##### Table of Contents



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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to   Commission file number:
    001-08205
  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
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



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

Business


1Item 1A.

Risk
    Factors


5Item 2.

Properties


6Item 3.

Legal
    Proceedings


6Item 4.

Submission of
    Matters to a Vote of Security Holders


6PART IIItem 5.

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


7Item 6.

Selected Financial
    Data


9Item 7.

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


10Item 7A.

Quantitative and
    Qualitative Disclosures about Market Risk


22Item 8.

Financial
    Statements and Supplementary Data


23Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


41Item 9A.

Controls and
    Procedures


41Item 9B.

Other
    Information


41PART IIIItem 10.

Directors,
    Executive Officers and Corporate Governance


41Item 11.

Executive
    Compensation


41Item 12.

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


41Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence


41Item 14.

Principal
    Accounting Fees and Services


42PART IVItem 15.

Exhibits, Financial
    Statement Schedules


42EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  Item 1.
    Business        Form 10-K, Form 10-Q, Form 8-K,
  Regulation
    as a BDC
         1




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##### Table of Contents



SBIC
    Subsidiary
      Rule 17d-1
 2




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##### Table of Contents




    a BDC (Rand) to operate a BDC/small business investment company
    (Rand SBIC) as its wholly owned subsidiary in limited
    partnership form;
    Rand, Rand Management and Rand SBIC to engage in certain
    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;
    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 reports.           3




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##### Table of Contents



Regulation
    of SBIC Subsidiary
  Lending
    Restrictions
  and/or
      SBA
    Leverage
        10-year
 4




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##### Table of Contents



Employees
    Item 1A.
    Risk
    Factors  The
    Corporation is Subject to Risks Created by the Valuation of its
    Portfolio Investments
    The
    Corporations Portfolio Investments are
    Illiquid
    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
   5




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##### Table of Contents



The
    Corporation is Subject to Risks Created by Borrowing Funds from
    the SBA
    The
    Corporation is Dependent Upon Key Management Personnel for
    Future Success
    The
    Corporation Operates in a Competitive Market for Investment
    Opportunities
    Fluctuations
    of Quarterly Results
    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    2006 Quarter ending:

High


LowMarch 31st

$
1.43


$
1.30June 30th

$
1.48


$
1.42September 30th

$
1.90


$
1.68December 31st

$
3.55


$
3.40   2005 Quarter ending:

High


LowMarch 31st

$
1.67


$
1.36June 30th

$
1.47


$
1.17September 30th

$
1.34


$
1.16December 31st

$
1.53


$
1.09     Profit
    Sharing and Stock Option Plans
         7




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##### Table of Contents



Company
    Performance Graph
    COMPARE
    5-YEAR
    CUMULATIVE TOTAL RETURN
    AMONG RAND CAPITAL, INC.,
    NASDAQ MARKET AND PEER GROUP INDEX
  
  ASSUMES $100
    INVESTED ON DEC. 31, 2001
    ASSUMES DIVIDENDS REINVESTED
    FISCAL YEAR ENDING DEC. 31, 2006
  COMPARISON
    OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
    COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD
    MARKETS
  FISCAL
    YEAR ENDING
  COMPANY/INDEX/MARKET


12/2001


12/2002


12/2003


12/2004


12/2005


12/2006Rand Capital Corp



100.00




81.10




114.17




122.83




105.51




275.59Peer Group Index



100.00




74.37




121.46




132.44




131.09




177.41NASDAQ Market Index



100.00




69.75




104.88




113.70




116.19




128.12         8




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Balance
    Sheet Data as of December 31:
  2006


2005


2004


2003


2002Total assets

$
29,463,944


$
16,063,605


$
12,743,109


$
9,385,137


$
9,685,673Total liabilities

$
12,681,539


$
7,447,671


$
3,716,055


$
146,649


$
81,039Net assets

$
16,782,405


$
8,615,934


$
9,027,054


$
9,238,488


$
9,604,634Net asset value per outstanding
    share

$
2.93


$
1.51


$
1.58


$
1.62


$
1.67Common stock shares outstanding


5,718,934



5,718,934



5,718,934



5,718,934



5,738,634   Operating
    Data for the year ended December 31:
  2006


2005


2004


2003


2002Investment income

$
1,326,962


$
736,573


$
757,704


$
449,858


$
261,230Total expenses

$
1,519,184


$
1,265,846


$
900,812


$
942,799


$
858,305Net investment loss

$
(1,264,802
)

$
(175,179
)

