##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008o

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

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

14203(Zip Code)   (716) 853-0802
 (Registrants Telephone
    No. Including Area Code)
  Securities registered pursuant to Section 12(b) of the
    Act:
   Securities registered pursuant to Section 12(g) of the
    Act:
   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 





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

Business


1Item 1B.

Unresolved Staff Comments


6Item 1A.

Risk Factors


4Item 2.

Properties


6Item 3.

Legal Proceedings


6Item 4.

Submission of Matters to a Vote of Security
    Holders


6PART IIItem 5.

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


7Item 6.

Selected Financial Data


9Item 7.

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


11Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


25Item 8.

Financial Statements and Supplementary Data


26Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


47Item 9A(T).

Controls and Procedures


47Item 9B.

Other Information


47PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


47Item 11.

Executive Compensation


48Item 12.

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


48Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


48Item 14.

Principal Accountant Fees and Services


48PART IVItem 15.

Exhibits and Financial Statement Schedules


48EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



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




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##### Table of Contents



SBIC
    Subsidiary
       2




---



##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



The
    Corporations Portfolio Investments are
    Illiquid
    Investing
    in Private Companies involves a High Degree of
    Risk
      Investing
    in the Corporations Shares May be Inappropriate for the
    Investors Risk Tolerance
    The
    Corporation is Subject to Risks Created by its Regulated
    Environment
    The
    Corporation is Subject to Risks Created by Borrowing Funds from
    the SBA
   5




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##### Table of Contents



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




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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    2008 Quarter ending:

High


LowMarch 31st

$
4.78


$
3.55June 30th

$
4.29


$
3.25September 30th

$
4.00


$
3.25December 31st

$
4.00


$
3.11   2007 Quarter ending:

High


LowMarch 31st

$
5.04


$
3.26June 30th

$
3.94


$
3.26September 30th

$
4.62


$
3.35December 31st

$
4.72


$
3.50     Profit
    Sharing and Stock Option Plans
      Shareholders
    of Record
    Stock
    Repurchase Plan
   7




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##### Table of Contents



Company
    Performance Graph
    COMPARISON
    OF 5-YEAR CUMULATIVE TOTAL RETURN
    AMONG RAND CAPITAL CORP.,
    NASDAQ MARKET INDEX AND PEER GROUP INDEX
  
  ASSUMES $100
    INVESTED ON DEC. 31, 2003
    ASSUMES DIVIDEND REINVESTED
    FISCAL YEAR ENDING DEC. 31, 2008
  COMPARISON
    OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
    COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD
    MARKETS
  FISCAL
    YEAR ENDING
  COMPANY/INDEX/MARKET


12/31/2003



12/31/2004



12/30/2005



12/29/2006



12/31/2007



12/31/2008Rand Capital Corporation



100.00




107.59




92.41




241.38




248.14




241.38Old Peer Group Index



100.00




101.62




95.36




132.43




87.47




18.67New Peer Group Index



100.00




108.41




110.79




122.16




134.29




79.25NASDAQ Market Index



100.00




101.62




95.36




130.52




91.89




34.03       8




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Balance
    Sheet Data as of December 31:
  2008


2007


2006


2005


2004Total assets

$
32,228,797


$
32,722,151


$
29,463,944


$
16,063,605


$
12,743,109Total liabilities

$
12,001,831


$
12,904,328


$
12,681,539


$
7,447,671


$
3,716,055Net assets

$
20,226,966


$
19,817,823


$
16,782,405


$
8,615,934


$
9,027,054Net asset value per outstanding share

$
3.54


$
3.47


$
2.93


$
1.51


$
1.58Common stock shares outstanding


5,718,934



5,718,934



5,718,934



5,718,934



5,718,934  9




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##### Table of Contents



Operating
    Data for the year ended December 31:
  2008


2007


2006


2005


2004Investment income

$
1,757,003


$
2,302,870


$
1,326,962


$
736,573


$
757,704Total expenses

$
1,721,555


$
1,650,947


$
1,519,184


$
1,265,846


$
900,812Net investment gain (loss)

$
135,689


$
425,406


$
(1,264,802
)

$
(175,179
)

$
(112,384
)Net realized (loss) gain on sales and dispositions of investments





$
(68,748
)

$
3,456,441


$
(382,353
)

$
26,727Net increase (decrease) in unrealized appreciation

$
273,454


$
2,362,507


$
5,974,832


$
146,412


$
(125,777
)Net increase (decrease) in net assets from operations

$
409,143


$
2,719,165


$
8,166,471


$
(411,120
)

$
(211,434
)  10




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Forward
    Looking Statements
  Statements included in this Managements Discussion
    and Analysis of Financial Condition and Results of Operations
    and elsewhere in this document that do not relate to present or
    historical conditions are forward-looking statements
    within the meaning of that term in Section 27A of the
    Securities Act of 1933, and in Section 21F of the
    Securities Exchange Act of 1934. Additional oral or written
    forward-looking statements may be made by the Corporation from
    time to time, and those statements may be included in documents
    that are filed with the Securities and Exchange Commission. Such
    forward-looking statements involve risks and uncertainties that
    could cause results or outcomes to differ materially from those
    expressed in the forward-looking statements. Forward-looking
    statements may include, without limitation, statements relating
    to the Corporations plans, strategies, objectives,
    expectations and intentions and are intended to be made pursuant
    to the safe harbor provisions of the Private Securities
    Litigation Reform Act of 1995. Words such as
    believes, forecasts,
    intends, possible, expects,
    estimates, anticipates, or
    plans and similar expressions are intended to
    identify forward-looking statements. Among the important factors
    on which such statements are based are assumptions concerning
    the state of the national economy and the local markets in which
    the Corporations portfolio companies operate, the state of
    the securities markets in which the securities of the
    Corporations portfolio company trade or could be traded,
    liquidity within the national financial markets, and inflation.
    Forward-looking statements are also subject to the risks and
    uncertainties described under the caption Risk
    Factors contained in Part I, Item 1A, which is
    incorporated herein by reference.
  There may be other factors that we have not identified
    that affect the likelihood that the forward-looking statements
    may prove to be accurate. Further, any forward-looking statement
    speaks only as of the date it is made and, except as required by
    law, we undertake no obligation to update any forward-looking
    statement to reflect events or circumstances after the date on
    which it is made or to reflect the occurrence of anticipated or
    unanticipated events or circumstances. New factors emerge from
    time to time that may cause our business not to develop as we
    expect, and we cannot predict all of them.
  Business
    Overview
           11




