


50,000











50,000Mercantile






108,350







108,350Microcision LLC (Microcision)






22,176







22,176Sciaps










274,274



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






750,000



750,000



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


2,350,000



2,196,023



1,155,551



5,701,574Transfers within Level 3


(2,000,000
)


1,450,000



550,000



Transfers out of Level 3










(416,664
)


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

$
3,550,000


$
10,096,244


$
18,637,818


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


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


$
138,240 NOTE 3. - OTHER ASSETS Other assets was comprised of the following at December 31:  2018


2017Operating receivables

$
11,428


$
3,204Equipment (net)


262



2,490Dividend receivable






37,160Total other assets

$
11,690


$
42,854 NOTE 4. - INCOME TAXES Deferred tax assets and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and
liabilities using the tax rate expected to be in effect when the taxes are actually paid or recovered. In December 2017, the Tax Cuts and
Jobs Act (the Act) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement
on the Corporations net deferred tax asset, as of December 31, 2017, was approximately $346,000 in additional income tax expense. The Act also  67




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RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum
Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation. For the year ended December 31, 2018, approximately $164,000 of income tax benefit was
recorded based on the additional tax benefit expected to be claimed on a capital loss carryback. At December 31, 2018, the Corporation has completed its accounting for the income tax effects of the Act. The tax effect of the major temporary differences and carryforwards that give rise to the Corporations net deferred tax asset at
December 31, 2018 and 2017 are approximately as follows:  2018


2017Operations

($
50,000
)

($
134,000
)Investments


504,000



638,000NOL & tax credit carryforwards


145,000



91,000Valuation allowance


(74,000
)


(43,000
)Deferred tax asset, net

$
525,000


$
552,000 The major temporary differences cited above include differences in the book and tax bases of the
Corporations portfolio company investments, as well as unrealized gains and losses on corporate investments that will be taxed when realized in future years. The Corporation assesses the recoverability of its deferred tax assets annually to
determine if a valuation allowance is necessary. In performing this assessment, it considers estimated future taxable income and ongoing tax planning strategies. Based on this assessment, it was determined that a valuation allowance was necessary
against the deferred tax asset relating to certain state net operating loss carryforwards (NOL). The components of income tax expense
(benefit) reported in the consolidated statements of operations are as follows for the years ended December 31:  2018


2017


2016Current:Federal

($
411,509
)

($
490,730
)

$
2,571,560State


8,400



(104,556
)


374,290(403,109
)


(595,286
)


2,945,850Deferred:Federal


110,426



601,777



(3,151,558
)State


(83,761
)


11,524



(374,792
)26,665



613,301



(3,526,350
)Total

($
376,444
)

$
18,015


($
580,500
) A reconciliation of the (benefit) expense for income taxes at the federal statutory rate to the expense reported is as
follows:  2018


2017


2016Net investment (loss) gain, realized gain and unrealized (loss) gain before income tax
expense

($
770,942
)

($
692,663
)

($
1,783,183
)Expected tax (benefit) expense at statutory rate

($
161,898
)

($
235,505
)

($
606,282
)State - net of federal effect


(57,110
)


(59,906
)


(2,586
)Pass-through expense (benefit) from portfolio investment


24,075



(3,536
)


31,213Dividend received deduction


(13,946
)


(11,659
)


(15,368
)Federal Act Rate Change


(164,395
)


346,292



0Other


(3,170
)


(17,671
)


12,523Total

($
376,444
)

$
18,015


($
580,500
)   68




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     At December 31, 2018 and 2017, the Corporation had no federal net operating loss
carryforwards or capital loss carryforwards. For state tax purposes, there were various state net operating loss carryforwards totaling $1,501,811 and $837,526 at December 31, 2018 and 2017, respectively. The related deferred tax asset has a
valuation allowance of $74,000 and $43,000 at December 31, 2018 and 2017, respectively on the Pennsylvania net operating loss, which is not expected to be utilized. For state tax purposes the Corporation has a Georgia Employers Jobs Tax Credit
carryforward of $49,619 and $40,081 at December 31, 2018 and 2017, respectively and this credit expires in the next five to ten years. The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended
December 31, 2015 through 2018. In general, the Corporations state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2015 through 2018. 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, 2018, 2017 and 2016 were de minimus and no amounts were recorded for interest and penalties related to unrecognized tax positions
for the years ended December 31, 2018, 2017, and 2016. NOTE 5. - SBA DEBENTURE OBLIGATIONS At December 31, 2018 and 2017, Rand SBIC had debentures payable to and guaranteed by the SBA totaling $$8,750,000 and 8,000,000,
respectively. The weighted average interest rate at December 31, 2018 was 3.58%. The debenture terms require semiannual payments of
interest at annual interest rates ranging from 2.245% to 3.644%, plus an annual charge of 0.804%. The debentures have fixed interest rates and a 10 year maturity date. As of December 31, 2018, the Corporation had $5,250,000 in additional
leverage available from the SBA.  69




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     The debentures outstanding at December 31, 2018 will mature as follows:  Maturity Date

Leverage2022

$
3,000,0002023


2,500,0002024


1,500,0002025


1,000,0002029


750,000Total Outstanding

$
8,750,000 The Corporation is required to pre-pay a SBA commitment fee equal to
1% of the face amount of the SBA leverage reserved as a partial prepayment of the SBAs nonrefundable 3% leverage draw fees. The Corporation paid a commitment fee of $60,000 to the SBA during the year ended December 31, 2018 to secure
$6,000,000 in SBA leverage through September 30, 2023. In addition, the Corporation paid $18,188 in leverage draw down fees during the fourth quarter of 2018 in conjunction with the drawdown of $750,000 in SBA leverage. There were no commitment and
leverage draw fees paid during the years ended December 31, 2017 and 2016. Rand SBIC has consented to the exercise by the SBA of all
rights of the SBA under 13 C.F.R. 107.1810(i) SBA remedies for automatic events of default and has agreed to take all actions that the SBA may so require, which may include an automatic consent to the appointment of SBA or its designee
as receiver under section 311(c) of the Act. Pursuant to Accounting Standard Update (ASU)
2015-03, the debt origination costs directly associated with the SBA debt obligations are presented as a direct deduction from the related debt liability.  December 31,2018


December 31,2017Debentures guaranteed by the SBA

$
8,750,000


$
8,000,000Less unamortized issue costs


(195,557
)


(144,827
)Debentures guaranteed by the SBA, net

$
8,554,443


$
7,855,173 NOTE 6. - STOCKHOLDERS EQUITY (NET ASSETS) At December 31, 2018 and 2017, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued. On October 25, 2018, the Board of Directors extended the repurchase authorization for up to 1,000,000 shares of the Corporations
outstanding common stock on the open market through October 25, 2019 at prices that are no greater than the then current net asset value. No shares were repurchased during the years ended December 31, 2018 or 2017. At December 31, 2018 and 2017 the
total treasury shares held was 541,046 shares with a total cost of $1,469,105.  70




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     Summary of change in equity accounts:  AccumulatedNet InvestmentLoss


Undistributed NetRealized Gain onInvestments


Net UnrealizedDepreciation orAppreciation onInvestmentsBalance, December 31, 2016

($
1,577,848
)

$
27,127,054


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


(19,298
)


88,684



(780,064
)Balance, December 31, 2017


(1,597,146
)


27,215,738



(3,498,895
)Net (decrease) increase in net assets from operations


(68,406
)


(994,295
)


668,203Balance, December 31, 2018

($
1,665,552
)

