UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM
10-K



[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For
the fiscal year ended December 31, 2019



[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For
the Transition Period from _____ to _______



Commission
File Number: 814-00235



Rand
Capital Corporation

(Exact
name of registrant as specified in its charter)



|New
    York                                                   |  | 16-0961359                                                                                                    
|-------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|(State
or Other Jurisdiction
of Incorporation or organization) |  | (IRS Employer
                                                                             Identification No.)
|                                                               |  |                                                                                                               
|2200
    Rand Building, Buffalo, NY                            |  | 14203                                                                                                         
|(Address
    of Principal executive offices)                   |  | (Zip
    Code)                                                                                                



Registrant’s
telephone number, including area code: (716) 853-0802



Securities
registered pursuant to Section 12(b) of the Act:



|Title
    of each class           |  | Trading
    Symbol(s) |  | Name
    of each exchange on which registered
|--------------------------------- |  | --------------------- |  | ---------------------------------------------
|Common
    Stock, $0.10 par value |  | RAND                  |  | Nasdaq
    Capital Market                    



Securities
registered pursuant to Section 12(g) of the Act: None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act. Yes [  ]
No [X]



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ]
No [X]



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes [  ] No [  ]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large
    accelerated filer [  ] | Accelerated
    filer [  ]        
|-------------------------------- | ----------------------------------
|Non-accelerated
    filer [X]    | Smaller
    reporting company [  ]
|                                 | Emerging
    growth company [  ]  



If
an emerging growth company, indicated by check mark if the registrant has elected not to use extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [  ]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]



The
aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant as of June
30, 2019 was approximately $14,961,000 based upon the closing price as reported on the Nasdaq Capital Market on such date.



As
of March 5, 2020, there were 14,655,321 shares of the registrant’s common stock outstanding.



DOCUMENTS
INCORPORATED BY REFERENCE



Portions
of the Corporation’s definitive proxy statement for the 2020 Annual Meeting of Shareholders are incorporated by reference
into Part III of this report.


















RAND
CAPITAL CORPORATION

TABLE
OF CONTENTS FOR FORM 10-K



|PART I      
|------------
|            
|Item
    1. 
|            
|Item
    1A.
|            
|Item
    1B.
|            
|Item
    2. 
|            
|Item
    3. 
|            
|Item
    4. 
|            
|PART II     
|            
|Item
    5. 
|            
|Item
    6. 
|            
|Item
    7. 
|            
|Item
    7A.
|            
|Item
    8. 
|            
|Item
    9. 
|            
|Item
    9A.
|            
|Item
    9B.
|            
|PART III    
|            
|Item
    10.
|            
|Item
    11.
|            
|Item
    12.
|            
|Item
    13.
|            
|Item
    14.
|            
|PART IV     
|            
|Item
    15.
|            
|Item
    16 











PART
I



Item
1. Business



Rand
Capital Corporation (“Rand”, “we”, “us” and “our”) was incorporated under the
laws of New York in February 1969. We completed our initial public offering in 1971 and operated as an internally managed, closed-end,
diversified, management investment company from that time until November 2019.



On
November 8, 2019, Rand completed a stock sale transaction (the “Closing”) with East Asset Management (“East”).
The transaction consisted of a $25 million investment in Rand by East, in exchange for approximately 8.3 million shares of Rand
common stock. The consideration paid by East for the shares of Rand common stock was comprised of approximately $15.5 million
of cash and a contribution of $9.5 million of portfolio assets (the “Contributed Assets”). Concurrent with the Closing,
Rand’s management and staff became employees of Rand Capital Management, LLC (“RCM”), a registered investment
adviser that has been retained by Rand as its external investment adviser. In connection with retaining RCM as our investment
adviser, Rand entered into an investment advisory and management agreement (the “Investment Management Agreement”)
and an administration agreement (the “Administration Agreement”) with RCM pursuant to which RCM will serve as Rand’s
investment adviser and administrator (the Closing and the retention of RCM as our investment adviser and administrator are collectively
referred to herein as the “Transactions”). Pursuant to the terms of the Investment Management Agreement, Rand will
pay RCM a base management fee and may pay an incentive fee.



In
connection with the Closing, we also entered into a shareholder agreement, dated November 8, 2019 by and between Rand and East
(the “Shareholder Agreement”). Pursuant to the terms of the Shareholder Agreement, East has the right to designate
two or three persons, depending upon the size of Rand’s Board of Directors (the “Board”), for nomination for
election to the Board. East will have the right to designate (i) up to two persons if the size of the Board is composed of fewer
than seven directors or (ii) up to three persons if the size of the Board is composed of seven or more directors. East’s
right to designate persons for nomination for election to the Board under the Shareholder Agreement is the exclusive means by
which East may designate or nominate persons for election to the Board. Given the Board currently consists of five directors,
East has the right to designate up to two persons for nomination for election to the Board. In connection with the annual meeting
of shareholders held in December 2019, Adam S. Gusky and Benjamin E. Godley were each designated for nomination for election to
the Board by East pursuant to the terms of the Shareholder Agreement.



After
the completion of the Transactions, we are an externally managed, closed-end, diversified management investment company that has
elected to be treated as a business development company, or “BDC”, under the Investment Company Act of 1940, or the
“1940 Act.” As a BDC we are required to comply with certain regulatory requirements as provided for in the 1940 Act
and the rules and regulations promulgated thereunder. For instance, we generally have to invest at least 70% of our total assets
in “qualifying assets” and provide managerial assistance to the portfolio companies in which we invest. See “Item
1. Business - Regulations, Business Development Company Regulations.”



In
2002, we established our small business investment company (“SBIC”), Rand Capital SBIC, Inc. (“Rand SBIC”),
whereby we utilized funds borrowed from the Small Business Administration (“SBA”) combined with our capital to invest
in portfolio companies. In this Annual Report on Form 10-K, (“Annual Report”), unless the context otherwise requires,
“we”, the “Corporation”, “us”, and “our” refer to Rand Capital Corporation and
Rand SBIC. Rand SBIC’s predecessor was organized as a Delaware limited partnership and was converted into a New York corporation
in 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC had operated as if it were a BDC,
it was registered as an investment company under the 1940 Act. In 2012, the Securities and Exchange Commission (“SEC”)
granted an Order of Exemption for Rand with respect to the operations of Rand SBIC and Rand SBIC then filed an election to be
regulated as a BDC under the 1940 Act. Rand SBIC’s board of directors is comprised of the directors of Rand, a majority
of whom are not “interested persons” of Rand Capital Corporation or Rand SBIC.



1







With
the completion of the Transactions, we changed our investment objectives and strategy. With our plan to elect U.S. federal tax
treatment as a regulated investment company (“RIC”), our new investment objective is to maximize total return to our
shareholders with current income combined with capital appreciation. As a result, our future investments will be made primarily
in higher yielding debt investments that may include related equity options, such as warrants or preferred equity. As required
for the RIC election, we will pay a special dividend to shareholders to distribute all accumulated earnings and profits, and we
intend to adopt a dividend policy that may provide regular cash dividends to shareholders. On March 3, 2020, the Board of Directors
of the Corporation declared a special dividend of $1.62 per share of Common Stock, paid in a combination of cash and shares of
Common Stock to shareholders of record at the close of business on April 2, 2020. The total amount of cash to be distributed to
all shareholders will be limited to 20% of the total dividend to be paid, excluding any cash paid for fractional shares. The remaining
80% of the dividend will be paid in shares of Common Stock. The exact distribution of cash and stock to any given shareholder
will depend upon their election as well as elections of other shareholders, subject to the pro-rata limitation. We expect to complete
the distribution of the special dividend on or about May 11, 2020.



Our
corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available on our website, free
of charge, our annual and periodic reports, proxy statements and other information as soon as reasonably practicable after such
material is filed with the SEC. Our shares are traded on the Nasdaq Capital Market under the ticker symbol “RAND.”



Our
Investment Objectives and Strategy



Effective
with the completion of the Transactions, our investment activities are managed by our external investment adviser, RCM. Concurrent
with the externalization of the management of our investments to RCM, we changed our investment objectives and strategy. Previously,
our principal investment objective was to achieve long-term capital appreciation on equity investments while maintaining a current
cash flow from our debenture and pass-through equity instruments to fund expenses. With our plan to elect U.S. federal tax treatment
as a RIC, our new investment objective is to maximize total return to our shareholders with current income combined with capital
appreciation. As a result, our recent and future investments are expected to be made primarily in yield generating investments
which may include related equity options, such as warrants or preferred equity.



We
expect to continue to co-invest in privately-held, lower middle market companies with committed and experienced managements in
a broad variety of industries. We seek to invest in early to later stage businesses that have sustainable, differentiated and
market-accepted products and have revenue of more than $2 million and a clear path to free cash flow or are already generating
up to $5 million in EBITDA. We provide funding to companies that need growth or expansion capital or are looking to finance an
ownership transition. Geographically, we focus in the eastern and southern United States. We typically are a minority investor
and work with other lenders, investment partners and sponsors to source and fund investment opportunities.



Our
typical investment going forward is expected to be in the range of $500 thousand to $2.5 million in any one company. The debt
we invest in is not expected to be rated by a rating agency and, if it were, would be below investment grade. We intend to target
investments that mature in five to seven years. Because of the higher risk nature of our investments, we require board observation
or informational rights and may require a board seat.



2







We
may engage in various investment strategies to achieve our investment objectives based on the types of opportunities we discover
and the competitive landscape. We expect to focus on current cash yields in order to achieve our income producing goals.



Our
Investment Process



The
investment process is comprised of the sourcing and qualifying of investment opportunities, evaluating and negotiating the investment
vehicle, due diligence of the business plan, operations and prospects of the prospective investee and follow through investment
monitoring, follow on investments and portfolio management.



RCM’s
investment team identifies investment opportunities through a network of investment referral relationships. Investment proposals
may come to us from other sources, including unsolicited proposals from companies and referrals from accountants, bankers, lawyers
and other members of the financial community. We believe that RCM’s and our reputation and experience in the investment
community provide a competitive advantage in originating quality investments.



In
a typical private financing, RCM’s investment team will review, analyze, and confirm, through due diligence, the business
plan and operations of the potential portfolio company. Additionally, they will familiarize themselves with the portfolio company’s
industry and competition and may conduct reference checks with its customers and suppliers. RCM’s investment committee will
then review the deal and if approved, the transaction will be funded by Rand.