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##### Table of Contents



2008
    Highlights and Outlook
         12




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##### Table of Contents



Critical
    Accounting Policies
      Valuation
    of Investments
          Level 1:
 13




---



##### Table of Contents



Level 2:
  Level 3:
          Revenue
    Recognition (Interest Income)
      Recent
    Accounting Pronouncements
     14




---



##### Table of Contents



Financial
    Condition
  Overview:
  (Decrease)


% (Decrease)12/31/08


12/31/07


Increase


IncreaseTotal assets

$
32,228,797


$
32,722,151


$
(493,354
)


(1.5
)%Total liabilities


12,001,831



12,904,328



(902,497
)


(7.0
)%Net assets

$
20,226,966


$
19,817,823


$
409,143



2.1
%           Composition
    of the Corporations Portfolio
    12/31/08


12/31/07


Increase


% IncreaseInvestments, at cost

$
14,386,451


$
13,390,644


$
995,807



7.4
%Unrealized appreciation, net


13,739,831



13,137,846



601,985



4.6
%Investments, at fair value

$
28,126,282


$
26,528,490


$
1,597,792



6.0
%       New Investments:

AmountGridApp Systems, Inc. (GridApp)

$
666,667Niagara Dispensing Technologies, Inc. (Niagara Dispensing)


374,990SOMS Technologies, LLC (SOMS)


250,000Associates Interactive, LLC (Associates)


200,000Mezmeriz, Inc. (Mezmeriz)


100,000Rocket Broadband Networks, Inc. (Rocket Broadband)


35,000Total of investments made during the year ended
    December 31, 2008

$
1,626,657Other Changes to investments:APF Group, Inc. (APF) interest conversion


40,832Niagara Dispensing interest conversion


41,783Total of new investments and changes to investments during
    the year ended December 31, 2008

$
1,709,272   15




---



##### Table of Contents



Sales/Investment
    Repayments

AmountNew Monarch Machine Tool, Inc. (Monarch)


(520,147
)Contract Staffing


(131,066
)Gemcor II, LLC (Gemcor)


(62,252
)Total of sales and investment repayments during the year
    ended December 31, 2008


(713,465
)Total change in investment balance, at cost, during the year
    ended December 31, 2008

$
995,807     Fair Value at


% of Total AssetsDecember 31,


at December 31,Company

Industry

2008


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

Manufacturing  Metals Testing Equipment

$
8,761,700



27
%Gemcor

Manufacturing  Aerospace Machinery

$
5,803,201



18
%Synacor Inc. (Synacor)

Software

$
4,168,001



13
%Kionix, Inc . (Kionix)

Manufacturing  Silicon Chips

$
2,000,000



6
%Ultra-Scan Corporation (Ultra-Scan)

Electronics  Hardware/Software

$
1,203,000



4
%     Fair Value at


% of Total AssetsDecember 31,


at December 31,Company

Industry

2007


2007Innov-X

Manufacturing  Metals Testing Equipment

$
8,761,700



27
%Synacor

Software

$
4,168,001



13
%Gemcor

Manufacturing  Aerospace Machinery

$
4,165,451



13
%Carolina Skiff LLC (Carolina Skiff)

Manufacturing  Boating

$
1,227,000



4
%Kionix

Manufacturing  Silicon Chips

$
1,221,568



4
%     % of Net Asset Value at


% of Net Asset Value atGeographic Region

December 31, 2008


December 31, 2007USA  East


95
%


94
%USA  South


5
%


6
%100
%


100
%  16




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##### Table of Contents



Percentage of





Percentage ofCost


Total Portfolio


Fair Value


Total PortfolioDecember 31, 2008:Subordinated Debt and Promissory Notes

$
3,240,266



23
%

$
2,111,013



8
%Convertible Debt


356,667



2
%


356,667



1
%Equity and Partnership Interests


10,721,519



75
%


25,525,261



91
%Equity Warrants


68,000







133,341



Total

$
14,386,452



100
%

$
28,126,282



100
%December 31, 2007:Subordinated Debt and Promissory Notes

$
3,992,927



30
%

$
3,071,009



11
%Convertible Debt


50,000







50,000



Equity and Partnership Interests


9,279,717



69
%


23,274,140



88
%Equity Warrants


68,000



1
%


133,341



1
%Total

$
13,390,644



100
%

$
26,528,490



100
%   Results
    of Operations
  Investment
    Income
    Comparison
    of the years ended December 31, 2008 and 2007
  December 31,


December 31,2008


2007


(Decrease)


% (Decrease)Interest from portfolio companies

$
608,180


$
618,430


$
(10,250
)


(1.7
)%Interest from other investments


90,660



173,664



(83,004
)


(47.8
)%Dividend and other investment income


1,027,377



1,469,864



(442,487
)


(30.1
)%Other income


30,786



40,912



(10,126
)


(24.8
)%Total investment income

$
1,757,003


$
2,302,870


$
(545,867
)