$
(112,384
)

$
(346,043
)

$
(738,046
)Net realized gain (loss) on sales
    and dispositions of investments

$
3,456,441


$
(382,353
)

$
26,727


$
87,841


$
888,399Net increase (decrease) in
    unrealized appreciation

$
5,974,832


$
146,412


$
(125,777
)

$
(86,441
)

$
(578,299
)Net increase (decrease) in net
    assets from operations

$
8,166,471


$
(411,120
)

$
(211,434
)

$
(344,643
)

$
(427,946
)  9




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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.
  Overview
                 10




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2006
    Highlights and Outlook
         11




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##### Table of Contents



Critical
    Accounting Policies
      Valuation
    of Investments
     12




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##### Table of Contents



Revenue
    Recognition (Interest Income)
      Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes. Form 10-Q Form 10-Q.
  Fair Value Measurements.
  Considering the Effects of
    Prior Year Misstatements When Quantifying Misstatements in
    Current Year Financial Statements.
 13




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##### Table of Contents



Financial
    Condition
  Overview:
  12/31/06


12/31/05


Increase


% IncreaseTotal assets

$
29,463,944


$
16,063,605


$
13,400,339



83.4
%Total liabilities


12,681,539



7,447,671



5,233,868



70.3
%Net assets

$
16,782,405


$
8,615,934


$
8,166,471



94.8
%     12/31/06


12/31/05


Increase


% IncreaseInvestments, at cost

$
14,033,789


$
13,712,890


$
320,899



2.3
%Unrealized appreciation
    (depreciation), net


9,616,025



(342,028
)


9,958,053



2,911.5
%Investments at fair value

$
23,649,814


$
13,370,862


$
10,278,952



76.9
%     AmountNew
    InvestmentsInnov-X Systems, Inc. (Innov-X)

$
1,055,148Adampluseve, LLC (Adam+Eve)


561,000Synacor Inc. (Synacor)


507,999Niagara Dispensing Technologies,
    Inc. (Niagara Dispensing)


500,000New Monarch Machine Tool, Inc.
    (Monarch)


300,000Kionix, Inc (Kionix)


243,704Rocket Broadband Networks, Inc
    (Rocket Broadband)


195,918WineIsIt.com, Corp. (Wineisit)


20,000Total of investments made
    during the year ended December 31, 2006

$
3,383,769Other Changes:Synacor interest conversion

$
21,479Photonic Products Group, Inc.
    (Photonics) interest conversion


10,000Adam+Eve warrant amortization


5,667Monarch interest conversion


2,877Total of other
    changes


40,023Total of new investments and
    other changes during the year ended December 31,
    2006

$
3,423,792   14




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##### Table of Contents



Sales/Investment
    Repayments

AmountMinrad International, Inc. (Minrad)

$
(919,422
)Innov-X


(690,148
)Concentrix Corporation (Concentrix)


(600,000
)Synacor


(350,000
)Vanguard Modular Building Systems
    (Vanguard)


(270,000
)Monarch


(135,214
)RAMSCO


(97,519
)Gemcor II, LLC (Gemcor)


(27,067
)APF Group, Inc. (APF)


(8,106
)Takeform, Inc. (Takeform)


(5,417
)Total of sales or investment
    repayments during the year ended December 31,
    2006

$
(3,102,893
)Total change in investment
    balance, at cost during the year ended December 31,
    2006

$
320,899             Results
    of Operations
  Investment
    Income
   15




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##### Table of Contents



Comparison
    of the years ended December 31, 2006 and 2005
  December 31,


December 31,2006


2005


Increase


% IncreaseInterest from portfolio companies

$
757,824


$
593,125


$
164,699



27.8
%Interest from other investments


53,104



3,601



49,503



1374.7
%Dividend and other investment
    income


432,296



94,930



337,366



355.4
%Other income


83,738



44,917



38,821



86.4
%Total investment income

$
1,326,962


$
736,573


$
590,389



80.2
%   Interest from portfolio companies 
    Interest


Investment


Year that InterestCompany

Rate


Cost


Accrual CeasedContract Staffing


5
%


141,400



2006G-Tec


8
%


400,000



2004WineIsIt.com


10
%


801,918



2005   Interest from other investments 
  Dividend and other investment income 
    Other income 
   16




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##### Table of Contents



Comparison
    of the years ended December 31, 2005 and 2004
  December 31,


December 31,


Increase


% Increase2005


2004


(Decrease)


(Decrease)Interest from portfolio companies

$
593,125


$
645,206


$
(52,081
)