Following
our initial investment, we may make follow-on investments to take advantage of warrants or other preferential rights granted to
us to increase or maintain our position in a promising portfolio company, or provide additional funds to allow a portfolio company
to fully implement its business plans, develop a new line of business or recover from unexpected business problems. Follow-on
investments in a portfolio company are evaluated individually and may be subject to SBA restrictions.



Disposition
of Investments



We
may exit investments through the maturation of a debt security or when a liquidity event takes place, such as the sale, recapitalization,
or initial public offering of a portfolio company. The method and timing of the disposition of our portfolio investments can be
critical to the realization of maximum total return. We generally expect to dispose of our equity securities through private sales
of securities to other investors or through the sale or merger of the portfolio company. We anticipate our debt investments will
be repaid with interest and may realize further appreciation from warrants or other equity type instruments received in connection
with an investment.



Current
Portfolio Companies



For
a description of our current portfolio company investments, see “Item 7. Management’s Discussion and Analysis of Financial
Conditions and Results of Operations – Composition of the Investment Portfolio.”



Competition



We
compete for quality investments with other venture capital firms, individual investors, business development companies, and investment
funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial
banks. We believe we are able to compete with these entities primarily on the basis of RCM’s and our referral network, RCM’s
and our investing reputation and experience, RCM’s responsive, quick and efficient investment analysis and decision-making
process, the investment terms we offer, and our willingness to make smaller investments.



3







For
information concerning the competitive risks we face, see “Item 1A. Risk Factors.”



Employees



We
do not have any employees. Our operations are managed by RCM, our investment adviser and administrator, and each of our officers
is an employee of RCM. As of March 5, 2020, our investment adviser, RCM, employed a total of four employees. We reimburse our
administrator, RCM, for the allocable portion of overhead and other expenses incurred by it in performing its obligations under
the Administration Agreement. For a more detailed discussion of the administration agreement with RCM, see “Administration
Agreement.”



Investment
Advisory and Management Agreement



RCM
serves as our investment advisor (the “Adviser”) under the terms of the Investment Management Agreement. The Adviser
is a registered investment adviser under the Investment Advisers Act of 1940, as amended, and is owned by East and CB Advisor
LLC (an entity owned by Brian Collins). The Adviser manages the investment and reinvestment of our assets and, without limiting
the generality of the foregoing:



| | (i)   | determines
    the composition of the portfolio, the nature and timing of the changes therein and the manner of implementing such changes;                  
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | identifies,
    evaluates and negotiates the structure of the investments;                                                                                  
| | (iii) | executes,
    closes, services and monitors the investments;                                                                                                
| | (iv)  | determines
    the securities and other assets that we will purchase, retain or sell;                                                                       
| | (v)   | performs
    due diligence on prospective portfolio companies and investments; and                                                                          
| | (vi)  | provides
    us with other investment advisory, research and related services that may, from time to time, be required for the investment
    of our assets.
| | (vii) | valuation
    of portfolio investments                                                                                                                      



The
Adviser’s services under the Investment Management Agreement are not exclusive, and it may furnish similar services to other
entities. In addition, subject to compliance with the requirements of the 1940 Act, the Adviser is authorized to enter into one
or more sub-advisory agreements with other investment advisors (each a “Sub-Advisor”), including for purposes of recommending
specific securities or other investments based upon our investment objectives and policies, and working, along with the Adviser,
in structuring, negotiating, arranging or effecting the acquisition or disposition of our investments and monitoring our investments.
Under the terms of the Investment Management Agreement, the Adviser, and not us, will be responsible for any compensation that
is payable to any sub-adviser.



About
the Investment Process of the Adviser



The
Adviser’s principal investment portfolio managers are Allen F. Grum and Daniel P. Penberthy, who manage the Corporation’s
investment portfolio on a day-to-day basis. All decisions to acquire or dispose of assets on behalf of the Corporation are made
by the Adviser’s investment committee (the “Investment Committee”). Each such decision must be approved by a
majority of Investment Committee members.



The
Investment Committee is composed five individuals, including three individuals designated by East. The Investment Committee currently
consists of the following individuals:



| | ● | Brian
    Collins, an East designee;
| | - | ------------------------------------
| | ● | Allen
    F. Grum;                  



4









| | ● | Adam
    Gusky, an East designee;        
| | - | -----------------------------------------
| | ● | Scott
    Barfield, an East designee; and
| | ● | Daniel
    P. Penberthy.                 



All
potential investment opportunities undergo an initial informal review by Messrs. Grum and Penberthy, as the Adviser’s investment
professionals. Each potential investment opportunity that an investment professional determines merits consideration is presented
and evaluated at meetings in which the members of the Investment Committee discuss the merits and risks of each potential investment
opportunity and the pricing and structure for the investment.



Fees
Paid to Adviser



Under
the Investment Management Agreement, we will pay the Adviser, as compensation for the investment advisory and management services,
fees consisting of two components: (i) the Base Management Fee and (ii) the Incentive Fee.



Base
Management Fee



The
“Base Management Fee” is calculated at an annual rate of 1.50% of our total assets (other than cash or cash equivalents
but including assets purchased with borrowed funds), determined according to procedures duly adopted by the Board.



For
services rendered during the period commencing from the effective date of the Investment Management Agreement, through and including
the end of our first calendar quarter of operations after this effective date, the Base Management Fee is payable monthly in arrears.
In addition, until our first calendar quarter of operations after the effective date of the Investment Management Agreement, the
Base Management Fee is calculated based on the initial value of our total assets (other than cash or cash equivalents but including
assets purchased with borrowed funds) after giving effect to the contribution of investment assets by East as part of the consideration
paid to Rand in the stock sale transaction that closed in November 2019. Subsequently, the Base Management Fee is calculated based
on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds)
at the end of the two most recently completed calendar quarters. Base Management Fees for any partial month or quarter will be
appropriately prorated.



Incentive
Fee



The
“Incentive Fee” is comprised of two parts: (1) the Income Based Fee and (2) the Capital Gains Fee.



Income
Based Fee



The
“Income Based Fee” is calculated and payable quarterly in arrears based on the Pre-Incentive Fee Net Investment Income
for the immediately preceding calendar quarter and is payable promptly following the filing of our financial statements for such
quarter.



For
purposes of the Investment Management Agreement, “Pre-Incentive Fee Net Investment Income” is defined as interest
income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance),
such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies)
we accrue during the relevant calendar quarter, minus the operating expenses for such calendar quarter (including the Base Management
Fee, expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding
preferred stock, but excluding any portion of Incentive Fee).



5







Pre-Incentive
Fee Net Investment Income includes any accretion of original issue discount, market discount, payment-in-kind interest, payment-in-kind
dividends or other types of deferred or accrued income, including in connection with zero coupon securities, that we have recognized
in accordance with United States generally accepted accounting principles,(“GAAP”), but have not yet received in cash
(collectively, “Accrued Unpaid Income”). Pre-Incentive Fee Net Investment Income does not include any realized capital
gains, realized and unrealized capital losses or unrealized capital appreciation or depreciation.



Pre-Incentive
Fee Net Investment Income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness)
at the end of the immediately preceding calendar quarter, is compared to a “hurdle rate”, expressed as a rate of return
on the value of the our net assets at the end of the most recently completed calendar quarter, of 1.75% per quarter (7% annualized).
We pay the Adviser an Incentive Fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows:



| | (i)   | no
    Income Based Fee in any quarter in which the Pre-Incentive Fee Net Investment Income for such quarter does not exceed the
    hurdle rate of 1.75% (7.00% annualized);                                                                                                                                    
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | 100%
    of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the Pre-Incentive
    Fee Net Investment Income for such calendar quarter, if any, that exceeds the hurdle rate of 1.75% (7.00% annualized) but
    is less than 2.1875% (8.75% annualized); and
| | (iii) | 20%
    of the amount of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the
    Pre-Incentive Fee Net Investment Income for such calendar quarter, if any, that exceeds 2.1875% (8.75% annualized).                                                        



However,
the Income Based Fee paid to the Adviser for any calendar quarter that begins more than two years and three months after the effective
date of the Investment Management Agreement shall not be in excess of the Incentive Fee Cap. The “Incentive Fee Cap”
for any quarter is an amount equal to (1) 20.0% of the Cumulative Net Return (as defined below) during the relevant Income Based
Fee Calculation Period (as defined below) minus (2) the aggregate Income Based Fee that was paid in respect of the calendar quarters
included in the relevant Income Based Fee Calculation Period.



For
purposes of the calculation of the Income Based Fee, “Income Based Fee Calculation Period” is defined as, with reference
to a calendar quarter, the period of time consisting of such calendar quarter and the additional quarters that comprise the lesser
of (1) the number of quarters immediately preceding such calendar quarter that began more than two years after the effective date
of the Investment Management Agreement or (2) the eleven calendar quarters immediately preceding such calendar quarter.



For
purposes of the calculation of the Income Based Fee, “Cumulative Net Return” is defined as (1) the aggregate net investment
income in respect of the relevant Income Based Fee Calculation Period minus (2) any Net Capital Loss, if any, in respect of the
relevant Income Based Fee Calculation Period. If, in any quarter, the Incentive Fee Cap is zero or a negative value, we will pay
no Income Based Fee to the Adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive
value but is less than the Income Based Fee that is payable to the Adviser for such quarter (before giving effect to the Incentive
Fee Cap) calculated as described above, we will pay an Income Based Fee to the Adviser equal to the Incentive Fee Cap for such
quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Income Based Fee that is payable
to the Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, we will pay an
Income Based Fee to the Adviser equal to the Income Based Fee calculated as described above for such quarter without regard to
the Incentive Fee Cap.



For
purposes of the calculation of the Income Based Fee, “Net Capital Loss,” in respect of a particular period, means
the difference, if positive, between (1) aggregate capital losses, whether realized or unrealized, in such period and (2) aggregate
capital gains, whether realized or unrealized, in such period.



6







Any
Income Based Fee otherwise payable under the Investment Management Agreement with respect to Accrued Unpaid Income (such fees
being the “Accrued Unpaid Income Based Fees”) shall be deferred, on a security by security basis, and shall become
payable to the Adviser only if, as, when and to the extent cash is received by us in respect of any Accrued Unpaid Income. Any
Accrued Unpaid Income that is subsequently reversed by us in connection with a write-down, write-off, impairment or similar treatment
of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (1) reduce Pre-Incentive
Fee Net Investment Income and (2) reduce the amount of Accrued Unpaid Income Based Fees. Subsequent payments of Accrued Unpaid
Income Based Fees deferred pursuant to this paragraph shall not reduce the amounts otherwise payable for any quarter as an Income
Based Fee.