$
26,221,443


($
2,830,692
) NOTE 7. - STOCK OPTION PLANS In 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the Option Plan) that
provides for the award of options to purchase up to 200,000 common shares to eligible employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporations employees in
connection with the formation of its SBIC subsidiary. As of December 31, 2018, 2017 and 2016, no stock options had been awarded under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for
the officers and employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation
(See Note 8. Employee Benefit Plans). NOTE 8. - EMPLOYEE BENEFIT PLANS The Corporation has a defined contribution 401(k) Plan (the 401K Plan). The 401K Plan provides a base contribution of 1% for
eligible employees and also provides up to 5% matching contributions. The employer contributions to the 401K Plan amounted to $45,990, $29,199 and $39,673 for the years ended December 31, 2018, 2017 and 2016, respectively. In 2002, the Corporation established a Profit Sharing Plan (the Plan) for its executive officers in accordance with
Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments equal to 12% of the net realized gains on investments of its SBIC subsidiary, net of all realized losses and
unrealized depreciation on the investments of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporations interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the
Corporations net income, as defined in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporations net investment (loss) gain and its net realized gain (loss)
on sales and dispositions of investments, prior to inclusion of the estimated profit sharing obligation. The profit sharing payments are split equally between the Corporations two executive officers, each of whom is fully vested in the Plan. The Corporation did not record any expense under the Plan for the years ended December 31, 2018 or 2017 and recorded $1,270,052
during the year ended December 31, 2016. Included in the profit sharing and bonus payable line on the accompanying consolidated statement of financial position at December 31, 2017 is $132,000 that was paid in 2018. Estimated payroll taxes
and benefits on the profit sharing have been accrued. The amounts approved do not exceed the defined limits.  71




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     NOTE 9. - COMMITMENTS AND CONTINGENCIES The Corporation has a lease for office space which expires in December 2020. Rent expense under this operating lease for the years ended
December 31, 2018, 2017 and 2016 was $20,100, $19,800 and $19,500, respectively. The operating lease obligations are approximately as follows:  Year

Amount2019


19,4002020


19,700Total

$
39,100 On March 2, 2017, the Corporation filed with the Securities and Exchange Commission (the SEC)
certain Change in Control Agreements, which have been executed with each of its named executive officers, (NEOs), which provide each NEO with certain financial benefits in the event that (i) such NEOs employment is terminated
without cause (as defined in the Change in Control Agreement) in connection with, or within eighteen months after, a Change in Control (as defined in the Change in Control Agreement) of the Corporation or (ii) such NEO terminates his employment
in connection with, or within eighteen months after, a Change in Control for good reason (as defined in the Change in Control Agreement). Upon the occurrence of such events, each Change in Control Agreement provides for a lump sum payment to the NEO
in an amount equal to (i) one (1.0) times such NEOs annual base salary then in effect plus (ii) the average of the annual incentive bonuses and profit sharing payments earned by such NEO for the last five fiscal years ended
prior to such NEOs employment termination date. However, the amount of the payment to any NEO cannot exceed (and will be reduced in order not to exceed) 1.5% of the total equity capitalization of the Corporation implied by the Change in
Control event. NOTE 10. - QUARTERLY OPERATIONS AND EARNINGS DATA  UNAUDITED  4thQuarter


3rdQuarter


2ndQuarter


1stQuarter2018Investment income

$
668,325


$
662,302


$
413,518


$
362,809Net increase (decrease) in net assets from operations

$
936,511


($
179,302
)

($
631,294
)

($
520,413
)Basic and diluted net increase (decrease) in net assets per share from operations

$
0.15


($
0.03
)

($
0.10
)

($
0.08
)2017Investment income

$
379,987


$
397,019


$
349,139


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

$
226,209


$
57,931


($
635,337
)

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

$
0.04


$
0.01


($
0.10
)

($
0.06
)  72




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     NOTE 11.  ALLOWANCE FOR DOUBTFUL ACCOUNTS The Corporation maintains an allowance for doubtful accounts for estimated uncollectible interest payments due from portfolio investments. The
allowance for doubtful accounts is based on a review of the overall condition of the receivable balances and a review of past due amounts. Changes in the allowance for doubtful accounts consist of the following:  2018


2017


2016Balance at beginning of year

($
161,000
)

($
161,000
)

($
122,000
)Provision for losses










(39,000
)Balance at end of year

($
161,000
)

($
161,000
)

($
161,000
) NOTE 12.  SUBSEQUENT EVENT In January 2019 the Corporation entered into a stock purchase agreement to sell approximately 8.3 million shares of Rands common
stock to East Asset Management, LLC for $25 million in cash and portfolio assets. Additionally, a new entity, Rand Capital Management, LLC will be established as an external management company and will be retained by Rand Capital to be its
investment advisor. The sale and issuance of common stock pursuant to the stock purchase agreement as well as the externalization of the management structure are subject to shareholder and other regulatory approvals. In connection with the anticipated closing of the above-described transactions and contingent upon meeting certain tax-related conditions, the Corporation intends to elect to become a regulated investment company (RIC) for U.S. federal tax purposes. This will enable the pass through of capital gains and investment
income to shareholders without payment of corporate-level U.S. federal income tax by Rand.  73




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY SCHEDULE OF CONSOLIDATED CHANGES IN INVESTMENTS AT COST AND REALIZED LOSS For the Year Ended December 31, 2018     CostIncrease(Decrease)


RealizedLossNew investments:KnowledgeVision Systems, Inc. (Knowledgevision)

$
775,000


$
Tech 2000, Inc. (Tech 2000)


600,000



BeetNPath, LLC (Beetnpath)


262,627



Genicon Inc. (Genicon)


250,000



SciAps, Inc. (Sciaps)


250,000



Centivo Corporation (Centivo)


200,000



Tilson Technology Management, Inc. (Tilson)


100,000



Empire Genomics, LLC (Empire Genomics)


50,000



Total of new investments


2,487,627Other changes to investments:Empire Genomics capitalized fee income and interest conversion


298,287



Genicon interest conversion and OID amortization


231,806



OnCore Golf Technology, Inc. (Oncore) interest conversion


77,712



Microcision LLC (Microcision) interest conversion


19,213



Tech 2000 interest conversion


10,777



GoNoodle, Inc. (GoNoodle) interest conversion


10,333



Centivo interest conversion


1,342



Total of other changes to investments


649,470Investments repaid, sold or liquidated:Intrinsiq Material, Inc. (Intrinsiq) realized loss


(1,125,673
)


(1,125,673
)First Wave Technologies, Inc. (First Wave) realized loss


(338,469
)


(338,469
)Knoa Software Inc. (Knoa) repayment


(48,466
)


Empire Genomics repayment


(21,666
)


Total of investments repaid, sold or liquidated


(1,534,274
)


(1,464,142
)Net change in investments, at cost

$
1,602,823


($
1,464,142
)  74




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##### 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, 2018 and 2017, 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, 2018, 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, 2018 (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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, and the financial highlights
for each of the five years in the period ended December 31, 2018 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, 2018 and 2017, by correspondence with portfolio companies and custodian(s); when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable
basis for our opinion. As discussed in Note 2, the investment securities included in the financial statements valued at $34,666,804 (110% of net assets)
and $32,284,062 (101% of net assets) as of December 31, 2018 and 2017, respectively, include securities valued at $34,666,804 and $32,284,062, respectively, whose fair values have been estimated by management in the absence of readily
ascertainable fair value. The fair value estimates are then approved by the Board of Directors. We have reviewed the procedures used by management in preparing the valuations of investment securities and have inspected the underlying documentation,
and in the circumstances we believe the procedures are reasonable and the documentation appropriate. Those estimated values may differ from the values that would have been used had a ready market for the investments existed. The supplemental schedule of consolidated changes in investments at cost and realized gain for the year ended December 31, 2018 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  75