(8.1
)%Interest from other investments


3,601



2,581



1,020



39.5
%Dividend and other investment
    income


94,930



64,823



30,107



46.4
%Other income


44,917



45,094



(177
)


(0.4
)%Total investment income

$
736,573


$
757,704


$
(21,131
)


(2.8
)%   Interest from portfolio companies 
    Interest from other investments 
  Dividend and other investment income 
    Other income 
  Operating
    Expenses
  Comparison
    of the years ended December 31, 2006 and 2005
  December 31,


December 31,2006


2005


Increase


% IncreaseTotal expenses

$
1,519,184


$
1,265,846


$
253,338



20.0
%    17




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##### Table of Contents



Comparison
    of the years ended December 31, 2005 and 2004
  December 31,


December 31,2005


2004


Increase


% IncreaseTotal expenses

$
1,265,846


$
900,812


$
365,034



40.5
%           Net
    Realized Gains and Losses on Investments
  Comparison
    of the years ended December 31, 2006 and 2005
  December 31,


December 31,2006


2005


Increase


% IncreaseNet Realized Gain (Loss)

$
3,456,441


$
(382,353
)

$
3,838,794



1,004.0
%     $3.26/share
   18




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##### Table of Contents



Comparison
    of the years ended December 31, 2005 and 2004
  December 31,


December 31,2005


2004


Decrease


% DecreaseNet Realized (Loss) Gain

$
(382,353
)

$
26,727


$
3,838,794



1,530.6
%       Net
    Change in Unrealized Appreciation/(Depreciation) of
    Investments
  For
    the years ended December 31, 2006 and 2005
  December 31,


December 31,2006


2005


Increase


% IncreaseNet Change in Unrealized
    Appreciation (Depreciation)

$
9,958,053


$
244,020


$
9,714,033



3,980.8
%     December 31, 2006Increase Innov-X valuation

$
7,761,700Increase Synacor valuation


2,809,849Increase Carolina Skiff valuation


189,000Vanguard Sale


135,000Decrease G-Tec valuation


(102,000
)Decrease USTec valuation


(164,000
)Remove Minrad unrealized
    appreciation


(199,578
)Decrease Wineisit valuation


(471,918
)Total Change in net Unrealized
    Appreciation during the year ended December 31,
    2006

$
9,958,053          19




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##### Table of Contents



For
    the years ended December 31, 2005 and 2004
  December 31,


December 31,2005


2004


Increase


% IncreaseNet Change in Unrealized
    Appreciation (Depreciation)

$
244,020


$
(206,737
)

$
450,737



218.0
%     December 31, 2005Reclass DLisi
    unrealized loss to realized loss

$
400,000Increase Topps valuation


332,000Increase Minrad valuation


272,000Increase Carolina Skiff valuation


38,000Decrease Kionix valuation


(284,477
)Decrease Wineisit valuation


(250,000
)Decrease Vanguard valuation


(135,000
)Decrease Ultra-Scan valuation


(73,174
)Decrease Somerset Gas valuation


(50,349
)Decrease Photonics valuation


(4,980
)Total Change in net Unrealized
    Appreciation during the year ended December 31,
    2005

$
244,020       $0.25/share.
     20




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##### Table of Contents



Net
    Increase (decrease) in Net Assets from Operations
      Liquidity
    and Capital Resources
             21




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##### Table of Contents



Cash Receipts due by year2011 and2007


2008


2009


2010


beyondScheduled Cash Receipts from
    Portfolio Companies

$
2,300,000


$
655,000


$
675,000


$
2,700,000


$
576,000     Disclosure
    of Contractual Obligations
    Payments due by periodLess than


1-3


4-5


MoreTotal


1 Year


Years


Years


than 5 yrsSBA Debentures

$
8,100,000


$
0


$
0


$
0


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

$
63,600


$
15,360


$
48,240


$
0


$
0Total

$
8,163,600


$
15,360


$
48,240


$
0


$
8,100,000   Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    over-the-counter
   22




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data                     23




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    December 31,
  2006


2005AssetsInvestments at fair value
    (identified cost: 2006  $14,033,789; 
    2005  $13,712,890)

$
23,649,814


$
13,370,862Cash and cash equivalents


4,299,852



1,209,839Interest receivable (net of
    allowance: 2006  $122,000; 
    2005  $236,870)


507,242



297,619Deferred tax asset






846,000Income tax receivable






15,582Other assets


1,007,036



323,703Total assets

$
29,463,944


$
16,063,605Liabilities and
    Stockholders Equity (net
    assets)Liabilities:Debentures guaranteed by the SBA