(23.7
)%   Interest from portfolio companies
 17




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##### Table of Contents



re-negotiation
    Interest


Investment


Year that InterestCompany

Rate


Cost


Accrual CeasedG-Tec


8
%

$
400,000



2004Rocket Broadband


11.25
%


35,000



2008UStec


5
%


100,000



2006WineIsIt.com (Wineisit)


10
%


801,918



2005   Interest from other investments
  Dividend and other investment income
      Other income
    Comparison
    of the years ended December 31, 2007 and 2006
  December 31,


December 31,


(Decrease)


% (Decrease)2007


2006


Increase


IncreaseInterest from portfolio companies

$
618,430


$
757,824


$
(139,394
)


(18.4
)%Interest from other investments


173,664



53,104



120,560



227.0
%Dividend and other investment income


1,469,864



432,296



1,037,568



240.0
%Other income


40,912



83,738



(42,826
)


(51.1
)%Total investment income

$
2,302,870


$
1,326,962


$
975,908



73.5
%  18




---



##### Table of Contents



Interest from portfolio companies
      Interest


Investment


Year that InterestCompany

Rate


Cost


Accrual CeasedG-Tec


8
%

$
400,000



2004UStec


5
%


100,000



2006WineIsIt.com


10
%


801,918



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

December 31,2008

2007

Increase

% IncreaseTotal expenses

$
1,721,555


$
1,650,947


$
70,608



4.3
%        19




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##### Table of Contents



Comparison
    of the years ended December 31, 2007 and 2006
  December 31,

December 31,2007

2006

Increase

% IncreaseTotal expenses

$
1,650,947


$
1,519,184


$
131,763



8.7
%     Net
    Realized Gains and Losses on Investments
  Comparison
    of the years ended December 31, 2008 and 2007
  December 31,


December 31,2008


2007


ChangeNet Realized (Loss)





$
(68,748
)

$
68,748                 Comparison
    of the years ended December 31, 2007 and 2006
  December 31,


December 31,2007


2006


ChangeNet Realized (Loss) Gain

$
(68,748
)

$
3,456,441


$
(3,525,189
)  20




---



##### Table of Contents



Net
    Change in Unrealized Appreciation of Investments
  For
    the years ended December 31, 2008 and 2007
  December 31,


December 31,2008


2007


Decrease


% DecreaseNet Change in Unrealized Appreciation

$
601,985


$
3,521,821


$
(2,919,836
)


(82.9
)%     December 31, 2008Gemcor

$
1,700,000Kionix


778,432Bioworks, Inc. (Bioworks)


(28,000
)Wineisit


(100,000
)Niagara Dispensing


(111,000
)Photonics Products Group, Inc (Photonics)


(150,700
)Carolina Skiff


(227,000
)Golden Goal, LLC (Golden Goal)


(237,413
)APF


(307,334
)Rocket Broadband


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

$
601,985              21




---



##### Table of Contents



S-1 S-1 S-1 S-1
    For
    the years ended December 31, 2007 and 2006
  December 31,


December 31,2007


2006


Decrease


% DecreaseNet Change in Unrealized Appreciation

$
3,521,821


$
9,958,053


$
(6,436,232
)


(64.6
)%     December 31, 2007Increase Gemcor valuation

$
3,500,000Reclass Takeform to a realized loss


130,000Increase Photonics valuation


119,480Adampluseve warrants


65,341Reclass USTec to realized loss


39,000Reclass Topps to realized loss


(332,000
)Total Change in net Unrealized Appreciation during the
    year ended December 31, 2007

$
3,521,821      22




---



##### Table of Contents



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




---



##### Table of Contents



Cash Receipts due by year2013 and2009


2010


2011


2012


beyondScheduled Cash Receipts from Portfolio Companies

$
235,500


$
1,646,000


$
2,700,000


$
918,000


$
0              24




---



##### Table of Contents



Disclosure
    of Contractual Obligations
    Payments due by periodLess than


1-3


3-5


MoreTotal


1 year


years


years


than 5 yrsSBA Debentures

$
8,100,000


$
0


$
0


$
0


$
8,100,000Operating Lease Obligations (Rent of office space)

$
32,520


$
16,080


$
16,440


$
0


$
0Total

$
8,132,520


$
16,080


$
16,440


$
0


$
8,100,000   Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk       25




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data    Statements of Financial Position as of
    December 31, 2008 and 2007
  Statements of Operations for the three years in
    the period ended December 31, 2008
  Statements of Changes in Net Assets for the three
    years in the period ended December 31, 2008
  Statements of Cash Flows for the three years in
    the period ended December 31, 2008
  Schedule of Portfolio Investments as of
    December 31, 2008
  Schedules of Selected Per Share Data and Ratios
    for the five years in the period ended December 31, 2008
  Notes to the Consolidated Financial Statements
  Supplemental Schedule of Consolidated Changes in
    Investments at Cost and Realized Gain for the year ended
    December 31, 2008
  Report of Independent Registered Public
    Accounting Firm
 26




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONDENSED
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 December 31,
  2008


2007AssetsInvestments at fair value (identified cost: 2008 
    $14,386,451, 2007  $13,390,644)

$
28,126,282


$
26,528,490Cash and cash equivalents


2,757,653



4,396,595Interest receivable ( net of allowance
    2008  $122,817, 2007  $122,000)


1,013,888



647,001Other assets


330,974



1,150,065Total assets

$
32,228,797


$
32,722,151Liabilities and Stockholders Equity (net assets)Liabilities:Debentures guaranteed by the SBA

$
8,100,000


$
8,100,000Deferred tax liability


3,490,000



3,955,000Income taxes payable


98,723



474,465Accounts payable and accrued expenses


292,731



321,210Deferred revenue


20,377



53,653Total liabilities


12,001,831



12,904,328Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000;
    shares issued 5,763,034