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##### Table of Contents

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, 2018 is fairly stated, in all material respects, in relation to the financial statements as a whole. /s/ FREED
MAXICK CPAs, P.C. We have served as the Corporations auditor since 2003. Buffalo, New York March 7, 2019  76




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##### Table of Contents

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None  Item 9A.
Controls and Procedures Disclosure Controls and Procedures.The Corporation maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and
that this information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the
Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as of December 31, 2018. 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, 2018. Management Report on Internal Control Over Financial Reporting.The management of the Corporation is responsible for establishing and
maintaining adequate internal control over financial reporting. The Corporations internal control system is a process designed to provide reasonable assurance to the Corporations management and board of directors regarding the
preparation and fair presentation of published financial statements. Management assessed the effectiveness of the Corporations
internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (2013). Based on its assessment, management believes that, as of December 31, 2018, the Corporations internal control over financial reporting is effective. This annual report does not include an attestation report of the Corporations independent registered public accounting firm regarding
internal control over financial reporting. Managements report was not subject to attestation by the Corporations independent registered public accounting firm pursuant to rules of the SEC that permit the Corporation to provide only
managements report in this Annual Report. Changes in Internal Control over Financial Reporting.There have been no changes
in our internal control over financial reporting during the Corporations most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.  Item 9B.
Other Information None  77




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##### Table of Contents

Part III  Item 10.
Directors, Executive Officers, and Corporate Governance Information regarding Directors and Executive Officers The following table provides information concerning all persons who are Directors or executive officers of Rand. Rand is not part of a fund
complex.  Name, Age and
Address

Position(s)
held with
Fund

Length
of
Time Served as a
Director (1)

Business Experience and Occupations
During Last Five Years

Other
Directorships (2)Directors who are Interested Persons (3)Allen F. Grum (61)
c/o 2200 Rand Building Buffalo NY 14203

President and Chief Executive Officer of Rand and a Director

1996

President and Chief Executive Officer since 1996. Prior thereto, Mr. Grum served as Senior Vice President of Rand Capital Corporation commencing in June 1995. From 1994 to 1995, Mr. Grum was Executive Vice President of
Hamilton Financial Corporation and from 1991-1994 he served as Senior Vice President of Marine Midland Mortgage Corporation. Mr. Grum serves on a number of Boards of Directors of companies in which Rand Capital Corporation has an investment. His
in-depth knowledge of Rand Capital Corporations operations, and the industries in which the Corporation operates makes Mr. Grum qualified to serve as a Director.

NoneDirectors who are not
Interested PersonsErland E. Kailbourne (77)
c/o 2200 Rand Building Buffalo, NY 14203

Director and Chair of the Board

1999

Director of Albany International Corporation since May 2009. From May 2009 until February 2019, Mr. Kailbourne was Chairman of Albany International Corporation. From January 2006 until May 2010, Mr. Kailbourne was Chairman
of Financial Institutions, Inc. and its subsidiary Five Star Bank. He retired as Chairman and Chief Executive Officer (New York Region) of Fleet National Bank, a banking subsidiary of Fleet Financial Group, Inc., in 1998. From 1995 to 2000, he was
Vice Chairman State University of New York (SUNY). He was Chairman and Chief Executive Officer of Fleet Bank, also a subsidiary of Fleet Financial Group, Inc., from 1993 until its merger into Fleet National Bank in 1997. He is a Director of REV LNG,
LLC, Albany International Corporation, Allegany Co-op Insurance Company, Conemaugh Valley Insurance Company, and The Thomas and Laura Moogan Foundation. Mr. Kailbournes extensive banking and financial experience provide necessary
attributes as a Director of Rand.

Director of Albany International
Corporation  78




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##### Table of Contents

Ross B. Kenzie (87)
1961 Wehrle Drive Suite 5
Buffalo, NY 14221

Director

1996

Mr. Kenzie has been retired since 1989. Prior thereto, he was the Chairman of the Board and Chief Executive Officer of Goldome Bank, Buffalo, NY, a savings bank, from 1980. Prior thereto, Mr. Kenzie was Executive Vice
President and Director of Merrill Lynch, Pierce, Fenner & Smith as well as Merrill Lynch & Co. Mr. Kenzie is a former Director of Biophan Technologies, Inc. and Natural Nano, Inc., development companies specializing in highly
marketable business devices and naturally occurring nanotube technologies; and a former Director of Merchants Mutual Insurance Company. Mr. Kenzie is a former Director of Chicago Board of Options Exchange (CBOE). Mr. Kenzies banking
and financial experience in addition to his involvement with emerging companies, provide invaluable expertise as a Director of Rand.

NoneJayne K. Rand (58)
c/o 2200 Rand Building Buffalo, NY 14203

Director

1989

Since 1993, Miss Rand has been a Vice President of M&T Bank. Miss Rands banking experience and credit underwriting abilities provide necessary expertise as a Director of Rand.

NoneRobert M. Zak (61)
250 Main Street Buffalo, NY 14202

Director and Vice Chair of the Board

2005

Since 1995, Mr. Zak has been President and Chief Executive Officer of Merchants Mutual Insurance Company, which operates under the trade name Merchants Insurance Group. Mr. Zak joined Merchants in 1985. Prior to that his
career was in public accounting. Mr. Zak served as a director of Manning & Napier, Inc. from November 2011 until June 2016. Mr. Zaks executive leadership and public accounting experience provide desirable attributes as a
Director of Rand.

NoneNon-Director Executive Officers (3)Daniel P. Penberthy (56)
c/o 2200 Rand Building Buffalo, NY 14203

Executive Vice President, Treasurer and Chief Financial Officer of Rand

N/A

Mr. Penberthy has served as Treasurer of Rand since August 1997. Since January 2002, Mr. Penberthy has served as Executive Vice President, and he has continued to serve as the Chief Financial Officer since 1997. From 1993
to 1997, Mr. Penberthy served as Chief Financial Officer for both the Greater Buffalo Partnership (formerly the Chamber of Commerce) and the Greater Buffalo Convention and Visitors Bureau. Prior thereto, from 1990 to 1993, Mr. Penberthy
was employed by Greater Buffalo Development Foundation and KPMG.