Capital
Gains Fee



The
“Capital Gains Fee” is determined and payable in arrears as of the end of each calendar year (or upon termination
of the Investment Management Agreement), commencing with the calendar year ended December 31, 2019. Under the terms of the Investment
Management Agreement, the Capital Gains Fee is calculated at the end of each applicable year by subtracting (1) the sum of the
our cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (2) our cumulative aggregate
realized capital gains, in each case calculated from the effective date of the Investment Management Agreement. If this amount
is positive at the end of any calendar year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the
cumulative aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital
Gains Fee payable for that calendar year. If the Investment Management Agreement is terminated as of a date that is not a calendar
year end, the termination date shall be treated as though it were a calendar year end for purposes of calculating and paying the
Capital Gains Fee.



For
purposes of the Capital Gains Fee:



| | ● | The
    cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a)
    the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                           
| | ● | The
    cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price
    of each investment in our portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.                                                
| |   |                                                                                                                                                                                                                                                                                                           
| | ● | The
    aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the
    valuation of each investment in our portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted
    or amortized cost basis of such investment.



The
accreted or amortized cost basis of an investment shall mean, with respect to an investment owned by us as of the effective date
of the Investment Management Agreement, the fair value of that investment as set forth in our Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2019, as filed with the SEC on November 7, 2019, and, with respect to an investment acquired
by us subsequent to the effective date of the Investment Management Agreement, the accreted or amortized cost basis of such investment
as reflected in the our financial statements.



7







Example
1: Income Based Fee Calculations:*



Alternative
1



Assumptions:



Investment
income (including interest, dividends, fees, etc.) = 1.25%

Hurdle
rate(1) = 1.75%

Base
Management Fee(2) = 0.375%

Other
expenses (legal, accounting, transfer agent, etc.) = 0.20%



Pre-Incentive
Fee Net Investment Income (investment income – (Base Management Fee + other expenses)) = 0.675%



Pre-Incentive
Fee Net Investment Income does not exceed the hurdle rate, therefore there is no Income Based Fee is payable for the calendar
quarter.



Alternative
2



Assumptions:



Investment
income (including interest, dividends, fees, etc.) = 2.70%

Hurdle
rate(1) = 1.75%

Base
Management Fee(2) = 0.375%

Other
expenses (legal, accounting, transfer agent, etc.) = 0.20%



Pre-Incentive
Fee Net Investment Income (investment income – (Base Management Fee + other expenses)) = 2.125%



Income
Based Fee (subject to “catch up”)(3) = 100.00% × (2.125% – 1.75%) = 0.375%



Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision, therefore
the Income Based Fee payable for the calendar quarter is 0.375%.



Alternative
3



Assumptions:



Investment
income (including interest, dividends, fees, etc.) = 3.50%

Hurdle
rate(1) = 1.75%

Base
Management Fee(2) = 0.375%

Other
expenses (legal, accounting, transfer agent, etc.) = 0.20%



Pre-Incentive
Fee Net Investment Income (investment income – (Base Management Fee + other expenses)) = 2.925%



Income
Based Fee (subject to “catch up”)(3) = 100.00% × “catch-up” + (20.00% × (Pre-Incentive
Fee Net Investment Income above 2.1875%))



Catch-up
= 2.1875% – 1.75% = 0.4375%



Income
Based Fee = (100.00% × .4375%) + (20.00% × (2.925% – 2.1875%))

=
0.4375% + (20.00% × 0.7375%)

=
0.4375% + 0.1475%

=
0.585%



Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, and fully satisfies the “catch-up” provision, therefore the Income
Based Fee payable for the calendar quarter is 0.585%.



*
For ease of review, (i) the hypothetical amounts of Pre-Incentive Fee Net Investment Income, investment income, Base Management
Fee, other expenses, and Income Based Fee are each expressed as a percentage of total assets, though as described in greater detail
above, each of these amounts will be calculated as a numerical dollar amount as set forth in the Investment Management Agreement,
(ii) the hypothetical amount of the Base Management Fee is assumed to be consistent from quarter to quarter, and (iii) these examples
each assume that the Incentive Fee Cap is not yet in effect.



| | (1) | Represents
    7.00% annualized hurdle rate.                                                                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Represents
    1.50% annualized Base Management Fee.                                                                                                                                                                                                                                     
| | (3) | The
    “catch-up” provision is intended to provide the Adviser with an Income Based Fee of 20.00% on all Pre-Incentive
    Fee Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Net Investment Income exceeds
    1.75% in any calendar quarter.



8







Example
2: Capital Gains Fee Calculations:



Alternative
1



Assumptions:



|Year
    1: | $20.0
    million investment made in Company A (“Investment A”), and $30.0 million investment made in Company B (“Investment
    B”)
|----------- | ------------------------------------------------------------------------------------------------------------------------------------
|Year
    2: | Investment
    A sold for $50.0 million and fair market value (“FMV”) of Investment B determined to be $32.0 million                
|Year
    3: | FMV
    of Investment B determined to be $25.0 million                                                                              
|Year
    4: | Investment
    B sold for $31.0 million                                                                                             



The
Capital Gains Fees, if any, would be calculated as follows:



|Year
    1: | None                                                                                                                                                                                                      
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year
    2: | Capital
    Gains Fee of $6.0 million — ($30.0 million realized capital gains on sale of Investment A multiplied by 20.0%)                                                                                
|Year
    3: | None
    — $5.0 million (20.0% multiplied by ($30.0 million cumulative capital gains less $5.0 million cumulative capital depreciation))
    less $6.0 million (previous Capital Gains Fee paid in Year 2)
|Year
    4: | Capital
    Gains Fee of $0.2 million — $6.2 million ($31.0 million cumulative realized capital gains multiplied by 20.0%) less
    $6.0 million (Capital Gains Fee taken in Year 2)                      



Alternative
2



Assumptions:



|Year
    1: | $20.0
million investment made in Company A (“Investment A”), $30.0 million investment made in Company B (“Investment
B”) and $25.0 million investment made in Company C (“Investment C”)
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year
    2: | Investment
    A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV of Investment C determined to be $25.0
    million                                  
|Year
    3: | FMV
    of Investment B determined to be $27.0 million and Investment C sold for $30.0 million                                                                                          
|Year
    4: | FMV
    of Investment B determined to be $35.0 million                                                                                                                                  
|Year
    5: | Investment
    B sold for $20.0 million                                                                                                                                                 



The
Capital Gains Fees, if any, would be calculated as follows:



|Year
    1: | None                                                                                                                                                                                                                                                
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year
    2: | $5.0
    million Capital Gains Fee - 20.0% multiplied by $25.0 million ($30.0 million realized capital gains on Investment A less $5.0
    million unrealized capital depreciation on Investment B)                                                 
|Year
    3: | $1.4
    million Capital Gains Fee - $6.4 million (20.0% multiplied by $32.0 million ($35.0 million cumulative realized capital gains
    less $3.0 million unrealized capital depreciation)) less $5.0 million Capital Gains Fee received in Year 2
|Year
    4: | $0.6
    million Capital Gains Fee - $7.0 million (20.0% multiplied by $35.0 million cumulative realized capital gains) less cumulative
    $6.4 million Capital Gains Fee received in Year 2 and Year 3                                            
|Year
    5: | None
    — $5.0 million (20.0% multiplied by $25.0 million (cumulative realized capital gains of $35.0 million less realized
    capital losses of $10.0 million)) less $7.0 million cumulative Capital Gains Fee paid in Year 2, Year 3 and Year 4 



9







Payment
of Expenses



Under
the terms of Investment Management Agreement, all investment professionals of the Adviser and its staff, when and to the extent
engaged in providing investment advisory services to us, and the compensation of such personnel and the general office and facilities
and overhead expenses incurred by the Adviser in maintaining its place of business allocable to these services, are provided and
paid for by the Adviser and not by us. We will bear all other costs and expenses of its operations and transactions, related to
the Corporation, including those relating to:



| | (i)    | organization;                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)   | calculating
    our net asset value (including the cost and expenses of any independent valuation firm);                                                                                                                                                                                                                                                                                                                                                                    
| | (iii)  | expenses
    incurred by the Adviser payable to third parties, including agents, consultants or other advisors, in monitoring financial
    and legal affairs and in monitoring our investments and performing due diligence on prospective portfolio companies;                                                                                                                                                                                                            
| | (iv)   | interest
    payable on debt, if any, incurred to finance our investments;                                                                                                                                                                                                                                                                                                                                                                                                  
| | (v)    | offerings
    of our common stock and other securities;                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (vi)   | investment
    advisory and management fees payable under the Investment Management Agreement, but excluding any fees payable to any Sub-Adviser;                                                                                                                                                                                                                                                                                                                           
| | (vii)  | administration
    fees payable under the Administration Agreement;                                                                                                                                                                                                                                                                                                                                                                                                         
| | (viii) | transfer
    agent and custodial fees;                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (ix)   | federal
    and state registration fees;                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (x)    | all
    costs of registration and listing our shares on any securities exchange;                                                                                                                                                                                                                                                                                                                                                                                            
| | (xi)   | federal,
    state and local taxes;                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (xii)  | independent
    directors’ fees and expenses;                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (xiii) | costs
    of preparing and filing reports or other documents required by governmental bodies (including the SEC);                                                                                                                                                                                                                                                                                                                                                           
| | (xiv)  | costs
    of any reports, proxy statements or other notices to shareholders, including printing costs;                                                                                                                                                                                                                                                                                                                                                                      
| | (xv)   | our
    allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance
    premiums;                                                                                                                                                                                                                                                                                                                      
| | (xvi)  | direct
    costs and expenses of administration, including independent auditors and outside legal costs; and                                                                                                                                                                                                                                                                                                                                                                
| | (xvii) | all
    other expenses incurred by us or the Adviser in connection with administering our business (including payments under the Administration
    Agreement based upon our allocable portion of the Advisor’s overhead in performing its obligations under the Administration
    Agreement, including rent and the allocable portion of the cost of our chief financial officer and chief compliance officer
    and their respective staffs (including travel expenses))



10







Indemnification
under the Investment Management Agreement



The
Investment Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of the reckless disregard of its duties and obligations, the Adviser, its members and their respective
officers, managers, partners, agents, employees, controlling persons, members and any other person affiliated with any of them
(collectively, the “Indemnified Parties”), are entitled to indemnification from us for any damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified
Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an
action or suit by or in the right of us or our security holders) arising out of or otherwise based upon the performance of any
of the Adviser’s duties or obligations under the Investment Management Agreement or otherwise as an investment adviser.