$
8,100,000


$
7,200,000Deferred tax liability


3,808,000



Income tax payable


410,575



Accounts payable and accrued
    expenses


317,359



167,788Deferred revenue


45,605



79,883Total liabilities


12,681,539



7,447,671Stockholders 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)


(6,253,128
)


(4,988,326
)Undistributed net realized gain on
    investments


9,763,366



6,306,925Net unrealized appreciation
    (depreciation) on investments


5,769,615



(205,217
)Treasury stock, at cost,
    44,100 shares


(47,206
)


(47,206
)Net assets (per share
    2006  $2.93, 2005  $1.51)


16,782,405



8,615,934Total liabilities and
    stockholders equity (net assets)

$
29,463,944


$
16,063,605    24




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS
 For The
    Years Ended December 31, 2006, 2005 and 2004
  2006


2005


2004Investment income:Interest from portfolio companies

$
757,824


$
593,125


$
645,206Interest from other investments


53,104



3,601



2,581Dividend and other investment
    income


432,296



94,930



64,823Other income


83,738



44,917



45,0941,326,962



736,573



757,704Operating expenses:Salaries


482,067



400,340



380,154Employee benefits


101,785



99,569



85,200Directors fees


59,500



54,200



45,100Professional fees


116,068



96,917



63,594Stockholders and office operating


108,687



115,386



116,032Insurance


43,674



46,017



46,062Corporate development


54,233



51,875



44,723Other operating


10,769



9,385



13,454976,783



873,689



794,319Interest on SBA obligations


472,526



277,287



107,407Bad debt expense (recovery)


69,875



114,870



(914
)Total expenses


1,519,184



1,265,846



900,812Investment (loss) before income
    taxes


(192,222
)


(529,273
)


(143,108
)Current income tax expense


401,801



23,514



24,316Deferred income tax expense
    (benefit)


670,779



(377,608
)


(55,040
)Net investment (loss)


(1,264,802
)


(175,179
)


(112,384
)Realized and unrealized gain
    (loss) on investments:Net realized gain (loss) on sales
    and dispositions


3,456,441



(382,353
)


26,727Unrealized appreciation
    (depreciation) on investments:Beginning of year


(342,028
)


(586,048
)


(379,737
)End of year


9,616,025



(342,028
)


(586,048
)Change in unrealized appreciation
    (depreciation) before income taxes


9,958,053



244,020



(206,737
)Deferred income tax expense
    (benefit)


3,983,221



97,608



(80,960
)Net increase (decrease) in
    unrealized appreciation


5,974,832



146,412



(125,777
)Net realized and unrealized
    gain (loss) on investments


9,431,273



(235,941
)


(99,050
)Net increase (decrease) in net
    assets from operations

$
8,166,471


$
(411,120
)

$
(211,434
)Weighted average shares outstanding


5,718,934



5,718,934



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

$
1.43


$
(0.07
)

$
(0.04
)    25




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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, 2006, 2005 and 2004
  2006


2005


2004Net assets at beginning of
    period

$
8,615,934


$
9,027,054


$
9,238,488Net investment (loss)


(1,264,802
)


(175,179
)


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


3,456,441



(382,353
)


26,727Net increase (decrease) in
    unrealized appreciation


5,974,832



146,412



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


8,166,471



(411,120
)


(211,434
)Net assets at end of
    period

$
16,782,405


$
8,615,934


$
9,027,054    26




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 For The
    Years Ended December 31, 2006, 2005 and 2004
  2006


2005


2004Cash flows from operating
    activities:Net increase (decrease) in net
    assets from operations

$
8,166,471


$
(411,120
)

$
(211,434
)Adjustments to reconcile net
    increase (decrease) in net assets to net cash used in operating
    activities:Depreciation and amortization


26,672



23,297



14,890Change in interest receivable
    allowance






114,870



(914
)(Increase) decrease in unrealized
    appreciation of investments


(9,958,053
)


(244,020
)


206,737Deferred tax expense (benefit)


4,654,000



(280,000
)


(136,000
)Net realized (gain) loss on
    portfolio investments


(3,456,441
)


382,353



(26,727
)Non-cash conversion of debenture
    interest


(34,356
)


(30,852
)


(138,319
)Changes in operating assets and
    liabilities:(Increase) decrease in interest
    receivable


(209,623
)


(151,999
)


75,158Decrease (increase) in other assets


42,440



(48,207
)