None  (1)
Indicates initial year in which such person became a Director. All Directors terms of office will be
through the next annual meeting of shareholders and until their successors have been duly elected and qualified.  79




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##### Table of Contents

(2)
Indicates current directorships of companies with a class of equity securities registered under Section 12
of the Exchange Act, subject to the requirements of Section 15(d) of the Exchange Act, or registered as an investment company under the 1940 Act. (3)
Indicates an executive officer of Rand, who is deemed to be an interested person under
Section 2(a)(19) of the 1940 Act. Committee Information The Committees of the Board of Directors have the following members:  Compensation Committee

Governance and
Nominating Committee

Audit CommitteeRobert M. Zak (Chair)

Erland E. Kailbourne (Chair)

Ross B. Kenzie (Chair)Erland E. Kailbourne

Ross B. Kenzie

Erland E. KailbourneJayne K. Rand

Jayne K. Rand

Robert M. Zak Compensation Committee The Compensation Committee is comprised of independent Board members, each of whom meet the independence requirements of the Nasdaq Stock
Market and applicable law, and advises the independent members of the Board with respect to the compensation of the executive officers and reviews the criteria that form the basis for management compensation. None of the persons on the Compensation
Committee are interested persons as defined in Section 2(a)(19) of the 1940 Act. The compensation levels of Rands
President/CEO and Executive Vice President/CFO were recommended by Rands Compensation Committee and approved by the independent members of the Board, which represents a majority of its membership. The Compensation Committees charter may be accessed at Rands website, www.randcapital.com.  80




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##### Table of Contents

Governance and Nominating Committee The primary purposes of the Governance and Nominating Committee include:  

developing, recommending to the Board and assessing corporate governance policies for Rand;  

overseeing the evaluation of the Board and its committees; and  

recommending to the Board the individuals qualified to serve on the Board for election by shareholders at each
annual meeting of shareholders, and recommending to the Board candidates to fill vacancies on the Board. The Governance
and Nominating Committees charter may be accessed at Rands website, www.randcapital.com. None of the persons on the Governance and Nominating Committee are interested persons as defined in Section 2(a)(19) of the 1940
Act. The Governance and Nominating Committee is comprised of members each of whom meet the independence requirements of the Nasdaq Stock Market. Audit
Committee The Board of Directors has determined that none of the members of the Audit Committee are interested persons as
defined in Section 2(a)(19) of the 1940 Act. The Audit Committee is comprised of independent Directors, all of whom meet the independence requirements of the Nasdaq Stock Market and the rules of the SEC. The Board has determined that Ross B.
Kenzie is an audit committee financial expert (as defined by SEC regulations) (see Mr. Kenzies relevant work experience is described in the table above under Information regarding Directors and Executive Officers) and each of
the other members of the Audit Committee also have qualifications and experience to be considered financial experts. The Audit
Committees charter may be accessed at Rands website, www.randcapital.com. The Audit Committee reviews the scope and results of the annual audit, receives reports from Rands independent registered public accountants, and reports the
Audit Committees findings and recommendations to the Board. The Audit Committee has adopted necessary reporting procedures for the
confidential submission, receipt, retention and treatment of accounting and auditing complaints. Factors used in the Audit Committees Assessment
of the External Auditor Qualifications and Work Quality: The Audit Committee is responsible for appointment, compensation and
oversight of external auditors. The Audit Committee annually reviews the Corporations independent public registered
accountants (the audit firm) performance and independence in deciding whether to continue to retain such audit firm. In the course of these reviews, the Audit Committee considers, among other things:  

The quality and efficiency of the audit firms historical and recent audit plans.  81




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##### Table of Contents



The audit firms capabilities and expertise in handling the breadth and complexity of private equity
accounting, portfolio valuation and public company reporting.  

The desired balance of the audit firms experience and the fresh perspective occasioned by mandatory audit
partner rotation every five years, and the audit firms periodic rotation of other audit management.  

Public Company Accounting Oversight Board (PCAOB) reports on the audit firm, if any.  

The appropriateness of the audit firms fees, which the Audit Committee evaluates, reviews and approves.  

The effectiveness of the audit firms communications and working relationships with the Audit Committee and
management.  

The audit firms independence and objectivity.  

The audit firms tenure, having served as the Corporations independent registered public accounting
firm since 2003.  

Evaluation of the audit by management and the Audit Committee. The Audit Committee considers non-audit fee/services provided when assessing auditor independence. Code of Conduct and Business Ethics Our Code of Conduct and Business Ethics policy each requires that all employees and Directors avoid conflicts of interests that interfere with
the performance of their duties or the best interests of the Corporation. The Business Ethics policy includes additional procedures modeled on Rule 17j-1 under the 1940 Act to prevent employees and Directors
from abusing their access to information about the Corporations investments. Rand has adopted a Code of Conduct that applies to
Rands Chief Executive Officer, Chief Financial Officer and Vice President of Finance, and a Business Ethics Policy applicable to Rands Directors, officers and employees. The Code of Conduct and the Business Ethics Policy are each
available in the Governance section of Rands website at www.randcapital.com. They are also available in print to any shareholder
who requests it. Rand will disclose any substantive amendments to, or waiver from provisions of, the Code of Conduct made with respect to the Chief Executive Officer, Chief Financial Officer or Vice President of Finance on its website.  82




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##### Table of Contents

Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires Rands Directors and executive officers, and persons who own more than ten percent of
Rands shares, to file with the SEC initial reports of stock ownership and reports of changes to stock ownership. Reporting persons are required by SEC regulations to furnish Rand with all Section 16(a) reports that they file. To our knowledge, based solely on review of the copies of such reports furnished to Rand and written representations that no other reports
were required, Rand believes all Section 16(a) filing requirements applicable to its executive officers, Directors and greater than ten percent beneficial owners of Rands shares were complied with during the year ended December 31,
2018.  Item 11.
Executive Compensation Compensation Discussion and Analysis Rands principal executive officer is its President/Chief Executive Officer, Allen F. Grum, and Rands principal financial officer is
its Executive Vice President/Chief Financial Officer, Daniel P. Penberthy. They are Rands Named Executive Officers (NEOs). The President/Chief Executive Officer and Executive Vice President/Chief Financial Officer serve as the Management and Investment Committee of
Rand SBIC, and are parties to a Profit Sharing Plan (the Profit Sharing Plan) of Rand SBIC that was adopted by Rand as a requirement for the licensing of Rand SBIC as a SBIC by the SBA. The Compensation Committee, all of the members of which are independent Directors of the Board, makes determinations and recommendations to
the Board with respect to the compensation of the NEOs. Each member (i) satisfies all of the independence requirements under the current rules and guidelines of the Nasdaq Stock Market, (ii) is an outside Director (as defined
in the regulations pursuant to Section 162(m) of the IRS Code), and (iii) are non-employee Directors (as defined in Rule 16b-3 of the Exchange Act). The
Compensation Committees responsibilities and authority are set forth in the Compensation Committee charter, which is disclosed on Rands website. The Compensation Committee recommendations are then reviewed by the independent Directors of
the Board, who are responsible for establishing such compensation. Rands President and Chief Executive Officer is responsible for establishing the compensation of Rands staff other than the NEOs. Introduction This Compensation
Discussion and Analysis is designed to provide shareholders with an understanding of our compensation philosophy and objectives as well as the analysis that was performed in setting executive compensation. It discusses the Compensation
Committees determination of how and why, in addition to what, compensation actions were taken with respect to the NEOs.  83




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Objectives of Rands Compensation Programs and What they are Designed to Reward Rand depends on the management and analytical abilities of its NEOs for its long-term success and the enhancement of long-term shareholder
value. The objectives of Rands compensation programs are to provide appropriate levels of compensation, reward above average corporate performance, recognize individual initiative and achievement, attract and retain qualified individuals to
contribute to Rands success, and motivate management to enhance shareholder value. Key Elements of Rands Compensation Plans and Why they
are Paid:  

Base Salary  Base salaries meet the objectives of attracting and retaining the management talent needed to
operate the business successfully. Individual salary amounts are not determined by formulas, but instead reflect the Compensation Committees judgment with respect to each NEOs responsibility, performance, experience and past
compensation, internal equity considerations and other factors, including NEO retention. Annually, the Board, on recommendation of the Compensation Committee, sets base salaries for the NEOs that it believes are appropriate given the scope of their
duties and responsibilities.  