Duration
and Termination



The
Investment Management Agreement was executed on November 8, 2019 and will remain in effect for two years after this date. Our
Board approved the Investment Management Agreement on January 24, 2019 and it was approved by our shareholders at a special meeting
of shareholders held on May 16, 2019. Thereafter, it will continue to renew automatically for successive annual periods so long
as such continuance is specifically approved at least annually by:



(i)
the vote of our Board, or by the vote of Shareholders holding a majority of the outstanding voting securities of the Corporation;
and

(ii)
the vote of a majority of our independent directors, in either case, in accordance with the requirements of the 1940 Act.



The
Investment Management Agreement may be terminated at any time, without the payment of any penalty, upon sixty days’ written
notice, by: (a) by vote of a majority of the Board or by vote of a majority of the outstanding voting securities of the Corporation
(as defined in the 1940 Act); or (b) the Adviser. Furthermore, the Investment Management Agreement will automatically terminate
in the event of its “assignment” (as such term is defined for purposes of Section 15(a)(4) of the 1940 Act). See Part
I, Item 1A. “Risk Factors - Our investment adviser and administrator, RCM, has the right to resign on sixty days’
notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that
could adversely affect our financial condition, business and results of operations.”



Notwithstanding
the termination or expiration of the Investment Management Agreement, the Adviser will be entitled to any amounts owed as payment
of the Base Management Fees and the Incentive Fees through the date of termination or expiration.



Administration
Agreement



In
connection with the Closing, we entered into an Administration Agreement with the Adviser. Under the terms of the Administration
Agreement, the Adviser agreed to perform (or oversee, or arrange for, the performance of) the administrative services necessary
for our operations, including, but not limited to, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance
and record keeping services at such office facilities and such other services as the Adviser, subject to review by the Board,
will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. The
Adviser shall also, on our behalf, arrange for the services of, and oversee, custodians, depositories, transfer agents, dividend
disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. The Adviser will make reports
to our Board regarding the performance of its obligations under the Administration Agreement and furnish advice and recommendations
with respect to such other aspects of our business and affairs as it will determine to be desirable.



11







The
Adviser is responsible for our financial and other records that are required to be maintained and prepares all reports and other
materials required to be filed with the SEC or any other regulatory authority, including reports to shareholders. In addition,
the Adviser assists us in determining and publishing our Net Asset Value (“NAV”), overseeing the preparation and filing
of our tax returns, and the printing and dissemination of reports to shareholders, and generally overseeing the payment of our
expenses and the performance of administrative and professional services rendered to us by others. The Administrator provides,
on our behalf, significant managerial assistance to those portfolio companies to which we are required to provide such assistance.



In
full consideration of the provision of the services of the Adviser, we reimburse the Adviser for the costs and expenses incurred
by the Adviser in performing its obligations and providing personnel and facilities thereunder. Costs and expenses to be borne
by us include those relating to: organization; calculating NAV (including the cost and expenses of any independent valuation firm);
expenses incurred by the Administrator payable to third parties, including agents, consultants or other advisors, in monitoring
our financial and legal affairs and in monitoring our investments and performing due diligence on its prospective portfolio companies;
interest payable on debt, if any, incurred to finance our investments; offerings of our common stock and other securities; investment
advisory and management fees (other than fees (if any) payable to a sub-advisor retained by the Adviser under the Investment Management
Agreement); administration fees; transfer agent and custodial fees; federal and state registration fees; all costs of registration
and listing our common stock on any securities exchange; federal, state, local and other taxes; independent directors’ fees
and expenses; costs of preparing and filing reports or other documents required by governmental bodies (including the SEC); costs
of any reports, proxy statements or other notices to shareholders, including printing costs; our allocable portion of the fidelity
bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; direct costs and expenses
of administration, including independent auditors and outside legal costs; and all other expenses incurred by us or the Adviser
in connection with administering our business, including payments under the Administration Agreement based upon our allocable
portion of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent (if office
space is provided by the Adviser) and our allocable portion of the cost of the chief financial officer and chief compliance officer
and their respective staffs (including travel expenses).



The
Administration Agreement was executed on November 8, 2019, the same date as the Investment Management Agreement, and will remain
in effect for two years, and thereafter will continue automatically for successive annual periods so long as such continuance
is specifically approved at least annually by the Board, including a majority of the independent directors. The Administration
Agreement may be terminated at any time, without the payment of any penalty, by vote of our directors, or by the Adviser, upon
60 days’ written notice to the other party. The Administration Agreement may not be assigned by a party without the consent
of the other party.



Regulations



The
following discussion is a general summary of the material prohibitions and descriptions governing BDCs and SBA-licensed SBICs.
It does not purport to be a complete description of all of the laws and regulations affecting BDCs and SBICs.



Business
Development Company Regulations



We
have elected to be regulated as a BDC under the 1940 Act. Although the 1940 Act exempts a BDC from registration under the 1940
Act, the 1940 Act contains significant limitations on the operations of BDCs. Among other things, the 1940 Act contains prohibitions
and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates
or underwriters. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw
its election as, a BDC unless so authorized by a vote of the holders of a majority of its outstanding voting securities. BDCs
are not required to maintain fundamental investment policies relating to diversification and concentration of investments within
a single industry. More specifically, in order to qualify as a BDC, a company must:



(1)
be a domestic company;

(2)
have registered a class of its equity securities or have filed a registration statement with the SEC pursuant to Section 12 of
the Securities Exchange Act of 1934 (the “Exchange Act”);



12









(3)
operate for the purpose of investing in the securities of certain types of companies, namely immature or emerging companies and
businesses suffering or just recovering from financial distress. Generally, a BDC must be primarily engaged in the business of
furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional
financial channels. Such companies are termed “eligible portfolio companies;”

(4)
extend significant managerial assistance to such portfolio companies; and

(5)
have a majority of “disinterested” directors (as defined in the 1940 Act).



Qualifying
Assets



Under
the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of their
total assets. The 1940 Act prohibits BDCs from investing in certain types of companies, such as brokerage firms, insurance companies,
investment banking firms and investment companies.



An
eligible portfolio company is, generally, a private domestic operating company, or a public domestic operating company whose securities
are not listed on a national securities exchange. In addition, any small business investment company that is licensed by the SBA
and is a wholly owned subsidiary of a BDC is an eligible portfolio company.



Qualifying
assets include:



(1)
securities of companies that were eligible portfolio companies at the time the BDC acquired their securities;

(2)
securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities
but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies;

(3)
securities received in exchange for or distributed on or with respect to any of the foregoing; and

(4)
cash items, government securities and high-quality short-term debt.



The
1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased
in order for the securities to be considered qualifying assets.



A
BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those
kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment. At December 31, 2019,
we were in compliance with this rule.



Managerial
Assistance to Portfolio Companies



In
order to count portfolio securities as qualifying assets for the purpose of the 70% test discussed above, a BDC must either control
the issuer of the securities or must offer to make available significant managerial assistance; except that, where the BDC purchases
the securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available
such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby
the BDC, through its directors, officers or employees, offers to provide and, if accepted, does so provide, significant guidance
and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring
of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio
company’s officers or other organizational or financial guidance.



13







Small
Business Investment Company Regulations



SBA
Lending Restrictions



SBICs
are designed to stimulate the flow of private debt and/or equity capital to small businesses. The types and dollar amounts of
the loans and other investments we may make are limited by the 1940 Act, the Small Business Act (the “SBA Act”) and
SBA regulations. Rand SBIC uses funds borrowed from the SBA that can be combined with our own capital to provide loans to, and
make equity investments in, businesses that meet the following criteria:



(a)
have a tangible net worth not in excess of $19.5 million and average net income after U.S. federal income taxes for the preceding
two completed fiscal years not in excess of $6.5 million, or



(b)
meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry
in which the businesses are primarily engaged.



In
addition, at the end of each fiscal year, an SBIC must have at least 20% (in total dollars) invested in “smaller enterprises.”
The SBA defines “smaller enterprises” as businesses that:



(a)
do not have a net worth in excess of $6 million and have average net income after U.S. federal income taxes for the preceding
two years no greater than $2 million, or



(b)
meet size standards set by the SBA that are measured by either annual receipts or number of employees, depending on the industry
in which the concerns are primarily engaged.



We
have complied with these requirements since the inception of Rand SBIC.



The
SBA prohibits an SBIC from providing funds to small businesses with specific characteristics, such as businesses with the majority
of their employees located outside the United States, or from investing in passive or non-operating businesses, real estate, project
financing, farmland, or financial lenders. Without prior SBA approval, an SBIC may not invest an amount equal to more than approximately
30% of the SBIC’s regulatory capital in any one company and its affiliates.



The
SBA places limitations on the financing terms of investments by SBICs in portfolio companies such as limiting the prepayment options,
the financing fees that can be charged to a portfolio company, the allowable interest rate on loan and debt securities that an
SBIC can charge a portfolio company, and the maximum term of such financing. An SBIC may exercise control over a small business
for a period of up to seven years from the date on which the SBIC initially acquires its control position.



The
SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in associates.
The SBA also prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result
in any person, or a group of persons acting together, owning 10% or more of a class of capital stock of a licensed SBIC. A “change
of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and
policies of an SBIC, whether through ownership, contractual arrangements or otherwise. Rand SBIC received approval from the SBA
in October 2019 for purposes of completing the stock sale transaction between Rand Capital Corporation and East.



14







Rand
SBIC may invest directly in a portfolio company’s equity, but may not become a general partner of a non-incorporated entity
or otherwise become jointly or severally liable for the general obligations of a non-incorporated entity. Rand SBIC may acquire
options or warrants in portfolio companies, and the options or warrants may have redemption provisions, subject to certain restrictions.
Pursuant to SBA regulations, the maximum cash which may be invested in any one portfolio company by Rand SBIC is currently $4.8
million.