576,304



576,304Capital in excess of par value


6,973,454



6,973,454Accumulated net investment (loss)


(3,743,908
)


(3,940,409
)Undistributed net realized gain on investments


7,735,477



7,796,289Net unrealized appreciation on investments


8,732,845



8,459,391Treasury stock, at cost, 44,100 shares


(47,206
)


(47,206
)Net assets (per share 2008  $3.54 , 2007 
    $3.47)


20,226,966



19,817,823Total liabilities and stockholders equity (net
    assets)

$
32,228,797


$
32,722,151    27




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS
 For
    The Years Ended December 31, 2008, 2007 and 2006
  2008


2007


2006Investment income:Interest from portfolio companies

$
608,180


$
618,430


$
757,824Interest from other investments


90,660



173,664



53,104Dividend and other investment income


1,027,377



1,469,864



432,296Other income


30,786



40,912



83,7381,757,003



2,302,870



1,326,962Operating expenses:Salaries


440,337



460,917



482,067Employee benefits


121,659



112,147



101,785Directors fees


77,250



77,750



59,500Professional fees


248,667



212,822



116,068Stockholders and office operating


120,260



122,332



108,687Insurance


41,489



43,674



43,674Corporate development


65,042



66,854



54,233Other operating


83,972



51,389



10,7691,198,676



1,147,885



976,783Interest on SBA obligations


522,062



503,062



472,526Bad debt expense


817







69,875Total expenses


1,721,555



1,650,947



1,519,184Investment gain (loss) before income taxes


35,448



651,923



(192,222
)Current income tax expense


672,290



901,511



401,801Deferred income tax (benefit) expense


(772,531
)


(674,994
)


670,779Net investment gain (loss)


135,689



425,406



(1,264,802
)Realized and unrealized gain (loss) on investments:Net realized (loss) gain on sales and dispositions






(68,748
)


3,456,441Unrealized appreciation (depreciation) on investments:Beginning of year


13,137,846



9,616,025



(342,028
)End of year


13,739,831



13,137,846



9,616,025Change in unrealized appreciation (depreciation) before income
    taxes


601,985



3,521,821



9,958,053Deferred income tax expense


328,531



1,159,314



3,983,221Net increase in unrealized appreciation


273,454



2,362,507



5,974,832Net realized and unrealized gain on investments


273,454



2,293,759



9,431,273Net increase in net assets from operations

$
409,143


$
2,719,165


$
8,166,471Weighted average shares outstanding


5,718,934



5,718,934



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

$
0.07


$
0.48


$
1.43    28




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN NET ASSETS
 For
    The Years Ended December 31, 2008, 2007 and 2006
  2008


2007


2006Net assets at beginning of period

$
19,817,823


$
16,782,405


$
8,615,934Net investment gain(loss)


135,689



425,406



(1,264,802
)Cumulative effect adjustment for uncertain tax
    positions  FIN 48






316,253



Net realized (loss) gain on sales and dispositions of investments






(68,748
)


3,456,441Net increase in unrealized appreciation


273,454



2,362,507



5,974,832Net increase in net assets from operations


409,143



3,035,418



8,166,471Net assets at end of period

$
20,226,966


$
19,817,823


$
16,782,405    29




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 For
    The Years Ended December 31, 2008, 2007 and 2006
  2008


2007


2006Cash flows from operating activities:Net increase in net assets from operations

$
409,143


$
2,719,165


$
8,166,471Adjustments to reconcile net increase in net assets to net cash
    used in operating activities:Depreciation and amortization


52,230



33,598



26,672Original issue discount accretion






(62,333
)


Change in interest receivable allowance


817







Increase in unrealized appreciation of investments


(601,985
)


(3,521,821
)


(9,958,053
)Deferred tax (benefit) expense


(465,000
)


484,453



4,654,000Net realized loss (gain) on portfolio investments






68,748



(3,456,441
)Payment in kind, interest accrued


(15,380
)






Non-cash conversion of debenture interest


(67,235
)


(50,000
)


(34,356
)Changes in operating assets and liabilities:(Increase) in interest receivable


(367,704
)


(139,759
)


(209,623
)Decrease (increase) in other assets


779,083



(35,229
)


42,440(Decrease) increase in income taxes payable


(375,742
)


63,890



(Decrease) increase in accounts payable and accrued liabilities


(28,479
)


(17,350
)


560,246(Decrease) increase in deferred revenue


(33,276
)


8,048



(34,278
)Total adjustments


(1,122,671
)


(3,167,755
)


(8,409,393
)Net cash used in operating activities


(713,528
)


(448,590
)


(242,922
)Cash flows from investing activities:Investments originated


(1,626,657
)


(2,165,266
)


(3,383,769
)Proceeds from sale of portfolio investments






255,440



4,374,762Proceeds from loan repayments


713,465



2,456,509



1,473,322Capital expenditures


(12,222
)


(1,350
)


(12,255
)Net cash (used in) provided by investing activities


(925,414
)


545,333



2,452,060Cash flows from financing activities:Proceeds from SBA debenture










900,000Origination costs to SBA










(19,125
)Net cash provided by financing activities










880,875Net (decrease) increase in cash and cash equivalents


(1,638,942
)


96,743



3,090,013Cash and cash equivalents:Beginning of year


4,396,595



4,299,852



1,209,839End of year

$
2,757,653


$
4,396,595


$
4,299,852    30




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2008
  (b)










PerCompany, Geographic Location, Business Description,
    (Industry)



Date

(c)





(d)


Shareand Website

Type of Investment

Acquired

Equity


Cost


Value


of RandNon-Control/Non-Affiliate Investments: (k)Adampluseve, Inc. (dba Adam) (g)New York, NY. Luxury sports wear designer for men and women.
    (Fashion Design) www.shopadam.com

Warrants to purchase 1,715 Series A convertible preferred shares.