Bonus  Rand provides the opportunity to earn bonuses to its NEOs and staff to motivate them to achieve
results that exceed the annual budget and provide value to the Corporation. A bonus, if any, is based on a qualitative consideration of individual and Corporation performance. For purposes of determining whether a bonus was warranted for 2018
performance, the Compensation Committee considered the Corporations operating performance, the price performance of the Corporations common shares, the change in the Net Asset Value per share and the accomplishments of each officer
during the year, including the achievement of strategic initiatives. The Compensation Committee considers, and may make appropriate adjustments for, unusual items that are deemed to be outside the control of the NEOs. Based upon the Compensation
Committees analysis, a $50,000 bonus was awarded to each of the NEOs for 2018 to reflect the progress on the strategic initiatives, SBA approval, increase in interest income and the proposed transaction with East Asset Management.  

Profit Sharing Plan  Rand provides long-term incentives to its NEOs through the Profit Sharing Plan, which
allows them to participate in the growth of Rands portfolio and aligns their interests with those of Rands shareholders. The terms of Rands license to operate Rand SBIC require that it maintain a profit sharing plan, which provides
for payment by Rand of designated percentages of net realized capital gains (net of all realized capital losses and unrealized depreciation) of Rand SBIC. Amounts paid or accrued pursuant to the Profit Sharing Plan cannot exceed 20% of Rands
net income in a given year. The Compensation Committee does not have discretion to change the amounts due under the Profit Sharing Plan. For 2018, no amounts were accrued nor paid pursuant to the Profit Sharing Plan and as a result, no amounts are
expected to be paid in 2019 pertaining to 2018 portfolio exits.  84




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

Equity  Although we believe that equity ownership by management enhances shareholder value, restrictions
imposed by the 1940 Act preclude Rand from offering stock options or other equity incentives to its NEOs at any time when they participate in a profit sharing plan. The Compensation Committee believes that each of the NEOs own shares in Rand that
are significant to their respective net worth.  

Standard Employee Benefits  Rand provides employee benefits it considers competitive and necessary to
attract and retain talented personnel. Rand maintains a 401(k) plan for its employees under which participants may elect to contribute up to 20% of their compensation on a pretax basis, to a maximum of $18,500 ($24,500 if age 50 or over) for 2018.
Rand makes a contribution of 1% of compensation for each participant and matches participant contributions up to 5% of compensation, subject to IRS annual compensation and contribution limits. Rand may also elect to contribute discretionary amounts
under the 401(k) plan as determined by the Board. No discretionary amounts have been contributed since the 401(k) plans inception. Rand also provides life insurance, automobile reimbursement and club membership benefits to its NEOs. Consideration of Prior Shareholder Advisory Vote on Executive Compensation At our 2019 Annual Meeting of Shareholders, we will provide our shareholders the opportunity to vote to approve, on an advisory basis, the
compensation of our NEOs. At the 2018 Annual Meeting of Shareholders, our shareholders cast 1,418,622 votes, or 95%, in favor of approving the compensation of our NEOs and 58,972 votes, or 4%, against approving such compensation, with 16,694 votes,
or 1%, abstaining. Our Compensation Committee and Board value the opinions expressed by our shareholders, including the non-binding advisory vote on executive compensation. We are mindful of the strong support
our shareholders expressed for our philosophy of seeking to link compensation to our operating and strategic objectives and the enhancement of shareholder value. As a result, our Compensation Committee took the results of the advisory vote on
executive compensation into account in determining that our 2018, and anticipated 2019, executive compensation policies remain consistent with our policies in prior years and should continue to emphasize the performance, alignment, and retention
objectives described above. How the Amounts of Each Element of the Compensation are Determined and How They Fit Into Rands Overall Compensation
Objectives Salary, Bonus and Profit Sharing The Compensation Committee determined that the amount of the base salary paid to each of the NEOs for 2018 was in the best interests of
shareholders. A discretionary bonus payment was paid for 2018 to each of the NEOs for the reasons noted previously. The NEOs did not earn a profit sharing payment under the Profit Sharing Plan in 2018. In making its determination regarding
compensation for each of the NEOs, the Compensation Committee considered whether the salaries, bonuses and profit sharing amounts due to its NEOs were consistent with the compensation philosophy described above.  85




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The Analysis Used in Setting Compensation Levels When making individual compensation decisions for NEOs, the Compensation Committee takes many factors into account, including the
individuals role and responsibilities, performance, and experience; the overall performance of Rand; the recommendations of Board committee chairs; the individuals past compensation; and a comparison to the other NEO of Rand. The
Compensation Committee may engage a compensation consultant to provide insight into setting compensation levels. Specifically, the
Compensation Committee has considered factors such as:  

total compensation in relation to Rands size, and the composition and performance of its investments and
total investment capital available;  

Rands success in identifying appropriate investment opportunities and returns on its investments;  

the value of Rands assets in accordance with Accounting Standards Codification 820 fair value
measurement;  

the responsibilities and duties of the NEOs;  

whether there has been any adjustment or potential recovery of prior payments resulting from the restatement of
prior performance measures upon which bonus or profit sharing awards were based (no such adjustments or recovery occurred during 2016, 2017 or 2018); and  

realized income from investment exits in the consolidated Rand and Rand SBIC portfolios. Evaluating Performance The Compensation
Committee evaluates the performance of the NEOs annually, and consults with the other Directors and committee chairs regarding that performance. The Compensation Committee also seeks the advice of the President and Chief Executive Officer in
connection with the performance evaluation for the other NEO; however, the President and Chief Executive Officer is not present when the Compensation Committee meets to evaluate his performance and recommend compensation for the NEOs. The Compensation Committee uses discretion in qualitatively evaluating individual performance and considers the following factors, among
others, in recommending to the Board any annual bonus awards to the NEOs: the input of other Board Committee Chairs, and each NEOs contribution to Rands leadership, management, strategic planning, business development, and investment
returns. Change in Control Agreements The Corporation and the Board believe that maintaining a Change in Control Agreement with each of our NEOs is in the best interest of the
Corporation and its  86