(29,504
)Increase in accounts payable and
    accrued liabilities


560,246



34,891



33,001(Decrease) increase in deferred
    revenue


(34,278
)


(3,275
)


36,405Total adjustments


(8,409,393
)


(202,942
)


34,727Net cash used in operating
    activities


(242,922
)


(614,062
)


(176,707
)Cash flows from investing
    activities:Investments originated


(3,383,769
)


(2,605,260
)


(4,464,000
)Proceeds from sale of portfolio
    investments


4,374,762



17,647



86,813Proceeds from loan repayments


1,473,322



181,271



572,824Capital expenditures


(12,255
)


(4,001
)


(6,232
)Net cash provided by (used in)
    investing activities


2,452,060



(2,410,343
)


(3,810,595
)Cash flows from financing
    activities:Proceeds from SBA debenture


900,000



3,700,000



3,500,000Origination costs to SBA


(19,125
)


(92,500
)


(87,500
)Purchase of SBA commitment










(50,000
)Net cash provided by financing
    activities


880,875



3,607,500



3,362,500Net increase (decrease) in cash
    and cash equivalents


3,090,013



583,095



(624,802
)Cash and cash
    equivalents:Beginning of year


1,209,839



626,744



1,251,546End of year

$
4,299,852


$
1,209,839


$
626,744    27




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2006
  (b)










PerDate

(c)





(d)


ShareCompany and Business

Type of Investment

Acquired

Equity


Cost


Value


of RandAdampluseve, LLC (g)New York, NY. Luxury
    sports wear company for men and women. www.adampluseve.com

$561,000 Senior Subordinated note
    at 10% due July 14, 2011. Warrants to purchase
    approximately 2.5% of Company.


7/14/06



3
%

$
566,667


$
566,667



.10APF Group, Inc. (e) (g) (h)Mount Vernon, NY.
    Manufacturer of museum quality picture frames and framed mirrors
    for museums, art galleries, retail frame shops, upscale
    designers and prominent collectors. www.apfgroup.com

$584,328 Consolidated Senior
    Subordinated note at 12.74% due June 30, 2011. Warrants to
    purchase 10.2941 shares of common stock.


7/8/04



6
%


586,488



586,488



.10Carolina Skiff LLC (e) (g)Waycross, GA.
    Manufacturer of fresh water, ocean fishing and pleasure boats.
    www.carolinaskiff.com

$985,000 Class A preferred
    membership interest at 11%. Redeemable January 31, 2010. 5%
    common membership interest.


1/30/04



5
%


1,000,000



1,227,000



.21Contract StaffingBuffalo, NY. PEO
    providing human resource administration for small businesses.
    www.contract-staffing.com

Preferred Stock Repurchase
    Agreement through March 31, 2010 at 5%.


11/8/99



10
%


141,400



141,400



.02EmergingMed.com, Inc. (g)New York, NY. Cancer
    clinical trial matching and referral service. www.emergingmed.com

$500,000 Senior subordinated note
    at 10% due December 19, 2010. Warrants to purchase 5% of
    the Company.


12/19/05



5
%


500,000



500,000



.09Gemcor II, LLC (e) (g)
    (h)West Seneca, NY.
    Designs and sells automatic riveting machines used in the
    assembly of aircraft components. 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
%


722,933



722,933



.13G-TEC Natural Gas SystemsBuffalo, NY.
    Manufactures and distributes systems that allow natural gas to
    be used as an alternative fuel to gases. www.gas-tec.com

33.057% Class A membership
    interest. 8% cumulative dividend.


8/31/99



33
%


400,000



198,000



.03Innov-X Systems, Inc. (e) (g)Woburn, MA.
    Manufactures portable x-ray fluorescence (XRF) analyzers used in
    metals/alloy analysis. www.innovxsys.com

2,642 Series A Convertible
    Preferred stock. Warrants for 21,596 common shares.


9/27/04



9
%


1,000,000



8,761,700



1.53 28




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2006  (Continued)
  (b)










PerDate

(c)





(d)


ShareCompany and Business

Type of Investment

Acquired

Equity


Cost


Value


of RandKionix, Inc.Ithaca, NY. Develops
    innovative MEMS based technology applications. 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
%


1,506,044



1,221,567



.21New Monarch Machine Tool, Inc.
    (e) (g) (h)Cortland, NY.
    Manufactures and services vertical/horizontal machining centers.
    www.monarchmt.com

$527,876.85 note at 12% due
    January 13, 2009. $300,000 note at 12% due January 13,
    2009. Warrants for 22.84 shares of common stock.