7/14/06



2
%

$
68,000


$
133,341


$
.02GridApp Systems, Inc. (e) (g)New York, NY. Provider of database automation software that
    helps businesses gain control of their heterogeneous database
    applications through a centralized software console. (Software)
    www.gridapp.com

$660,000 term note at 4% simple interest, 8% deferred interest
    (PIK) due January 4, 2012. $6,667 convertible note at 4% due
    November 28, 2018.


11/25/08



3
%


666,667



666,667



.12Kionix, Inc.Ithaca, NY. Develops innovative micro-electronic mechanical
    systems (MEMS) based inertial sensors used in consumer
    electronics, automation and healthcare sectors.
    (Manufacturing)
    www.kionix.com

30,241 shares Series B preferred stock. 696,296 shares
    Series C preferred stock. (g) 2,862,091 shares Series
    A preferred stock. 714,285 shares Series B preferred stock.


5/17/02



2
%


1,506,043



2,000,000



.35Mezmeriz, Inc. (g)Ithaca, NY. Developer of micro mirror technology that
    replaces silicon with carbon fibers in MEMS enabling efficient,
    wide-angle, Pico projectors to be embedded in mobile devices.
    (Electronics Developer) www.mezmeriz.com

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


1/9/08







100,000



100,000



.02Photonic Products Group, Inc
    (OTC:PHPG.OB) (a) (i) Northvale, NJ. Develops and
    manufactures products for laser photonics industry.
    (Manufacturing) www.inrad.com

66,000 shares common stock.


10/31/00



<1
%


165,000



112,000



.02Somerset Gas Transmission Company, LLC (e)Columbus, OH. Natural gas transportation company.
    (Oil and Gas)
    www.somersetgas.com

26.5337 units.


7/10/02



2
%


719,097



786,748



.14Synacor Inc. (g)Buffalo, NY. Develops provisioning platforms for aggregation
    and delivery of content and services across multiple digital
    devices. (Software)
    www.synacor.com

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


11/18/02



4
%


1,349,479



4,168,001



.73Subtotal Non-Control/
    Non-Affiliate Investments











$
4,574,286


$
7,966,757


$
1.40   31




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2008  (Continued)
  (b)










PerDate

(c)





(d)


ShareCompany and Business

Type of Investment

Acquired

Equity


Cost


Value


of RandAffiliate Investments: (l)
    APF Group, Inc. (e) (g)Yonkers, NY. Manufacturer of museum quality picture frames
    and framed mirrors for museums, art galleries, retail frame
    shops, upscale designers and prominent collectors.
    (Manufacturing) www.apfgroup.com

$587,786 consolidated senior subordinated note at 8% due
    June 30, 2011. $13,514 senior subordinated note at 14% due
    June 30, 2011. Warrants to purchase 10.2941 shares of
    common stock.


7/8/04



6
%

$
607,335


$
300,000


$
.05Associates Interactive, LLC (e) (g)Buffalo, NY. Provider of training content and certifications
    used to train retail sales associates. (Education and Training)
    www.associatesinteractive.com

$247,813 promissory note at 9% due December 19, 2012. Investor
    units totaling 21.88% of company.


10/15/07



22
%


250,000



250,000



.04Carolina Skiff LLC (e) (g)Waycross, GA. Manufacturer of fresh water, ocean fishing and
    pleasure boats. (Manufacturing) www.carolinaskiff.com

$985,000 Class A preferred membership interest at 7.5%.
    Redeemable January 31, 2010. 5% common membership interest.
    (j) Interest receivable $638,693.


1/30/04



5
%


1,000,000



1,000,000



.18EmergingMed.com, Inc. (g)New York, NY. Cancer clinical trial matching and referral
    service. (Software) www.emergingmed.com

$500,000 senior subordinated note at 10% due December 19, 2010.
    Warrants for 5.5% of common stock.
    (j) Interest receivable $151,667.


12/19/05



7
%


500,000



500,000



.09Golden Goal LLC (g)Fort Ann, NY. Youth soccer and lacrosse tournament
    park. (Sports and Entertainment) www.goldengoalpark.com

191,811 Class C units at 4%.


12/10/07



6
%


637,414



400,000



.07Innov-X Systems, Inc. (g)Woburn, MA. Manufactures portable x-ray fluorescence (XRF)
    analyzers used in metals/alloy analysis. (Manufacturing)
    www.innovxsys.com

2,642 Series A convertible preferred stock. Warrants for 21,596
    common shares. 8% cumulative dividend.
    (j) Interest receivable $162,411.


9/27/04



9
%


1,000,000



8,761,700



1.54Niagara Dispensing Technologies, Inc. (e)Amherst, NY. Beverage dispensing technology development and
    products manufacturer, specializing in rapid pour beer
    dispensing systems for high volume stadium and concession
    operations. (Manufacturing) www.exactpour.com

202,081 Series B preferred stock.
    (g) 463,691 Series A preferred stock. 518,752 Series B preferred
    stock.


3/8/06



14
%


1,281,783



1,170,783



.20 32




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2008  (Continued)
  (b)










PerDate

(c)





(d)


ShareCompany and Business

Type of Investment

Acquired

Equity


Cost


Value


of RandRAMSCO (e) (g)Albany, NY. Distributor of water, sanitary, storm sewer and
    specialty construction materials to the contractor, highway and
    municipal construction markets. (Distributor)
    www.ramsco.com

$300,000 promissory notes at 9% due October 20, 2010. Warrants
    for 5.99% of common stock.


11/19/02



6
%


300,000



300,000



.05SOMS Technologies, LLC (g)Valhalla, NY. Produces and markets the microGreen Extended
    Performance Oil Filter. (Auto Parts Developer)
    www.microgreenfilter.com

$250,000 secured convertible note at 10% due December 2, 2010.