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shareholders as it will assist in retaining our leadership in the event of a change in control and provides our NEOs with reasonable financial security in the case of a loss of employment
resulting from a change in control. The Corporation and the Board believe that it is in the best interest of the Corporation and its shareholders to have the dedication of our NEOs, without the distraction of personal uncertainties that can result
from a change in control. In addition, the Corporation believes the Change in Control Agreements help the Corporation maintain a competitive compensation program and encourages retention of the NEOs. The Change in Control Agreement provides each NEO with a right to receive certain payments in the event that (i) such NEOs
employment is terminated without cause (as defined in the Change in Control Agreement) (other than for death or disability (as defined in the Change in Control Agreement)) in connection with, or within eighteen months after, a Change in Control of
the Corporation or (ii) such NEO terminates his employment in connection with, or within eighteen months after, a Change in Control for Good Reason, which is defined in the Change in Control Agreements as (i) a change in the
location at which such NEO performs his duties for the Corporation to a new location that is at least 50 miles from the prior location; (ii) a material decrease in the NEOs authority, duties or responsibilities; (iii) a reduction in
the NEOs annual base salary or (iv) a reduction in the NEOs annual bonus and profit sharing opportunity as compared to the opportunity for the prior fiscal year. As defined in more detail in the Change in Control Agreements, a
Change in Control means the occurrence of any of the following events: (1) any person or entity becomes the beneficial owner, directly or indirectly, of securities representing more than 50% of the total voting power of the
Corporations outstanding securities; (2) a merger or consolidation of the Corporation, other than one that results in the outstanding voting securities of the Corporation prior to such merger or consolidation representing at least 50% of
the total voting power after such merger or consolidation; (3) the sale or disposition by the Corporation of all or substantially all of the Corporations assets or (4) a change in the composition of the Board that results in fewer
than a majority of the Directors being Incumbent Directors (as defined in the Change in Control Agreements). Upon the occurrence of such
events, the Change in Control Agreements provide for a lump sum payment to the NEO from the Corporation in an amount equal to (i) the NEOs annual base salary then in effect plus (ii) the average of the annual incentive bonus amounts
and profit sharing payments earned by the NEO for the last five fiscal years ended prior to the NEOs employment termination date. However, the amount of this payment per NEO cannot exceed (and will otherwise be reduced in order not to exceed)
1.5% of the total equity capitalization of the Corporation implied by the Change in Control event. Prior to receipt of such payment, the Change in Control Agreements require the NEO to execute a general release agreement, which includes a general
release of claims against the Corporation by the NEO and agreements by the NEO to comply with ongoing confidentiality and non-disparagement obligations. The term of the Change in Control Agreements commenced on March 1, 2017 and shall continue in effect until December 31, 2019, with
subsequent automatic extensions of the term for one (1) additional year, unless, not later than nine months prior to the conclusion of any term, the Corporation or the NEO provides notice to the other not to extend the term. Under the terms of
the proposed East Asset Management transaction, the Change of Control Agreements will be cancelled without any payment due or payable to the NEOs.  87




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##### Table of Contents

For each of the NEOs, the table below estimates the amount that each such NEO would be paid
under the Change in Control Agreements if a Change in Control of the Corporation occurs and such NEO is terminated without cause or voluntarily terminates his employment for Good Reason in connection with, or within eighteen months after, the
occurrence of the Change in Control event. The amounts below assume that each employment termination was effective as of December 31, 2018.  Name

Current Annual BaseSalary


Five Year Average ofAnnual IncentiveBonus and ProfitSharing Payments(1)


Total PaymentAmount(2)Allen F. Grum

$
245,000


$
227,005


$
472,005Daniel P. Penberthy

$
230,000


$
227,005


$
457,005  (1)
Annual incentive bonus and profit sharing payments are computed using an average of the annual incentive bonus
amount and profit sharing payments for the prior five completed fiscal years. (2)
Assumes that the total amount of such payment to a NEO does not exceed 1.5% of the total equity capitalization
of the Corporation as implied by a hypothetical Change in Control event. In the event that the total payment amount would be greater than 1.5% of the total equity capitalization implied by the Change in Control event, the amount of such payment will
be reduced in order not to exceed 1.5% of the total equity capitalization implied by the Change in Control event. Accounting and Tax
Treatments of Compensation The Compensation Committees policy is to structure compensation in a way that allows it to be fully
tax deductible, where doing so will further the purposes of the executive compensation programs. The Compensation Committee also considers it important to retain flexibility to design compensation programs that recognize a full range of criteria
important to Rands success, even where compensation payable under the programs may not be fully tax deductible. Compensation Consultant During 2018, the Corporation did not utilize a compensation consultant. The Compensation Committee anticipates that it may use an independent
advisor periodically. Profit Sharing Plan We believe Rands base salaries, bonuses and the Profit Sharing Plan collectively create an appropriate focus on long-term objectives and
promote NEO retention. The terms of the SBAs license for Rand SBIC require it to maintain a profit sharing plan that provides for payment to the NEOs of the designated percentages of the net realized capital gains (net of all unrealized
capital losses and unrealized depreciation) of Rand SBIC. The Compensation Committee does not have discretion to change the amounts due under the Profit Sharing Plan.  88




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Under the Profit Sharing Plan, Rand pays its NEOs cumulative profit sharing payments equal
to 12% of realized capital gains of Rand SBIC, net of realized capital losses and unrealized depreciation of Rand SBIC, for each fiscal year of Rand SBIC, computed in accordance with the Profit Sharing Plan. The profit sharing payments are shared equally between Rands two NEOs, who are fully vested in the Profit Sharing Plan. Under the
Investment Advisers Act of 1940 (Section 205(b)(3)) requirements, the aggregate amount which may be paid or accrued under the Profit Sharing Plan and any other incentive based plan maintained by Rand during any fiscal year, may not exceed 20% of
Rands net income after taxes, as defined, for that fiscal year. In accordance with the 1940 Act requirements, a majority of the members of the Board who were not interested persons approved the Profit Sharing Plan on the basis that it is
reasonable and fair to Rands shareholders, and does not involve overreaching of Rand or its shareholders on the part of any person concerned. In 2018, no payments were due or payable to the NEOs under the Profit Sharing Plan. Disbursement Triggers on Non-Equity Incentive Compensation Realized gains from portfolio exits are typically received by Rand in a combination of lump sum payment (cash) and a release of escrow 12 to 24
months following closing. Profit sharing payments under the Profit Sharing Plan that are accrued by the Corporation are typically disbursed to the NEOs upon the receipt of cash proceeds. If a loss or deduction to funds held in escrow occurs due to
post-closing adjustments or claims, the pro-rata profit sharing obligation payable to NEOs under the Profit Sharing Plan is forfeited. No money was accrued nor expected to be paid at December 31, 2018
pertaining to the Profit Sharing Plan. Risk Considerations in our Compensation Program The compensation of the NEOs consists of fixed and variable compensation. The fixed (or salary) portion of compensation is designed to provide
a steady income so executives do not feel pressured to focus exclusively on short-term gains or annual stock price performance, which may be to the detriment of long-term appreciation and other business metrics. The variable (bonus and profit
sharing) portions of compensation are designed to reward both short- and long-term corporate performance. For short-term performance, bonuses are qualitatively determined by the Compensation Committee and approved by the Board. For long-term
performance, profit sharing is determined based on realized income from portfolio investment exits, net of realized and unrealized losses and depreciation. In addition, the following risk mitigation components exist:  

Bonus payments are not tied directly to specific financial metrics, which reduces the risk that management is
incented inappropriately to achieve desired targets and performance metrics;  

Maintenance of the Profit Sharing Plan is required under the terms of the SBAs license for Rand SBIC, and
the SBAs requirement to maintain the Profit Sharing Plan suggests that it believes that the Profit Sharing Plan provides for compensation to participants in an appropriate manner and in appropriate amounts;  89




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

Profit sharing payments under the Profit Sharing Plan are limited by the Investment Advisers Act of 1940 to 20%
of Rands net income after taxes as defined in any fiscal year;  

The Board, Compensation Committee and independent registered public accountants review all profit sharing
calculations prior to disbursement;  

Each NEOs personal investment portfolio includes a significant amount of Rands shares, which aligns
their respective interests with the interests of our shareholders in Rands long-term success and stock price appreciation. At the end of 2018, Allen F. Grum owned 173,642 shares and Daniel P. Penberthy owned 84,467 shares.  