9/24/03



11
%


692,662



692,662



.12Niagara Dispensing Technologies,
    Inc. (g)Tonawanda, NY. Beverage
    dispense technology development and products manufacturer,
    specializing in beer dispensing systems. www.exactpour.com

$500,000 Senior Subordinated note
    at 8% due March 7, 2011. Adjustable warrant for 4% of common
    stock.


3/8/06



4
%


500,000



500,000



.09Photonic Products Group, Inc
    (OTC:PHPG.OB) (a) (i)(Formerly INRAD, Inc.)
    Northvale, NJ. Develops and manufactures products for laser
    photonics industry. www.inrad.com

100 shares convertible Series B
    preferred stock, 10% dividend. 22,000 shares common stock.


10/31/00



<1
%


155,000



133,220



.02RAMSCO (e) (g) (h)Albany, NY. Distributor
    of water, sanitary, storm sewer and specialty construction
    materials to the contractor, highway and municipal construction
    markets. www.ramsco.com

$916,947.23 notes at 13% due
    November 18, 2007.  Warrants to purchase 12.5% of common shares.


11/19/02



13
%


819,428



819,428



.14Rocket Broadband Networks, Inc.
    (g)Rochester, NY.
    Communications service provider of satellite TV, broadband
    internet and VoIP digital phone targeting multiple dwelling
    units. www.rocketbroadband.com

533,827 Series A Preferred shares.


12/20/05



8
%


400,000



400,000



.07Somerset Gas Transmission
    Company, LLCColumbus, OH. Natural
    gas transportation company. www.somersetgas.com

26.5337 Units.


7/10/02



2
%


719,097



786,748



.14 29




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2006  (Continued)
  (b)










PerDate

(c)





(d)


ShareCompany and Business

Type of Investment

Acquired

Equity


Cost


Value


of RandSynacor Inc. (e) (g)Buffalo, NY. Develops
    provisioning platforms for aggregation and delivery of content
    for broadband access providers. www.synacor.com

200,000 shares of Series B
    preferred stock.  78,186 Series A preferred shares.  80,126
    Series C preferred shares.  Warrants for 299,146 common shares.


11/18/02



4
%


999,478



3,818,000



.67Topps Meat Company LLC (e)
    (g)Elizabeth, NJ. Producer
    and supplier of premium branded frozen hamburgers and portion
    controlled meat products. www.toppsmeat.com

Preferred A and Class A common
    membership interest.


4/3/03



3
%


595,000



927,000



.16Ultra  Scan
    CorporationAmherst, NY. Biometrics
    application developer of ultrasonic fingerprint technology. 
    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



.21UStec, Inc.Victor, NY. Markets
    digital wiring systems for new home construction.
    www.ustecnet.com

$100,000 note at 5% due February 1,
    2007 (e).  50,000 common shares.  Warrants for 139,395 common
    shares.
    (g) $350,000 Senior Subordinated Convertible Debentures at 6%
    due February 2, 2008.


6/26/98



<1
%


450,500



311,000



.06WineIsIt.com, Corp.
    (e)Amherst, NY. Marketing company specializing in customer loyalty
    programs supporting the wine and spirit industry.
    www.wineisit.com

$20,000 note at 12% due April 26,
    2007.
    (g) $500,000 Senior Subordinated note at 10% due December 17,
    2009.  $250,000 note at 10% due April 16, 2005. Warrants to
    purchase 100,000 shares Class B common stock.


12/18/02



2
%


821,918



100,000



.02Other Investments

Other


Various







519,010



33,001



.02Total portfolio investments









$
14,033,789


$
23,649,814


$
4.14  30




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2006  (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, 2006 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 or the potential percentage
    of voting securities held by the Corporation upon exercise of
    its warrants or conversion of debentures, or other available
    data. Freed Maxick & Battaglia, CPAs, PC has not
    audited the equity percentages of the portfolio companies. The
    symbol <1% indicates that the Corporation holds
    an equity interest of less than one percent.  (d)
    The Corporation has adopted the SBAs valuation guidelines
    for SBICs, which describe the policies and procedures used
    in valuing investments. These valuation guidelines are similar
    to the accounting principals generally accepted in the United
    States of America. 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 that 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.  (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, 2006,
    the aggregate cost of investment securities approximated
    $14.0 million. Net unrealized appreciation aggregated
    approximately $9.6 million of which $11.5 million
    related to appreciated investment securities and
    $1.9 million related to depreciated investment securities.  (g)
    Rand Capital SBIC, L.P. investment.(h)
    Reduction in cost and value reflects current principal repayment.  (i)
    Publicly owned company. 31