12/2/08







250,000



250,000



.04Ultra  Scan CorporationAmherst, NY. Biometrics application developer of ultrasonic
    fingerprint technology. (Electronics Hardware/Software)
    www.ultra-scan.com

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


12/11/92



4
%


938,164



1,203,000



.21Subtotal Affiliate Investments











$
6,764,696


$
14,135,483


$
2.47Control Investments(m)Gemcor II, LLC (e) (g) (h)West Seneca, NY. Designs and sells automatic riveting
    machines used in the assembly of aircraft components.
    (Manufacturing)
    www.gemcor.com

$250,000 subordinated note at 8% due June 28, 2010 with warrant
    to purchase 6.25 membership units. 25 membership units.


6/28/04



31
%


603,200



5,803,201



1.02G-TEC Natural Gas SystemsBuffalo, NY. Manufactures and distributes systems that allow
    natural gas to be used as an alternative fuel to gases.
    (Manufacturing)
    www.gas-tec.com

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


8/31/99



29
%


400,000



198,000



.03Subtotal Control Investments











$
1,003,200


$
6,001,201


$
1.05Other Investments (e)

Various










2,044,269



22,841



.00Total portfolio investments (f)









$
14,386,451


$
28,126,282


$
4.92  33




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2008  (Continued)
  Notes to
    Consolidated Schedule of Portfolio Investments
  (a)
    
    Unrestricted securities are freely marketable securities having
    readily available market quotations. All other securities are
    restricted securities, which are subject to one or more
    restrictions on resale and are not freely marketable. At
    December 31, 2008 restricted securities represented 99% of
    the value of the investment portfolio. Freed Maxick &
    Battaglia, CPAs PC has not examined the business
    descriptions of the portfolio companies.(b)
    
    The Date Acquired column indicates the year in which the
    Corporation acquired its first investment in the company or a
    predecessor company.(c)
    
    The equity percentages estimate the Corporations ownership
    interest in the portfolio investment. The estimated ownership is
    calculated based on the percent of outstanding voting securities
    held by the Corporation or the potential percentage of voting
    securities held by the Corporation upon exercise of warrants or
    conversion of debentures, or other available data. Freed
    Maxick & Battaglia, CPAs, PC has not audited the
    equity percentages of the portfolio companies. The symbol
    <1% indicates that the Corporation holds an
    equity interest of less than one percent.(d)
    
    Under the valuation policy of the Corporation, unrestricted
    securities are valued at the closing price for publicly held
    securities for the last three days of the month. Restricted
    securities, including securities of publicly-held companies,
    which are subject to restrictions on resale, are valued at fair
    value as determined by the Board of Directors. Fair value is
    considered to be the amount which the Corporation may reasonably
    expect to receive for portfolio securities 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 by the Board of
    Directors in determining the fair value of restricted securities
    are the financial condition and operating results, projected
    operations, and other analytical data relating to the
    investment. Also considered are the market prices for
    unrestricted securities of the same class (if applicable) and
    other matters which may have an impact on the value of the
    portfolio company. The Corporation has also adopted
    SFAS No. 157 Fair Value Measurements which
    defines fair value and establishes guidelines for measuring fair
    value and designates the Corporations investment as
    generally Level 3 assets due to their privately
    held restricted nature, their size and the nature of Rands
    securities held.(e)
    
    These investments are income producing. All other investments
    are non-income producing. Income producing investments have
    generated cash payments of interest or dividends within the last
    twelve months.(f)
    
    Income Tax Information  As of December 31, 2008,
    the aggregate cost of investment securities approximated
    $14.4 million. Net unrealized appreciation aggregated
    approximately $13.7 million, of which $16.6 million
    related to appreciated investment securities and
    $2.9 million related to depreciated investment securities.(g)
    
    Rand Capital SBIC, L.P. investment.(h)
    
    Reduction in cost and value from previously reported balances
    reflects current principal repayment.(i)
    
    Publicly owned company.(j)
    
    Represents interest due (amounts over $50,000 net of
    reserves) from investment included as interest receivable on the
    Corporations Balance Sheet.(k)
    
    Non-Control/Non-Affiliate investments are investments that are
    neither Control Investments or Affiliated Investments.(l)
    
    Affiliate investments are defined by the Investment Company Act
    of 1940, as amended (1940 Act), as those Non-Control
    investments in companies in which between 5% and 25% of the
    voting securities are owned or Rand holds a Board seat.(m)
    
    Control investments are defined by the 1940 Act as investments
    in companies in which more than 25% of the voting securities are
    owned or greater than 50% of the board representation is
    maintained. 34




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  SCHEDULES
    OF SELECTED PER SHARE DATA AND RATIOS
 For
    the Five Years Ended December 31, 2008, 2007, 2006, 2005
    and 2004
    Year Ended December 31,2008


2007


2006


2005


2004Income from investment operations (1):Investment income

$
0.31


$
0.40


$
0.23


$
0.13


$
0.13Expenses


0.30



0.28



0.26



0.22



0.16Investment gain (loss) before income taxes


0.01



0.12



(0.03
)


(0.09
)


(0.03
)Income tax (benefit) expense


(0.01
)


0.04



0.19



(0.06
)


(0.01
)Net investment gain (loss)


0.02



0.08



(0.22
)


(0.03
)


(0.02
)Cumulative effect adjustments for uncertain tax positions-
    FIN 48


0.00



0.06



0.00



0.00



0.00Net realized and unrealized gain (loss) on investments


0.05



0.40



1.65



(0.04
)


(0.02
)Increase (decrease) in net asset value


0.07



0.54



1.43



(0.07
)