The Profit Sharing Plan and our approach to payment of bonuses each have been in place for a number of years, and
we have seen no evidence that they encourage unnecessary or excessive risk taking;  

Rand has specific quarterly reporting, review and approval processes with its Board, which we believe are
adequate to prevent manipulation by any employee, including our NEOs; and  

The compensation and bonus of non-executive officers are qualitatively determined by the President and Chief
Executive Officer, which we believe encourages a balanced approach to overall corporate performance. Conclusion Through the compensation and incentive structure described above, a significant portion of the amounts that may be payable as compensation have
been, and will continue to be, contingent on Rands performance, and realization of incentive benefits is closely linked to increases in long-term shareholder value. Rand remains committed to this philosophy of pay for performance, recognizing
the volatility of Rands investments may result in highly variable compensation from year to year. In January 2019, the independent
Directors of the Board approved a 6.1% increase in base salary for Mr. Grum, and a 10.9% increase in base salary for Mr. Penberthy. Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
management and, based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.  90




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Submitted by the Compensation Committee Robert M. Zak, Chair Erland E. Kailbourne Jayne K.
Rand The information provided in the preceding Compensation Committee Report
will not be deemed to be soliciting material or filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, unless in the future the Corporation specifically requests that
the information be treated as soliciting material or specifically incorporates it by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act. Summary Compensation Table The
following table sets forth information with respect to the compensation paid or earned for the 2018, 2017 and 2016 fiscal years to each NEO. Rand is not part of a fund complex.  Name and
Principal Position (1)

Year

Salary (2)


Bonus (2)(3)


Non-EquityIncentive PlanCompensation(3)(7)(Profit
SharingPlan)


All OtherCompensation (4)(5)


TotalCompensation (6)Allen F. Grum,
President and Chief Executive Officer

2018

$
245,000


$
50,000


$
0


$$
16,50016,666
(4) (5)

$
328,1662017

$
240,000


$
0


$
0


$$
16,02016,666
(4) (5)

$
272,6862016

$
223,871


$
0


$
635,026


$$
15,98916,060
(4) (5)

$
890,946Daniel P. Penberthy,
Executive Vice President and Chief Financial Officer

2018

$
230,000


$
50,000


$
0


$$
16,50010,797
(4) (5)

$
307,2972017

$
225,000


$
0


$
0


$$
16,02010,797
(4) (5)

$
251,8172016

$
207,880


$
0


$
635,026


$$
15,47312,024
(4) (5)

$
870,403  (1)
Mr. Grum is Rands principal executive officer, and Mr. Penberthy is Rands principal
financial officer. (2)
Represent amounts earned, prior to employee 401(k) contributions. (3)
Bonuses and non-equity incentive plan compensation were fully accrued
as of December 31 of the respective year. Bonus amounts were disbursed subsequent to the respective year-end and, non-equity incentive compensation is expected to
be paid in installments following receipt of respective realized gain proceeds, to include the completion of the escrow holdback period, which typically occurs in a 12  24 month period following exit from an investment. (4)
Includes contributions made by Rand to the 401(k) plan account for the NEOs. Rands 401(k) plan is
available to all Rand employees. Under the 401(k) plan, participants may elect to contribute up to 20% of their compensation on a pretax basis by salary reduction up to a maximum of $18,500 ($24,500 if age 50 or over) for 2018. For eligible
employees, Rand makes a contribution of 1% of compensation and matches employee contributions up to 5%, subject to IRS annual compensation and contribution limits. In addition, Rand may elect to contribute an annual discretionary amount as
determined by the Board of Directors. In 2018, 2017 and 2016, Rand did not make a discretionary contribution to the 401(k) plan.  91




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(5)
Amount indicated includes the cost of life insurance, disability insurance and business automobile
reimbursement benefits. (6)
Non-equity incentive compensation from the Profit Sharing Plan was 0%
of total compensation for the NEOs in 2018. Total salary and bonus for the NEOs approximated 90%, 89% and 25% of total compensation in 2018, 2017 and 2016, respectively. (7)
Non-equity incentive plan compensation consists of payments under the
Profit Sharing Plan (in each case 6% of net realized capital gains of Rand SBIC as defined in the Profit Sharing Plan). Option Plan Rand does not have any outstanding equity awards, options or stock vesting rights. Pension Benefits Rand does not provide
any tax-qualified defined benefit plan or supplemental executive retirement plan, or similar plan that provides for specified retirement payments or benefits. Director Compensation Effective
January 1, 2016, Board compensation was changed so that each Board member receives a $25,000 per annum stipend for Board and Committee service, and per meeting fees were eliminated. Committee Chairs receive an additional stipend of $2,500
(Audit), $1,000 (Compensation) or $1,000 (Governance and Nominating). The Board Chair receives an additional $10,000 retainer. No other forms of compensation are utilized; however, Rand reimburses out-of-town Directors for travel and out-of-pocket expenses incurred in connection with their service on our Board. The following table sets forth information with respect to the compensation paid to or earned by each
non-employee Director for 2018. Rand did not pay or accrue any other compensation to Directors for 2018.  Name

Fees Earned or Paid in CashErland E. Kailbourne

$
31,000Ross B. Kenzie

$
27,500Reginald B. Newman, II (1)

$
16,250Jayne K. Rand

$
25,000Robert M. Zak

$
26,000  (1)
Mr. Newman served as Chairman of the Board until his death on April 7, 2018 Pay Ratio As required by
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable SEC rules, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total
compensation of our President/Chief Executive Officer. The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation  92




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of our President/Chief Executive Officer to the median of the annual total compensation of our other employees. We determined our median employee based on base salary, as reflected in our payroll
records, for each of our three employees (excluding the President/Chief Executive Officer) as of December 31, 2018. The annual total compensation of our median employee (other than the President/Chief Executive Officer) for 2018 was $175,820.
As disclosed in the Summary Compensation Table, our President/Chief Executive Officers annual total compensation for 2018 was $328,166. Based on the foregoing, our estimate of the ratio of the annual total compensation of our President/Chief
Executive Officer to the median of the annual total compensation of all other employees was 1.9 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported
above should not be used as a basis for comparison between companies. Compensation Committee Interlocks and Insider Participation During the last fiscal year, none of the members of the Compensation Committee was an officer or employee or former officer or employee of Rand
or had any relationship with respect to Rand that would require disclosure under Regulation S-K, Item 404.  Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Beneficial Ownership of Shares Unless otherwise indicated, the following table sets forth beneficial ownership of our shares on March 1, 2019, by (a) persons known
by us to be beneficial owners of more than 5% of the outstanding shares, (b) the Directors and the NEOs, and (c) all Directors and executive officers as a group. For purposes of the table, the address for each of our Directors and NEOs is
c/o 2200 Rand Building, Buffalo, NY 14203. Unless otherwise stated, each person named in the table has sole voting and investment power with respect to the shares indicated as beneficially owned by that person.  Beneficial Owner

Amount and Nature ofBeneficial Ownership (1)


Percent of Class(3)(a) More than 5% Owners:User-Friendly Phone Book, LLC
10200 Grogans Mill Road
Suite 44440
The Woodlands, TX77380


1,455,993



23.0
%(b) Directors and named executive officers:Allen F. Grum


173,642



2.7
%Erland E. Kailbourne


40,000




*Ross B. Kenzie


113,000



1.8
%Jayne K. Rand


115,433



1.8
%Robert M. Zak


85,000



1.3
%Daniel P. Penberthy


84,467



1.3
%*  Less than 1%.(c) All Directors and executive officers as a group (six persons)(2)


611,542



9.7
%  (1)
The beneficial ownership information presented is based upon information furnished by each person or contained
in filings made with the SEC.  93