In
addition, the SBA regulations require an examination of a licensed SBIC by an SBA examiner to determine the SBIC’s compliance
with the relevant SBA regulations. Our annual report, submitted to the SBA, must be audited by an independent public accounting
firm.



SBA
Leverage



The
SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold to purchasers
of the government guaranteed securities. The amount of funds that the SBA may lend to SBICs is determined by annual Congressional
appropriations.



SBA
debentures are issued with ten year maturities. Interest only is payable semi-annually until maturity. All of our outstanding
SBA debentures may be prepaid without penalty. To reserve the approved SBA debenture leverage, we paid an upfront 1% commitment
fee to the SBA as a partial prepayment of the SBA’s nonrefundable 3% leverage fee. These fees are expensed over the life
of the corresponding SBA debenture instruments. The SBA, as a creditor, will have a superior claim to Rand SBIC’s assets
over our shareholders in the event we liquidate Rand SBIC or the SBA exercises its remedies under the SBA-guaranteed debentures
issued by Rand SBIC upon an event of default.



At
December 31, 2019, we had $11,000,000 in outstanding SBA debenture instruments.



Taxation
as a Regulated Investment Company



Contingent
upon meeting certain tax-related conditions, we expect to elect to be taxed as a Regulated Investment Company (“RIC”)
for U.S. tax purposes (the “RIC Election”). In order to qualify to make the RIC Election, we must, among other things,
distribute our previously undistributed “accumulated earnings and profits” to shareholders. RIC qualification also
requires meeting specified source-of-income and asset-diversification requirements. In addition, we must distribute to our shareholders,
with respect of each taxable year, dividends for U.S. federal income tax purposes in an amount generally at least equal to 90%
of our “investment company taxable income,” which is generally equal to the sum of our net ordinary income plus the
excess of our realized net short-term capital gains over our realized net long-term capital losses, determined without regard
to any deduction for distributions paid (the “Annual Distribution Requirement”). As a RIC, we generally will not have
to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our shareholders.
Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable
income and could be subject to U.S. federal excise, state, local and foreign taxes.



In
connection with making the RIC Election, we expect that Rand SBIC will also make an election to be taxed as a RIC for U.S. federal
tax purposes. In order to be eligible to be taxed as a RIC, Rand SBIC must satisfy the source-of-income, asset-diversification,
and minimum distribution requirements discussed above. Because a substantial portion of our assets are held in Rand SBIC, we may
not be able to satisfy the asset-diversification requirements unless Rand SBIC also qualifies to be taxed as a RIC for U.S. federal
tax purposes.



15







Assuming
that we qualify to be taxed as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S. federal income
tax on the portion of our “investment company taxable income” and net capital gain (which is defined as net long-term
capital gain in excess of net short-term capital loss) that is timely distributed to shareholders. Similarly, assuming that Rand
SBIC qualifies to be taxed as a RIC and satisfies the Annual Distribution Requirement, Rand SBIC will also not be subject to U.S.
federal income tax on the portion of its “investment company taxable income” and net capital gain that it timely distributes
to us. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed
(or deemed distributed) to our shareholders. Rand SBIC will also be subject to U.S. federal income tax at the regular corporate
rates on any income or capital gain not distributed (or deemed distributed) to Rand. Additionally, we will be subject to U.S.
federal income tax at the regular corporate rates on any income earned on certain investments that needed to remain in a taxable
subsidiary in order to maintain RIC status.



Rand
and Rand SBIC, respectively, will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless
each distribute in a timely manner an amount at least equal to the sum of:



(1)
98% of its ordinary income for each calendar year,

(2)
98.2% of its capital gain net income for the one-year period ending October 31 in that calendar year and

(3)
any income recognized, but not distributed, in preceding years and on which it paid no U.S. federal income tax.



In
order to maintain qualification as a RIC for U.S. federal income tax purposes going forward, Rand and Rand SBIC must each, among
other things:



(1)
meet the Annual Distribution Requirement;

(2)
qualify to be regulated as a BDC or be registered as a management investment company under the 1940 Act;

(3)
derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities
loans, gains from the sale or other disposition of stock or other securities or currencies or other income derived with respect
to its business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified
publicly-traded partnership” (as defined in the Internal Revenue Code); and

(4)
diversify its holdings so that at the end of each quarter of the taxable year:



(a)
at least 50% of the value of its assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs,
and other securities if such other securities of any one issuer do not represent more than 5% of the value of its assets or more
than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified
publicly-traded partnership”); and



(b)
no more than 25% of the value of its assets is invested in the securities, other than U.S. Government securities or securities
of other RICs, (i) of one issuer (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by
us and that are engaged in the same or similar or related trades or businesses or (iii) of one or more “qualified publicly-traded
partnerships”. Because a substantial portion of Rand Capital Corporation’s assets consist of its shares in Rand SBIC,
we will not be eligible to be taxed as a RIC for U.S. federal income tax purposes unless Rand SBIC is also eligible to be taxed
as a RIC for U.S. federal tax purposes.



We
may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations
that have original issue discount (OID) or debt instruments with payment-in-kind (“PIK”) interest, we must include
in income, each year, a portion of this non-cash income that accrues over the life of the obligation, regardless of whether cash
is received by us in that taxable year. We may also have to include in income other amounts that we have not yet received in cash,
such as PIK interest and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation
such as warrants or stock. Because any OID income or other amounts accrued will be included in our investment company taxable
income for the year of accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution
Requirement, even though we will not have received any corresponding cash.



16







Even
if Rand and Rand SBIC qualify for taxation as RICs, they will be subject to corporate-level U.S. federal income tax on any unrealized
net built-in gains in their respective assets as of the first day they qualify as RICs to the extent that such gains are realized
by them during the five-year period following the first day that they qualify as RICs. As of December 31, 2019, neither Rand nor
Rand SBIC have unrealized net built-in gains.



If
Rand and Rand SBIC qualify for taxation as RICs, distributions out of our earnings and profits to shareholders generally will
be taxable to shareholders for U.S. federal income tax purposes, either as ordinary income or capital gains, depending upon the
nature of the income giving rise to the distribution. The tax consequences to a shareholder attributable to the acquisition, ownership,
and disposition of our common stock, are complex and will depend on the facts of the shareholder’s unique circumstances.



Item
1A. Risk Factors



Risks
related to our Business and Structure



We
are dependent upon RCM for our future success.



Upon
the completion of the Transactions, our day-to-day investment operations are managed by our investment adviser and administrator,
RCM, subject to oversight and supervision by our Board. We no longer have any employees, and although Allen F. “Pete”
Grum and Daniel P. Penberthy each remain as an officer of the Corporation, neither is an employee of the Corporation. As a result,
we depend on the diligence, skill, investment expertise and network of business contacts of RCM’s investment professionals,
including Mr. Grum and Mr. Penberthy, and the investment committee of RCM (the “Investment Committee”) to source appropriate
investments for us. We depend on members of RCM’s investment team and the Investment Committee to appropriately analyze
our investments and on members of the Investment Committee to make investment decisions for us. RCM’s investment team evaluates,
negotiates, structures, closes and monitors our investments. Our future success will depend on the continued availability of the
members of RCM’s investment team and the Investment Committee and the other investment professionals available to RCM. Although
each of the then-current employees of the Corporation entered into employment arrangements with RCM at the closing of the Transactions,
the Corporation does not have any employment agreements with these individuals or other key personnel of RCM, including members
of the Investment Committee, and we cannot provide any assurance that unforeseen business, medical, personal or other circumstances
would not lead any such individual to terminate his or her relationship with RCM. The loss of a material number of investment
professionals to which RCM has access or members of the Investment Committee, could have a material adverse effect on our ability
to achieve our investment objectives as well as on our financial condition and results of operations. In addition, we cannot assure
you that RCM will remain our investment adviser or that we will continue to have access to RCM’s investment professionals
or the Investment Committee or its information and deal flow.



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



Prior
to its entry into the Investment Management Agreement with Rand, RCM was a newly formed entity that had no prior experience managing
or acting as an investment adviser for a BDC. Although the Corporation’s existing employees became employees of RCM after
the closing of the Transactions, all investment decisions to be made by RCM are made by its Investment Committee, which consists
of five persons, of which Allen F. “Pete” Grum and Daniel P. Penberthy are two of the five members. The investment
philosophy and techniques to be used by RCM, and in particular its Investment Committee, to manage the Corporation may differ
from the investment philosophy and techniques previously employed by RCM’s investment team in identifying and managing other
investments and that were previously used by the Corporation when it was internally managed. RCM intends to focus on investing
in interest-yielding debt securities. In addition, RCM is seeking to source potential investments using its relationships and
the business networks and family office networks of the members of the Investment Committee. However, we can offer no assurance
that RCM will be successful with respect to its investment decisions in acting as our investment adviser or that RCM or the Investment
Committee will be successful in their attempts to source and originate additional potential transactions that are appropriate
for Rand’s investment strategy through the use of existing business networks, and our investment returns could be substantially
lower than the returns we have achieved in the past.



17







Our
financial results will depend on RCM’s skill to manage and deploy capital effectively.



Our
ability to achieve long-term capital appreciation on our existing equity investments and to maintain a current cash flow from
our debt investments while shifting our portfolio to contain a greater percentage of interest-yielding securities depends on RCM’s
capability to effectively identify, invest and manage our capital.



Accomplishing
this investment objective effectively will be based on RCM’s handling of the investment process, starting with its ability
to find investments that offer favorable terms and meet our investment objective. RCM will also need to monitor our portfolio
companies’ performance and may be called upon to provide managerial assistance. These competing demands on their time may
slow the rate of investment.



Even
if RCM is able to grow and build on our investment portfolio, any failure by RCM to manage the growth of our portfolio effectively
could have a material adverse effect on our business, financial condition, results of operations and prospects. If RCM cannot
successfully manage our investment portfolio or implement our investment objectives, this could negatively impact our stock price.



We
are subject to risks created by our regulated environment.



We
are regulated by the SEC and the SBA. Changes in the laws or regulations that govern BDCs and SBICs could significantly affect
our business. Regulations and laws may be changed periodically, and the interpretations of the relevant regulations and laws are
also subject to change. Any change in the regulations and laws governing our business could have a material impact on our financial
condition and our results of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place conflicting demands
on the manner in which we operate, and the resolution of those conflicts may restrict or otherwise adversely affect our operations.