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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, 2006, 2005, 2004,
    2003 and 2002
    Year Ended December 31,2006


2005


2004


2003


2002Income from investment
    operations(1):Investment income

$
0.23


$
0.13


$
0.13


$
0.08


$
0.05Expenses


0.26



0.22



0.16



0.16



0.15Investment (loss) before income
    taxes


(0.03
)


(0.09
)


(0.03
)


(0.08
)


(0.10
)Income tax expense (benefit)


0.19



(0.06
)


(0.01
)


(0.03
)


0.03Net investment (loss)


(0.22
)


(0.03
)


(0.02
)


(0.05
)


(0.13
)Net realized and unrealized gain
    (loss) on investments


1.65



(0.04
)


(0.02
)


0.00



0.05Increase (decrease) in net asset
    value


1.43



(0.07
)


(0.04
)


(0.05
)


(.08
)Net asset value, beginning of year


1.51



1.58



1.62



1.67



1.75Net asset value, end of year

$
2.93


$
1.51


$
1.58


$
1.62


$
1.67Per share market value, end of year

$
3.50


$
1.34


$
1.56


$
1.45


$
1.03Total return based on market value


161.2
%


(14.1
)%


7.6
%


40.8
%


(18.9
)%Total return based on net asset
    value


94.0
%


(4.6
)%


(2.5
)%


(3.0
)%


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


11.96
%


14.35
%


9.86
%


10.01
%


8.73
%Ratio of expenses including taxes
    to average net assets


20.41
%


10.34
%


9.53
%


8.45
%


10.16
%Ratio of net investment loss to
    average net assets


(9.96
)%


(1.99
)%


(1.23
)%


(3.67
)%


(7.51
)%Portfolio turnover


18.1
%


21.6
%


50.4
%


24.3
%


65.4
%Net assets end of year

$
16,782,405


$
8,615,934


$
9,027,054


$
9,238,488


$
9,604,634Weighted average shares
    outstanding at end of year


5,718,934



5,718,934



5,718,934



5,722,776



5,759,260     (1)
    
    Per share data are based on weighted average shares outstanding
    and results are rounded. 32




---



##### 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
  Investments
      Cash and Cash Equivalents
  Revenue Recognition  Interest
    Income
   33




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Original Issue Discount
  Deferred Debenture Costs
  Deferred Revenue
  Net Assets Per Share
  Supplemental Cash Flow Information
  Concentration of Credit and Market
    Risk
    Accounting Estimates
  Recent Accounting Pronouncements - Accounting for Uncertainty in Income Taxes.
 34




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q Form 10-Q.
  Fair Value Measurements.
  Considering the Effects of
    Prior Year Misstatements When Quantifying Misstatements in
    Current Year Financial Statements.
  Note 2. 
    Other Assets
    2006


2005Escrow receivable from Innov-X

$
711,249



Deferred debenture costs


247,410



254,876Dividend receivables


19,254



58,494Operating receivables


16,228



3,846Property, plant and equipment (net)


12,895



6,487Total other assets

$
1,007,036


$
323,703     Note 3. 
    Income Taxes
   35




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005Operations

$
(125,000
)

$
54,000Investments


(3,846,000
)


137,000Tax credit carryforwards


163,000



Net operating loss carryforwards






655,000Deferred tax (liability) asset, net

$
(3,808,000
)

$
846,000       2006


2005


2004Current:Federal

$
398,154


$



$
State


3,647



23,514



24,316401,801



23,514



24,316Deferred:Federal


3,956,000



(112,000
)


(85,000
)State


698,000



(168,000
)


(51,000
)4,654,000



(280,000
)


(136,000
)Total

$
5,055,801


$
(256,486
)

$
(111,684
)     2006


2005


2004Net investment gain (loss) and
    realized gain (loss) before income tax expense (benefit)

$
13,222,272


$
(667,606
)

$
(323,118
)Expected tax expense (benefit) at
    statutory rate

$
4,495,572


$
(226,986
)

$
(109,860
)State  net of federal
    effect


793,336



(40,057
)


(19,387
)Tax credits and other


(233,107
)


(4,443
)


17,563Total

$
5,055,801


$
(271,486
)

$
(111,684
)    36




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4. 
    SBA Debenture Obligations
    Note 5. 
    Stockholders Equity (Net Assets)
        Accumulated