(0.04
)Net asset value, beginning of year


3.47



2.93



1.51



1.58



1.62Net asset value, end of year

$
3.54


$
3.47


$
2.93


$
1.51


$
1.58Per share market value, end of year

$
3.50


$
3.60


$
3.50


$
1.34


$
1.56Total return based on market value


(2.78
)%


2.86
%


161.2
%


(14.1
)%


7.6
%Total return based on net asset value


2.1
%


18.1
%


94.8
%


(4.6
)%


(2.5
)%Supplemental data:Ratio of expenses before income taxes to average net assets


8.60
%


9.02
%


11.96
%


14.35
%


9.86
%Ratio of expenses including taxes to average net assets


9.10
%


10.26
%


20.41
%


10.34
%


9.53
%Ratio of net investment gain (loss) to average net assets


0.68
%


2.32
%


(9.96
)%


(1.99
)%


(1.23
)%Portfolio turnover


6.0
%


8.6
%


18.1
%


21.6
%


50.4
%Net assets end of year

$
20,226,966


$
19,817,823


$
16,782,405


$
8,615,934


$
9,027,054Weighted average shares outstanding at end of year


5,718,934



5,718,934



5,718,934



5,718,934



5,718,934     (1)
    
    Per share data are based on weighted average shares outstanding
    and results are rounded. 35




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
  Note 1. 
    Summary
    of Significant Accounting Policies  Nature of Business
      Principles of Consolidation wholly-owned
  Investments
      Level 1:
  Level 2:
  Level 3:
   36




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##### Table of Contents



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

Significant

Other SignificantActive Markets for

Observable

UnobservableDecember 31,

Identical Assets

Inputs

InputsDescription

2008

(Level 1)

(Level 2)

(Level 3)Venture Capital Investments

$
28,126,282


$
112,000


$
0


$
28,014,282   Assets
    Measured at Fair Value on a Recurring Basis Using Significant
    Unobservable Inputs (Level 3)
  Fair Value MeasurementsUsing SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsBeginning Balance, December 31, 2007, of Level 3
    Assets





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






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

$
(307,334
)BioWorks, Inc.


(28,000
)Carolina Skiff LLC


(227,000
)Gemcor LLC1


1,700,000Golden Goal LLC


(237,413
)Kionix, Inc


778,432Rocket Broadband Networks, Inc.


(715,000
)Niagara Dispensing Technologies, Inc


(111,000
)Wineisit.com


(100,000
)

$
752,685Purchases of SecuritiesAssociates Interactive, LLC

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


40,832GripApp Systems, Inc.


666,667Mezmeriz, Inc.


100,000Niagara Dispensing Technologies, Inc.


374,990Niagara Dispensing Technologies, Inc interest conversion


41,783Rocket Broadband Networks, Inc.


35,000SOMS Technologies, LLC


250,000


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

$
(520,147
)Contract Staffing


(131,065
)Gemcor II, LLC


(62,253
)

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






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





$
28,014,282 37




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair Value MeasurementsUsing SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsThe amount of total gains or (losses) for the period included
    in earnings (or changes in net assets) attributable to the
    change in unrealized gains or losses relating to assets still
    held at the reporting date





$
752,685Gains and losses (realized and unrealized) included in net
    increase in net assets from operations for the period above are
    reported as follows:Net Gain (Loss) on Sales and Dispositions





$
0Change in unrealized gains or losses relating to assets still
    held at reporting date





$
752,685             Realized Gain or Loss and Unrealized Appreciation or
    Depreciation of Investments
  Investment Classification
 38




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash and Cash Equivalents
  Revenue Recognition  Interest
    Income
    Original Issue Discount
  Deferred Debenture Costs
  Deferred Revenue
  Net Assets Per Share
  Supplemental Cash Flow Information
  Concentration of Credit and Market
    Risk
   39




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income Taxes
  Accounting Estimates
  Recent Accounting Standards , Fair Value
    Measurements
  Note 2. 
    Other
    Assets    2008


2007Deferred debenture costs

$
172,446


$
219,428Escrow receivable from Allworx


140,048



140,048Escrow receivable from USTec


69,421



69,421Property, plant and equipment (net)


15,604



8,628Operating receivables


2,876



278Reserve for uncollectible USTec escrow


(69,421
)


Escrow receivable from Innov-X






711,249Dividend receivables






1,013Total other assets

$
330,974


$
1,150,065        40




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 3. 
    Income
    Taxes      2008


2007Operations

$
1,349,000


$
574,000Investments


(5,007,000
)


(4,678,000
)Tax credit carryforwards


168,000



149,000Deferred tax liability, net

$
(3,490,000
)

$
(3,955,000
)       2008


2007


2006Current:Federal

$
677,635


$
837,752


$
398,154State


(5,345
)


63,759



3,647672,290



901,511



401,801Deferred:Federal


(427,692
)


472,266



3,956,000State


(16,308
)


12,054



698,000(444,000
)


484,320



4,654,000Total

$
228,290


$
1,385,831


$
5,055,801     2008


2007


2006Net investment gain and realized gain before income tax expense

$
648,757


$
4,104,996


$
13,222,272Expected tax expense at statutory rate

$
241,577


$
1,395,699


$
4,495,572State  net of federal effect


15,016



87,430



793,336Pass-through benefit from Portfolio Investment


(42,500
)






Tax credits and other


14,197



(97,298
)


(233,107
)Total

$
228,290


$
1,385,831


$
5,055,801    41




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Balance at January 1, 2007  adoption of
    FIN 48