RCM,
on our behalf, may be unable to invest a significant portion of the net proceeds from the Transactions on acceptable terms or
within a reasonable timeframe.



In
connection with the closing of the Transactions, the Corporation issued 8,333,333 shares of common stock to East at a price of
$3.00 per share for an aggregate purchase price of $25.0 million. This purchase price was paid through the contribution to the
Corporation by East of existing loans and other securities that had a fair value as of the closing date for the Transactions of
approximately $9.5 million and a cash payment of approximately $15.5 million. Delays by RCM in investing the net proceeds raised
in the Transactions may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors
pursuing comparable investment strategies. We cannot assure you that RCM will be able to identify investments that meet our investment
objective or that any investment that we make using these proceeds will produce a positive return. RCM may be unable to invest
the net proceeds from the Transactions on acceptable terms within the time period that we anticipate or at all, which could harm
our financial condition and operating results.



18







We
anticipate that, depending on market conditions, it may take RCM a substantial period of time to invest substantially all of the
net proceeds from the Transactions in securities meeting our investment objectives. During this period, we will invest the net
proceeds from the Transactions primarily in cash, cash equivalents and U.S. Government securities, which may produce returns that
are significantly lower than the returns which we expect to achieve when our portfolio is fully invested in securities meeting
our investment objectives. Until such time as the net proceeds from the Transactions are invested in securities meeting our investment
objectives, the market price for our common stock may decline. Thus, the return on an investment in us may be lower than when,
if ever, our portfolio is fully invested in securities meeting our investment objective.



We
are subject to risks created by borrowing funds from the SBA.



Our
liabilities consist primarily of debt instruments issued through the SBA, which have fixed interest rates. Until and unless we
are able to invest substantially all of the proceeds from these SBA debentures at annualized interest or other rates of return
that substantially exceed annualized interest rates that Rand SBIC must pay the SBA, our operating results may be adversely affected
which may, in turn, depress the market price of our common stock.



In
addition, our outstanding $11.0 million in SBA debentures will reach maturity and become payable between 2022 and 2029. In order
to repay our outstanding SBA debentures, we will need to identify sources of additional funding if the proceeds received upon
the exits of our investments are insufficient to fund our operations and repay our SBA obligations. We cannot be assured that
the proceeds to be received upon the exits from our investments will be sufficient to meet our funding needs or, if such proceeds
are insufficient, that we will be able to obtain access to the necessary funding on terms that are acceptable to us.



We
are subject to risks created by the valuation of our portfolio investments.



At
December 31, 2019, 100% of our investments are in private securities that are not publicly traded. There is typically no public
market for securities of the small privately held companies in which we invest. Investments are valued in accordance with our
established valuation policy and are stated at fair value as determined in good faith by RCM and approved by our Board. In the
absence of a readily ascertainable market value, the estimated value of our investment portfolio may differ significantly, favorably
or unfavorably, from the values that would be placed on the portfolio if a ready market for the securities existed. Any changes
in estimated value are recorded in the consolidated statement of operations as “Net change in unrealized depreciation or
appreciation on investments.” In addition, the participation of RCM’s investment professionals in our valuation process,
could result in a conflict of interest as RCM’s Base Management Fee under the Investment Management Agreement is based,
in part, on the value of our gross assets, and the Incentive Fees payable under the Investment Management Agreement will be based,
in part, on realized gains and realized and unrealized losses.



RCM,
acting as our investment adviser, operates in a competitive market for investment opportunities.



RCM,
acting as our investment adviser, operates in a competitive market for investment opportunities. RCM faces competition in our
investing activities from many entities including other SBICs, private venture capital funds, investment affiliates of large companies,
wealthy individuals and other domestic or foreign investors. The competition is not limited to entities that operate in the same
general geographical area as we do. As a regulated BDC, we are required to disclose quarterly and annually the name and business
description of our portfolio companies and the value of their portfolio securities. Most of our competitors are not subject to
this disclosure requirement or similar types of disclosure requirements. This obligation to disclose this information could hinder
RCM’s ability to invest in potential portfolio companies on our behalf. Additionally, other regulations, current and future,
may make us less attractive as a potential investor to a given portfolio company than a private venture capital fund.



19







There
are potential conflicts of interest, including the management of other investment funds and accounts by the principals and certain
members of the Investment Committee of RCM, which could impact our investment returns.



The
principals and certain members of the Investment Committee of RCM manage other funds and accounts for other entities affiliated
with members of the Investment Committee. Accordingly, they have obligations to those investors, the fulfillment of which may
not be in the best interests of, or may be adverse to the interests of, us or our shareholders. Although the principals, members
of the Investment Committee and other professional staff of RCM are expected to devote as much time to our management as appropriate
to enable RCM to perform its duties in accordance with the Investment Management Agreement, the members of the Investment Committee
and investment professionals of RCM may have conflicts in allocating their time and services among RCM, on the one hand, and the
other investment vehicles managed by affiliated entities of RCM, on the other hand.



RCM,
including members of its Investment Committee, may face conflicts in allocating investment opportunities between us and other
investment vehicles affiliated with members of the Investment Committee that have overlapping investment objectives with ours.
Although RCM, including members of the Investment Committee, will endeavor to allocate investment opportunities in a fair and
equitable manner in accordance with its allocation policies and procedures, it is possible that, in the future, we may not be
given the opportunity to participate in investments made by investment funds managed by RCM or members of the Investment Committee
if such investment is prohibited by law.



Our
ability to enter into transactions with affiliates of RCM will be restricted.



We,
and certain of our controlled affiliates, are prohibited under the 1940 Act from knowingly participating in certain transactions
with our upstream affiliates, or RCM and its affiliates, without the prior approval of the “required majority” of
our directors as defined in Section 57(o) of the 1940 Act and, in some cases, the SEC. Any person that owns, directly or indirectly,
5% or more of our outstanding voting securities is our upstream affiliate for purposes of the 1940 Act, and we are generally prohibited
from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of the “required
majority” of our directors as defined in Section 57(o) of the 1940 Act. The 1940 Act also prohibits “joint”
transactions with an upstream affiliate, or RCM or its affiliates, which could include investments in the same portfolio company
(whether at the same or different times), without prior approval of the “required majority” of our directors as defined
in Section 57(o) of the 1940 Act. In addition, we and certain of our controlled affiliates will be prohibited from buying or selling
any security from or to, or entering into joint transactions with, RCM and its affiliates, or any person, including East, who
owns more than 25% of our voting securities or is otherwise deemed to control, be controlled by, or be under common control with
us, absent the prior approval of the SEC through an exemptive order (other than in certain limited situations pursuant to current
regulatory guidance). Given East’s approximately 58% ownership position in the common stock of the Corporation, this prohibition
may impact our ability to participate in certain transactions or investments, including with respect to certain of the loans and
other securities that were contributed to the Corporation by East as part of the consideration for the stock purchase by East
in the Transactions. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the
relevant facts and circumstances then existing.



As
a BDC, we are required to comply with certain regulatory requirements. For example, we will generally not be permitted to make
loans to companies controlled by RCM or other funds managed by RCM. We will also not be permitted to make any co-investments with
RCM or its affiliates (including any fund managed by RCM or an investment adviser controlling, controlled by or under common control
with RCM) without exemptive relief from the SEC, subject to certain exceptions.



20







The
proposed fee structure under the Investment Management Agreement may induce RCM to pursue speculative investments and incur leverage,
which may not be in the best interests of the shareholders.



Under
the terms of the Investment Management Agreement, the Base Management Fee is payable even if the value of your investment declines.
The Base Management Fee is calculated based on the total assets (other than cash or cash equivalents but including assets purchased
with borrowed funds), as determined according to procedures duly adopted by the Board. Accordingly, the Base Management Fee is
payable regardless of whether the value of Rand’s total assets or your investment has decreased during the then-current
quarter and creates an incentive for RCM to incur leverage, which may not be consistent with our shareholders’ interests.



The
Incentive Fee payable to RCM is calculated based on a percentage of our return on invested capital. The terms of the Incentive
Fee calculation may create an incentive for RCM to make investments on our behalf that are risky or more speculative than would
be the case in the absence of such a compensation arrangement. Unlike the Base Management Fee, the Income Based Fee is payable
only if the hurdle rate is achieved. Because the portfolio earns investment income on gross assets while the hurdle rate is based
on net assets, and because the use of leverage increases gross assets without any corresponding increase in net asset, RCM may
be incentivized to incur leverage to grow the portfolio, which will tend to enhance returns where our portfolio has positive returns
and increase the chances that such hurdle rate is achieved. Conversely, the use of leverage may increase losses where our portfolio
has negative returns, which would impair the value of our common stock.



In
addition, RCM receives the Incentive Fees based, in part, upon net capital gains realized on our investments under the Capital
Gains Fee. Unlike the Income Based Fee, there is no hurdle rate applicable to the Capital Gains Fee. As a result, RCM may have
an incentive to invest more capital in investments that are likely to result in capital gains as compared to income producing
securities. Such a practice could result in our investing in more speculative equity securities than would otherwise be the case,
which could result in higher investment losses, particularly during economic downturns.



RCM
may be paid incentive compensation even if we incur a net loss, and we cannot recover any portion of the incentive fee previously
paid.



RCM
is entitled to incentive compensation under our Investment Management Agreement for each fiscal quarter under the Income Based
Fee in an amount equal to a percentage of our pre-incentive fee net investment income, subject to a hurdle rate, a catch-up provision,
a cap and a deferral mechanism. For purposes of calculating the Income Based Fee, our pre-incentive fee net investment income
excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in
a net loss for that quarter. Thus, we may be required to pay RCM an incentive compensation under the Income Based Fee for a fiscal
quarter even if we incur a net loss for that quarter. In addition, if we pay the Capital Gains Fee and thereafter experience additional
realized capital losses or unrealized capital losses, we will not be able to recover any portion of the incentive fee previously
paid.



RCM’s
liability will be limited under the Investment Management Agreement and the Administration Agreement, and we will be required
to indemnify RCM against certain liabilities, which may lead RCM to act in a riskier manner on our behalf than it would when acting
for its own account.