Undistributed


Net unrealizedNet


Net Realized


AppreciationInvestment


Gain (Loss) on


(Depreciation)Loss


Investments


on InvestmentsBalance, December 31,
    2004

$
(4,813,146
)

$
6,689,278


$
(351,629
)Net (decrease) increase in net
    assets from operations


(175,180
)


(382,353
)


146,412Balance, December 31,
    2005

$
(4,988,326
)

$
6,306,925


$
(205,217
)Net (decrease) increase in net
    assets from operations


(1,264,802
)


3,456,441



5,974,832Balance, December 31,
    2006

$
(6,253,128
)

$
9,763,366


$
5,769,615   Note 6. 
    Stock Option Plans
    Note 7. 
    Employee Benefit Plans
     37




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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


Quarter2006Investment income

$
506,419


$
406,127


$
213,171


$
201,245Net increase in net assets from
    operations


7,653,329



81,037



238,475



193,630Basic and diluted net increase in
    net assets from operations per share


1.34



0.01



0.04



0.042005Investment income

$
229,858


$
171,004


$
178,059


$
157,653Net (decrease) increase in net
    assets from operations


(301,949
)


(41,711
)


(173,607
)


106,147Basic and diluted net (decrease)
    increase in net assets from operations per share


(0.05
)


(0.01
)


(0.03
)


0.02   Note 11. 
    Allowance for Doubtful Accounts
    2006


2005


2004Balance at beginning of year

$
(236,870
)

$
(122,000
)

$
(122,914
)Provision for losses






(114,870
)


(122,000
)Recoveries/Sales


114,870







122,914Balance at end of year

$
(122,000
)

$
(236,870
)

$
(122,000
)  38




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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, 2006
  Cost


RealizedIncrease


Gain(Decrease)


(Loss)New and additions to previous
    investmentsInnov-X

$
1,000,000Adam+Eve


561,000Synacor


507,999Niagara Dispensing


500,000New Monarch


300,000Kionix


243,704Rocket Broadband


195,918Innov-X


55,148Synacor


21,479Wineisit


20,000Photonics


10,000Adam+Eve


5,667New Monarch


2,8773,423,792Investments
    sold/liquidatedMinrad stock sales


(919,422
)

$
1,256,759Concentrix payback


(600,000
)Innovex debt repayment


(600,000
)Synacor repayment


(350,000
)Vanguard sale


(270,000
)


(81,000
)New Monarch repayment


(135,214
)Ramsco repayment


(97,519
)Innov-X sold shares


(90,148
)


2,280,682Gemcor repayment


(27,067
)APF repayment


(8,106
)Takeform, Inc. repayment


(5,417
)(3,102,893
)


3,456,441Net change in investments at
    Cost and Realized gain

$
320,899


$
3,456,441  39




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
               
    40




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures. Rules 13a-15(e) 15d-15(e) Form 10-K.
  Changes in Internal Control Over Financial
    Reporting.
  Item 9B.
    Other
    Information   Part III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance      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   41




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##### Table of Contents



Item 14.
    Principal
    Accounting Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules                            Rule 12b-32
  (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. 42




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##### Table of Contents



(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.(10.8)
    Profit Sharing Plan  incorporated by reference to
    Exhibit 10.8 to the Corporations
    Form 10-K
    filed for the year ended December 31, 2002.*  (21)
    Subsidiaries of the Corporation  filed on the
    Corporations
    Form 10-K
    filed December 31, 2001.  (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(32.2)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital SBIC, L.P. 
    filed herewith  *
    
    Management contract or compensatory plan. 43




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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 22, 2007(ii) Principal
    Accounting & Financial Officer:/s/  Daniel
    P.
    PenberthyDaniel
    P. Penberthy

Treasurer

March 22, 2007(iii) Directors:/s/  Allen
    F. GrumAllen
    F. Grum

Director

March 22, 2007/s/  Erland
    E.
    KailbourneErland
    E. Kailbourne

Director

March 22, 2007/s/  Ross
    B. KenzieRoss
    B. Kenzie

Director

March 22, 2007/s/  Willis
    S. McLeeseWillis
    S. McLeese

Director

March 22, 2007/s/  Reginald
    B. Newman
    IIReginald
    B. Newman II

Director

March 22, 2007/s/  Jayne
    K. RandJayne
    K. Rand

Director

March 22, 2007/s/  Robert
    M. ZakRobert
    M. Zak

Director

March 22, 2007  44