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(2)
Members of the group have sole voting and investment power over these shares. (3)
Percent of Class calculated based on 6,321,988 shares outstanding on March 1, 2019. For a discussion of the Transactions, including previously announced sale of 8,333,333.33 shares of Rands common
stock to East in the Stock Purchase, please see Part I, Item 1  Recent Developments.  Item 13.
Certain Relationships and Related Transactions and Director Independence Director Independence The Board
has affirmatively determined that all of the non-employee Directors, Erland E. Kailbourne, Ross B. Kenzie, Jayne K. Rand and Robert M. Zak are Independent Directors under the rules of the SEC and
under the rules and guidelines of the Nasdaq Stock Market. Therefore, a majority of Rands five-person Board is currently independent as so defined. The Board has determined that there are no relationships between Rand and any of the Directors
determined to be independent, other than service on its Board and compensation paid to those Directors. In addition, Reginald B. Newman II, who served as the Chairman of the Board during 2018, until his death on April 7, 2018 was also
determined to be an Independent Director during such term of service as a Director. Allen F. Grum has been determined to be an
interested person under Section 2(a)(19) of the 1940 Act with respect to Rand because he is an executive officer of Rand. Directors who are determined to be interested persons do not qualify as Independent Directors under the rules
and guidelines of the Nasdaq Stock Market. The Board, with reference to the SEC rules and the Nasdaq Stock Market rules and guidelines,
also determined that:  

each member of the Audit Committee, the Governance and Nominating Committee, and the Compensation Committee is
independent under the applicable Nasdaq Stock Market rules and guidelines and SEC rules for purposes of determining independence of members of each of those committees;  

the compensation paid to the executive officers of Rand during 2018 was determined by a majority of the
Independent Directors of the Board;  

each member of the Audit Committee also meets the additional independence requirements under Rule 10A-3(b) of the Exchange Act and Nasdaq Rule 5605(c)(2)(a); and  

each member of the Compensation Committee also meets the independence requirements under the rules and guidelines
of Nasdaq Rule 5605(d)(2).  94




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Rands Chairman, Mr. Kailbourne, serves as chair of meetings of the Independent
Directors. It is currently contemplated that executive sessions of the Independent Directors will occur at least twice during the year ending December 31, 2019. The Corporation will also hold separate committee meetings of the Board
of Directors during 2019, which committees are comprised of Independent Directors. Related Person Transactions For the year ended December 31, 2018, there were no transactions, or proposed transactions, exceeding $120,000 in which the Corporation
was or is a participant in which any related person had or will have a direct or indirect material interest. In order to ensure that the
Corporation does not engage in any related-party transactions with any persons affiliated with the Corporation, the Corporation requires that the Audit Committee must review in advance any related-party transaction, or series of similar
transactions, to which the Corporation or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $120,000 and in which such related party had, or will have, a direct or indirect material interest.  Item 14.
Principal Accountant Fees and Services Independent Registered Public Accountant (Independent Accountant) Fees The aggregate fees for each of the last two fiscal years for services rendered by Freed Maxick CPAs, P.C. (Freed) are as follows:  Fee Description

2018


2017Audit

$
111,975


$
108,475Audit Related

$
0


$
0Tax

$
37,827


$
31,000All Other

$
0


$
0 For fiscal years 2018 and 2017, all of the services of Freed described in the above categories were pre-approved by the Audit Committee. Audit Fees This category consists of fees for the audit of annual consolidated financial statements, review of consolidated financial statements included
in quarterly reports on Form 10-Q and services that are normally provided by the independent accountant in connection with statutory and regulatory filings or audit engagements for those fiscal years. Audit Related Fees This
category consists of assurance and related services by the independent accountant that are reasonably related to the performance of the audit and review of consolidated financial statements and are not reported under audit fees.  95




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Tax Fees This category consists of professional services rendered by the independent accountant for tax compliance and tax planning. The services for
the fees disclosed under this category include tax return preparation and technical advice provided by Freed. All Other Fees This category consists of fees not covered by Audit Fees, Audit Related Fees and Tax Fees. Estimates of annual audit, quarterly review and tax fees to be paid during the year are submitted annually to the Audit Committee for its
review and pre-approval and then budgeted for by Rand. All other non-audit services must be pre-approved by the Audit Committee
prior to engagement, as required by the Audit Committees charter.  96




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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 STATEMENTSConsolidated Statements of Financial Position as of December 31, 2018 and 2017Consolidated Statements of Operations for the three years in the period ended December 31, 2018Consolidated Statements of Changes in Net Assets for the three years in the period ended December 31, 2018Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2018Consolidated Schedule of Portfolio Investments as of December 31, 2018Consolidated Schedule of Portfolio Investments as of December 31, 2017Financial Highlights Schedule for the five years in the period ended December 31, 2018Notes to the Consolidated Financial StatementsSupplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31, 2018Report of Independent Registered Public Accounting Firm(2)

FINANCIAL STATEMENT SCHEDULESThe required financial statement Schedule II  Valuation and Qualifying Accounts has been omitted because the information required is included in the Note 11 to the consolidated financial statements.  97




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(b)
The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in
accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended.  (3.1)(i)

Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of Form N-2 filed with the SEC on April 22, 1997. (File No.
 333-25617).(3.1)(ii)

By-laws of the Corporation, incorporated by reference to Exhibit 3(ii) to the Corporations Quarterly
 Report on Form 10-Q for the period ended September 30, 2016 filed with the SEC on November 2, 2016. (File No. 814-00235).(3.2)(i)

Certificate of Incorporation of Rand Merger Corporation as filed by the NY Department of State on 12/18/08  incorporated by reference to
 Exhibit 1(a) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File No. 811-22276).(3.2)(ii)

By-laws of Rand Capital SBIC, Inc.  incorporated by reference to Exhibit 2 to Registration Statement
 No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File
No. 811-22276).(4)

Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) 
of Form N-2 filed with the SEC on April 22, 1997. (File No. 333-25617).(10.2)

Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital Management, LLC into Rand Merger Corporation, as filed by the NY Department
 of State on 12/18/08  incorporated by reference to Exhibit 1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the
SEC on February 6, 2009. (File No. 811-22276).(10.3)

Rand Capital Corporation Amended and Restated Profit Sharing Plan applicable to Rand Capital SBIC, Inc.  incorporated by reference to Exhibit
7 to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File
No. 811-22276).*(10.4)

Change in Control Agreement, dated as of March 
1, 2017, by and between the Corporation and Allen F. Grum, incorporated by reference to Exhibit 10.1 to the Corporations Current Report on Form 8-K filed with the SEC on March 3, 2017. (File No. 814-00235).*(10.5)

Change in Control Agreement, dated as of March 
1, 2017, by and between the Corporation and Daniel P. Penberthy, incorporated by reference to Exhibit 10.2 to the Corporations Current Report on Form 8-K filed with the SEC on March 3, 2017. (File No. 814-00235).*   98




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(10.6)

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.(31.1)

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934,
 as amended  filed herewith.(31.2)

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934,
 as amended  filed herewith.(32.1)

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Rand Capital Corporation  filed herewith.  *
Management contract or compensatory plan.  Item 16.
Form 10-K Summary None  99




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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 7, 2019



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

March 7, 2019(ii) Principal Accounting & Financial Officer:/s/ Daniel P. PenberthyDaniel P. Penberthy / Treasurer

March 7, 2019(iii) Directors:/s/ Allen F. GrumAllen F. Grum / Director

March 7, 2019/s/ Erland E. KailbourneErland E. Kailbourne / Director

March 7, 2019/s/ Ross B. KenzieRoss B. Kenzie / Director

March 7, 2019/s/ Jayne K. RandJayne K. Rand / Director

March 7, 2019/s/ Robert M. ZakRobert M. Zak / Director

March 7, 2019  100