Under
the Investment Management Agreement and the Administration Agreement, RCM does not assume any responsibility to us other than
to render the services described in the Investment Management Agreement and Administration Agreement, as applicable, and it is
not responsible for any action of our Board in declining to follow RCM’s advice or recommendations. Pursuant to the Investment
Management Agreement and the Administration Agreement, RCM, its members and their respective officers, managers, partners, agents,
employees, controlling persons, members and any other person affiliated with any of them are not liable to us for their acts under
the Investment Management Agreement and Administration Agreement, as applicable, absent willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. We have agreed to indemnify, defend and protect RCM its members
and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person affiliated
with any of them with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance
of any of RCM’s duties or obligations under the Investment Management Agreement or Administration Agreement, as applicable,
or otherwise as investment adviser or administrator, as applicable, for us, and not arising out of willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties under the Investment Management Agreement or the Administration
Agreement. These protections may lead RCM to act in a riskier manner when acting on our behalf than it would when acting for its
own account.



21







Our
investment adviser and administrator, RCM, has the right to resign on 60 days’ notice, and we may not be able to find a
suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition,
business and results of operations.



Our
investment adviser and administrator, RCM, has the right, under both the Investment Management Agreement and the Administration
Agreement, to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.
If RCM resigns, we may not be able to find a new investment adviser or administrator or hire internal management with similar
expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable
to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations
are likely to be adversely affected and the market price of our common stock may decline. Even if we are able to retain comparable
management, whether internal or external, the integration of such management and their lack of familiarity with our investment
objective may result in additional costs and time delays that may adversely affect our financial condition, business and results
of operations.



In
connection with our proposed RIC Election, we may not be able to pay distributions to our shareholders, our distributions may
not grow over time and a portion of our distributions may be a return of capital.



In
connection with our proposed RIC Election, we intend to pay distributions in the form of cash dividends to our shareholders out
of assets legally available for distribution. However, we cannot assure investors that we will achieve investment results that
will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to
pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described
herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC can limit our ability to pay distributions.
All distributions will be paid at the discretion of our Board and will depend on our earnings, our financial condition, maintenance
of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time
to time. We cannot assure shareholders that we will pay distributions on our common stock in the future or at all.



When
we make distributions, we are required to determine the extent to which such distributions are paid out of current or accumulated
earnings and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable
return of capital to the extent of an investor’s basis in our stock and, assuming that an investor holds our stock as a
capital asset, thereafter as a capital gain. Generally, a non-taxable return of capital will reduce an investor’s basis
in our stock for federal tax purposes, which will result in higher tax liability when the stock is sold. Shareholders should read
any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our
ordinary income or gains.



22







In
connection with our proposed RIC Election, we will be subject to corporate-level income tax if we are unable to satisfy certain
RIC qualification requirements under Subchapter M of the Code or do not satisfy the annual distribution requirement.



Although
we intend to elect to be treated as a RIC commencing with our tax year ending December 31, 2020, no assurance can be given that
we will be able to qualify for and maintain our qualification as a RIC. In order to satisfy the requirements for RIC tax treatment,
we must meet the following annual distribution, income source and asset diversification requirements to be relieved of federal
taxes on income and gains distributed to our shareholders.



| | ● | The
    annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual basis at least
    90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses,
    if any. If we are unable to obtain cash from sources in order to make these distributions, we could fail to qualify for RIC
    tax treatment and thus become subject to corporate-level income tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ● | The
    income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest,
    gains from the sale of stock or securities or similar sources.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ● | The
    asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each
    quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash
    equivalents, U.S. Government securities, securities of other regulated investment companies, and other acceptable securities;
    and no more than 25% of the value of our assets can be invested in the securities, other than U.S. Government securities or
    securities of other regulated investment companies, of one issuer, of two or more issuers that are controlled, as determined
    under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain
    “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose
    of certain investments quickly in order to prevent the loss of regulated investment company status. Because most of our investments
    will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous
    prices and could result in substantial losses.



If
we fail to satisfy certain RIC qualification requirements under Subchapter M of the Code or to meet the annual distribution requirement
for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets,
the amount of income available for distribution and the amount of our distributions, if any. Such a failure would have a material
adverse effect on us and our shareholders.



In
connection with our proposed RIC Election, we may have difficulty paying required distributions to shareholders if we recognize
income before or without receiving cash representing such income.



In
connection with our proposed RIC Election, we will be required to distribute annually at least 90% of our ordinary income and
realized net short-term capital gains in excess of realized net long-term capital losses to maintain our eligibility for RIC tax
treatment. For U.S. federal income tax purposes, we will include in taxable income certain amounts that we have not yet received
in cash, such as contracted payment-in-kind (“PIK”) interest, which represents contractual interest added to the loan
balance and due at the end of the loan term. The increases in loan balances as a result of contracted PIK arrangements will be
included in income in advance of receiving cash payment, and will be separately identified on our consolidated statements of cash
flows. We also may be required to include in income certain other amounts that we will not receive in cash.



Any
warrants that we receive in connection with our debt investments will generally be valued as part of the negotiation process with
the particular portfolio company. As a result, a portion of the aggregate purchase price for the debt investments and warrants
will be allocated to the warrants that we receive. This will generally result in our debt instruments having original issue discount
(“OID”) for tax purposes, which we must recognize as ordinary income as such original issue discount accrues regardless
of whether we have received any corresponding payment of such interest. Other features of debt instruments that we hold may also
cause such instruments to generate original issue discount.



23







Since
in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting
the requirement to distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized
net long-term capital losses to maintain our eligibility for RIC tax treatment. Accordingly, we may have to use cash on hand or
sell some of our assets, raise additional equity capital or reduce new investment originations to meet these distribution requirements.
If we do not have sufficient cash on hand or are unable to obtain cash from other sources to satisfy such distribution requirements,
we may fail to qualify for RIC tax treatment and thus may become subject to corporate-level income tax.



If
we do not invest a sufficient portion of our assets in qualifying assets, we could fail to maintain our qualification as a BDC
or be precluded from investing according to our current business strategy.



As
a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect
to such acquisition, at least 70% of our total assets are qualifying assets.



We
believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded
from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes of the
1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions
applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making
follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us
to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. If we need to dispose of
such investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find
a buyer for such investments and, even if we do find a buyer, we may have to sell the investments at a substantial loss. Any such
outcomes would have a material adverse effect on our business, financial condition, results of operations and cash flows.



If
we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end investment company under
the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions
under the 1940 Act, which would significantly decrease our operating flexibility.



We
are subject to cybersecurity risks and incidents that may adversely affect our operations, the operations of RCM or the companies
in which we invest. A failure in our cybersecurity systems could impair our ability to conduct business and damage our business
relationships, compromise or corrupt our confidential information and ultimately negatively impact business, financial condition
and operating results.



Our
and RCM’s operations are dependent on secure information technology systems for data processing, storage and reporting.
Increased cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-attacks pose a risk to the security
of our and RCM’s information and the information of our portfolio companies. Like other companies, we may experience threats
to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If
one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed
and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in
our operations, which could result in damage to our reputation, financial losses, litigation, increased costs or regulatory penalties.
In addition, these cyber-attacks could affect our and RCM’s computer network, our website or our other service providers
(such as, but not limited to, accountants, lawyers, and transfer agents) and could result in operating disruptions or information
misappropriation, which could have a material adverse effect on our business operations and the integrity and availability of
our financial information. We have attempted to mitigate these cybersecurity risks by employing a number of processes, procedures
and internal controls within the Corporation, but we remain potentially vulnerable to additional known and unknown threats.



24







We
may experience fluctuations in our annual and quarterly results.



We
could experience fluctuations in our annual and quarterly operating results due to a number of factors, some of which are beyond
our control, including RCM’s ability or inability to make investments in companies that meet our investment criteria, RCM’s
plans to transition over time Rand’s portfolio to include more interest-yielding securities, the interest rate payable on
the debt securities acquired and the default rate on such securities, the level of our expenses, variations in and the timing
of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in the markets in
which we operate and general economic conditions. As a result of these factors, results for any period should not be relied upon
as being indicative of performance in future quarters or any future fiscal years.



Risks
related to our Investments



We
have a limited number of companies in our portfolio of investments, and may be subjected to greater risk if any of these companies
default.



Our
portfolio investment values are concentrated in a small number of companies and as such, we may experience a significant loss
in our net asset value if one or more of these companies performs poorly or goes out of business. The unrealized or realized depreciation
in the value of the securities of any one of these companies would negatively impact our net asset value.



The
lack of liquidity in our investments may adversely affect our business.



RCM,
on our behalf, invests, and we expect that RCM will continue, on our behalf, to invest, in portfolio companies whose securities
are not publicly traded and may be subject to restrictions on resale, and as a result will be less liquid than publicly traded
securities. Most of our investments are or will be either equity securities or debt securities acquired directly from small, private
companies. The illiquidity of most of our portfolio may adversely affect our ability to dispose of the securities at times when
it may be advantageous for us to liquidate investments. In addition, we may not realize the full value of these private investments
if we have to liquidate all or a part of our portfolio investment quickly, given the lack of available markets for their sale.



Economic
downturns or recessions may adversely affect our portfolio companies’ financial performance and therefore harm our operating
results.



The
United States economy has periodically experienced periods of instability and recessions and the financial results of the small
companies in which we invest could be more acutely affected negatively by this instability and suffer deterioration in operational
or financial results. This deterioration may have a negative effect on our financial performance.



Investing
in private companies involves a high degree of risk.



We
typically invest a substantial portion of our assets in small private companies. These private businesses may be thinly capitalized,
unproven companies with risky technologies, products or services, may lack management depth, and may not have attained profitability.
Because of the speculative nature and the lack of a public market for these investments, there is significantly greater risk of
loss than is the case with securities traded on a public exchange. We expect that some of our investments will become worthless
and that some will appear likely to become successful but will never realize their potential. We have historically been risk seeking
rather than risk averse in our approach to our investments. Given the incentive compensation components of our arrangement with
RCM under the Investment Management Agreement, RCM has similar incentives to be risk seeking rather than risk averse in making
its investment decisions.



25







Even
if our portfolio companies are able to develop commercially viable technologies, products or services, the market for those new
technologies, products and services is likely to be highly competitive and rapidly changing. Commercial success is difficult to
predict and the marketing efforts of the portfolio companies may not be successful.



An
investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available
information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a
greater vulnerability to economic downturns.



We
invest primarily in privately held companies. Generally, little public information exists about these companies, and we will be
required to rely on the ability of RCM’s investment professionals to obtain adequate information to evaluate the potential
returns from investing in these companies. If RCM is unable to uncover all material information about these companies, it may
not, acting on our behalf, make a fully informed investment decision, and we may lose money on our investments. Also, privately
held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could
adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.