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


316,253Increases for positions taken in prior year


Decreases in positions taken in prior year


(12,700
)Decreases for settlements with taxing authorities


Decrease for lapses in the applicable statute of limitations


Balance at December 31, 2007

$
8,500Increases for positions taken in current year


Increases for positions taken in prior year


21,000Decreases in positions taken in prior year


Decreases for settlements with taxing authorities


Decrease for lapses in the applicable statute of limitations


Balance at December 31, 2008

$
29,500       Note 4. 
    SBA
    Debenture Obligations   42




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##### Table of Contents



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


UndistributedNet


Net Realized


Net unrealizedInvestment


Gain (Loss) on


AppreciationLoss


Investments


on InvestmentsBalance, December 31, 2006

$
(6,253,128
)

$
9,763,366


$
5,769,615Net increase (decrease) in net assets from operations


2,312,719



(1,967,077
)


2,689,776Balance, December 31, 2007

$
(3,940,409
)

$
7,796,289


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


196,501



(60,812
)


273,454Balance, December 31, 2008

$
(3,743,908
)

$
7,735,477


$
8,732,845   Note 6. 
    Stock
    Option Plans    Note 7. 
    Employee
    Benefit Plans     43




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##### Table of Contents



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


3rd


2nd


1stQuarter


Quarter


Quarter


Quarter2008Investment income

$
472,327


$
424,043


$
482,268


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


855,573



(337,383
)


(17,231
)


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


0.15



(0.06
)


(0.00
)


(0.02
)2007Investment income

$
1,081,127


$
365,603


$
375,728


$
480,412Net increase (decrease) in net assets from operations


2,780,856



(351,099
)


157,940



131,468Basic and diluted net increase (decrease) in net assets from
    operations per share


0.49



(0.06
)


0.03



0.02   Note 11. 
    Allowance for Doubtful Accounts    2008


2007


2006Balance at beginning of year

$
(122,000
)

$
(122,000
)

$
(236,870
)Provision for losses


(817
)






Recoveries/Sales










114,870Balance at end of year

$
(122,817
)

$
(122,000
)

$
(122,000
)  44




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
 SCHEDULE OF
    CONSOLIDATED CHANGES IN INVESTMENTS AT
    COST AND REALIZED GAIN
    For the Year Ended December 31, 2008  CostIncrease


Realized(Decrease)


GainNew and additions to previous investmentsGridApp Systems, Inc.

$
666,667Niagara Dispensing Technologies, Inc.


416,773SOMS Technologies, LLC


250,000Associates Interactive, LLC


200,000Mezmeriz, Inc.


100,000APF Group, Inc.


40,832Rocket Broadband Networks, Inc.


35,0001,709,272Investments sold/liquidatedNew Monarch Machine Tool, Inc. repayment


(520,147
)Gemcor LLC repayment


(62,253
)Contract Staffing repayment


(131,065
)(713,465
)Net change in investments

$
995,807



  45




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               
    46




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures    Management report on Internal Control Over Financial
    Reporting
          Changes in Internal Control over Financial
    Reporting.
  Item 9B.
    Other
    Information   Part III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance   47




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##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules                           48




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##### Table of Contents



(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.  (3)(i)
    Certificate of Incorporation of the Corporation, incorporated by
    reference to Exhibit (a)(1) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (3)(ii)
    By-laws of the Corporation incorporated by reference to Exhibit
    (b) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (4)
    Specimen certificate of common stock certificate, incorporated
    by reference to Exhibit (b) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (10.1)
    Employee Stock Option Plan  incorporated by reference
    Appendix B to the Corporations definitive Proxy
    Statement filed on June 1, 2002.*(10.3)
    Agreement of Limited Partnership for Rand Capital SBIC,
    L.P.  incorporated by reference to Exhibit 10.3
    to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.4)
    Certificate of Formation of Rand Capital SBIC, L.P. 
    incorporated by reference to Exhibit 10.3 to the
    Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.5)
    Limited Liability Corporation Agreement of Rand Capital
    Management, LLC  incorporated by reference to
    Exhibit 10.3 to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.6)
    Certificate of Formation of Rand Capital Management,
    LLC  incorporated by reference to Exhibit 10.3
    to the Corporations
    Form 10-K
    filed for the year ended December 31, 2001.(10.7)
    Certificate of Incorporation of Rand Merger Corporation as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(a) to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.8)
    By-laws of Rand Capital SBIC, Inc.  incorporated by
    reference to Exhibit 2 to Registration Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.9)
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand
    Capital Management, LLC into Rand Merger Corporation, as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(b) to Registration
    Statement No.
    811-22276 on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.  (10.10)
    Rand Capital Corporation Amended and Restated Profit Sharing
    Plan applicable to Rand Capital SBIC, Inc. 
    incorporated by reference to Exhibit 7 to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.*  (31.1)
    Certification of Principal Executive Officer Pursuant to
    Rules 13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as amended-filed
    herewith(31.2)
    Certification of Principal Financial Officer Pursuant to
    Rules 13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as
    amended  filed herewith(32.1)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital Corporation 
    furnished herewith(32.2)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital SBIC, Inc. 
    furnished herewith  *
    
    Management contract or compensatory plan. 49




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##### Table of Contents



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

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

President

March 25, 2009(ii) Principal Accounting & Financial Officer:/s/  Daniel
    P. PenberthyDaniel
    P. Penberthy

Treasurer

March 25, 2009(iii) Directors:/s/  Allen
    F. GrumAllen
    F. Grum

Director

March 25, 2009/s/  Erland
    E. KailbourneErland
    E. Kailbourne

Director

March 25, 2009/s/  Ross
    B. KenzieRoss
    B. Kenzie

Director

March 25, 2009/s/  Willis
    S. McLeeseWillis
    S. McLeese

Director

March 25, 2009/s/  Reginald
    B. Newman IIReginald
    B. Newman II

Director

March 25, 2009/s/  Jayne
    K. RandJayne
    K. Rand

Director

March 25, 2009/s/  Robert
    M. ZakRobert
    M. Zak

Director

March 25, 2009  50