We
provide debt and equity capital primarily to small companies, which may present a greater risk of loss than providing debt and
equity capital to larger companies.



Our
portfolio consists primarily of debt and equity investments in small companies. Compared to larger companies, small companies
generally have more limited access to capital and higher funding costs, may be in a weaker financial position and may need more
capital to expand, compete and operate their business. They also typically have fewer administrative resources, which can lead
to greater uncertainty in their ability to generate accurate and reliable financial data, including their ability to deliver audited
financial statements. In addition, many small companies may be unable to obtain financing from the public capital markets or other
traditional sources, such as commercial banks, in part because loans made to these types of companies entail higher risks than
loans made to companies that have larger businesses, greater financial resources or are otherwise able to access traditional credit
sources on more attractive terms.



A
variety of factors may affect the ability of borrowers to make scheduled payments on debt securities or loans, including failure
to satisfy financial targets and covenants, a downturn in a borrower’s industry or changes in the economy in general. In
addition, investing in small companies in general involves a number of significant risks, including that small companies:



| | ● | may
    have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which
    may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any
    guarantees we may have obtained in connection with our investment;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                           
| | ● | typically
    have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render
    small companies more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                           
| | ● | are
    more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability,
    resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and,
    in turn, on us;                                                  
| |   |                                                                                                                                                                                                                                                                                                                                           



26







| | ● | generally
    have less predictable operating results, may be engaged in rapidly changing businesses with products subject to a substantial
    risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain
    their competitive position;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                
| | ● | may
    from time to time be parties to litigation, and our executive officers, directors and our investment adviser may, in the ordinary
    course of business, be named as defendants in litigation arising from our investments in the portfolio companies;                                                
| |   |                                                                                                                                                                                                                                                                                                                
| | ● | may
    have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay
    their outstanding indebtedness upon maturity; and                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                
| | ● | may
    be particularly vulnerable to changes in customer preferences and market conditions, depend on a limited number of customers,
    and face intense competition, including from companies with greater financial, technical, managerial and marketing resources.                                        



Any
of these factors or changes thereto could impair a small company’s financial condition, results of operation, cash flow
or result in other adverse events, such as bankruptcy, any of which could limit a borrower’s ability to make scheduled payments
on our debt securities. This, in turn, could result in losses in our investments and a decrease in our net interest income and
net asset value.



We
generally do not control our portfolio companies.



We
do not have an expectation to control the decision making in our portfolio companies, even though we may have a board seat or
board observation rights. Because of this, we are subject to the risk that our portfolio companies will make business decisions
with which we disagree or will incur risks or otherwise act in ways that do not maximize their value and serve our interests as
minority debt and equity holders. Due to the lack of liquidity in our investments in these private companies, we may not be able
to dispose of our investment in these portfolio companies as freely as we would like or at a valuation that is appropriate. As
a result, a portfolio company may make decisions that would decrease the value of our portfolio holdings.



We
typically are a minority shareholder in our portfolio companies.



We
typically invest as a minority shareholder in our portfolio companies. As a minority shareholder, we are unable to require the
company to seek or entertain liquidity events as a way to exit our investments. This may cause us to hold investments longer than
planned or to seek a sale that may not reflect the full value of our investment.



We
may not have the funds or ability to make follow-on investments in our portfolio companies.



We
may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a
company, we may be asked to participate in another round of financing by the company. There is no assurance that we will make,
or have sufficient funds to make, these follow-on investments. Any decision to not make an additional investment in a portfolio
company may have a negative impact on the portfolio company in need of the capital, and have a negative impact on our ownership
in the company.



27







Risks
related to our Common Stock



We
may not begin to declare and pay regular cash dividends.



In
connection with our proposed RIC Election, we expect to adopt a new dividend policy that includes regular cash dividends to shareholders.
While we intend to adopt a new dividend policy that includes regular cash dividends to shareholders, we cannot assure you that
we will declare and pay any dividends. All dividends will be paid at the discretion of our Board and will depend on our earnings,
our financial condition, maintenance of our status as a RIC and such other factors as our Board may deem relevant from time to
time. In addition, with respect to Rand SBIC, any dividend or distribution from Rand SBIC to Rand will need to be in compliance
with the rules and regulations of the SBA and, if Rand SBIC is unable to comply with the SBA’s rules and regulations, require
Rand SBIC to seek and obtain approval or a waiver from the SBA in order to make any such dividend or distribution. We cannot assure
you that Rand SBIC will be able to obtain any such approval or waiver from the SBA. Our ability to declare and pay regular cash
dividends will depend upon whether we achieve investment results that will allow us to pay a specified level of cash dividends.
Our ability to pay dividends might be adversely affected by, among other things, RCM’s inability to successfully or timely
execute on its investment strategy and the impact of one or more of the other risk factors described herein.



East
exercises significant influence over us in connection with its ownership of our common stock and as a result of its ownership
position in RCM.



East
beneficially owns approximately 58% of Rand’s outstanding common stock. As a result, East is able to direct the outcome
of any matters submitted for shareholder action, including approval of significant corporate transactions, such as amendments
to our governing documents, business combinations, consolidations and mergers. East has substantial influence on us, and could
exercise its influence in a manner that conflicts with the interests of other shareholders. The presence of a significant shareholder
may also have the effect of making it more difficult for a third party to acquire us or for the Board to discourage a third party
from seeking to acquire us.



In
addition, pursuant to the terms of the Shareholder Agreement, East has the right to designate two or three persons, depending
upon the size of the Board, for nomination for election to the Board. East has the right to designate (i) up to two persons if
the size of the Board is composed of fewer than seven directors or (ii) up to three persons if the size of the Board is composed
of seven or more directors. Under the terms of the Shareholder Agreement, East has designated Adam S. Gusky and Benjamin E. Godley
for nomination for election to the Board. The designation right provided to East under the terms of the Shareholder Agreement
provides East with a significant presence on the Board and direct influence on matters presented to the Board, although all directors,
whether or not nominated by East, owe fiduciary duties to all shareholders.



Finally,
East has a significant ownership position in RCM, which serves as our investment adviser and administrator. Given this ownership
position in RCM, East has significant influence on the operations of RCM, including with respect to the investment management
and administrative services provided by RCM to the Corporation.



Investing
in our shares may be inappropriate for an investor’s risk tolerance.



Our
investments, in accordance with our investment objective and principal strategies, result in a greater than average amount of
risk and volatility and may result in loss of principal. Our investments in portfolio companies are highly speculative and aggressive
and, therefore, an investment in our shares may not be suitable for investors for whom such risk is inappropriate. Neither our
investments nor an investment in our shares constitutes a balanced investment program.



28







Sales
of substantial amounts of our common stock may have an adverse effect on the market price of our securities.



Sales
of substantial amounts of our common stock, or the availability of such securities for sale, could adversely affect the prevailing
market prices for our common stock.



Our
shares often trade at a discount to our net asset value.



Shares
of business development companies may trade at a market price that is less than the net asset value that is attributable to those
shares and our shares have often traded at such a discount. This characteristic of closed-end investment companies is separate
and distinct from the risk that our net asset value per share may decline. It is not possible to predict if, or when, our shares
will trade at, above, or below net asset value.



Item
1B. Unresolved Staff Comments



Not
applicable.



Item
2. Properties



We
do not own any real estate or other physical properties. Our corporate headquarters is located at 2200 Rand Building, Buffalo
NY.



Item 3. Legal Proceedings



None.



Item
4. Mine Safety Disclosures



Not
applicable.



29







Part
II



Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



Our
common stock (“Common Stock”) is traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol “RAND.”



We
have historically not paid any cash dividends to shareholders. However, on March 3, 2020 the Board of Directors declared a dividend
of $1.62 per share of Common Stock, in connection with its plans to elect to become a RIC for U.S. federal tax purposes. The special
dividend will be paid in a combination of cash and shares of Common Stock to shareholders of record at the close of business on
April 2, 2020. The total amount of cash to be distributed to all shareholders will be limited to 20% of the total dividend to
be paid, excluding any cash paid for fractional shares. The remaining 80% of the dividend will be paid in shares of Common Stock.
The exact distribution of cash and stock to any given shareholder will depend upon their election as well as elections of other
shareholders, subject to the pro-rata limitation. The Corporation expects to complete the distribution of the special dividend
on or about May 11, 2020. As described in greater detail in “Part 1 Business — Taxation as a Regulated Investment
Company,” in connection with the RIC Election, in order to meet the Annual Distribution Requirement, the Board plans to
adopt a regular dividend policy that consists of a regular quarterly cash dividend to shareholders.



|Issuer Purchases of Equity Securities
|-------------------------------------
|Period                               
|10/1 – 10/31/2019                    
|11/1 – 11/30/2019                    
|12/1 – 12/31/2019                    



| | (1) | There
    were no shares repurchased during the fourth quarter of 2019.                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The
    average price paid per share is calculated on a settlement basis and includes commission.                                                                                                                                              
| | (3) | On
    October 24, 2019, the Board of Directors extended the repurchase authorization of up to 1,541,046 shares of the Common Stock
    on the open market at prices no greater than the then current net asset value through October 25, 2020.



Shareholders
of Record



On
March 4, 2020, we had a total of approximately 961 shareholders, which included 74 record holders of our Common Stock, and an
estimated 887 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks.



30







Corporation
Performance Graph



The
following graph shows a five-year comparison of cumulative total shareholder returns for our Common Stock, the Nasdaq Market Index,
and an old and new peer group, assuming a base index of $100 at the end of 2014. The cumulative total return for each annual period
within the five years presented is measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement
period, assuming dividend reinvestment, and (B) the difference between share prices at the end and at the beginning of the measurement
period by (2) the share price at the beginning of the measurement period.







Comparison
of cumulative total return of one or more companies, peer groups, industry indexes and/or broad markets



|                         |  | YEAR ENDED DECEMBER 31, |       
|------------------------ |  | ----------------------- | ------
|Company/Index/Market     |  | 2014                    |       
|Rand Capital Corporation |  | $                       | 100.00
|NASDAQ Market Index      |  | $                       | 100.00
|New Peer Group Index     |  | $                       | 100.00
|Old Peer Group Index     |  | $                       | 100.00



The
new peer group is comprised of the following companies:



Harvest
Capital Credit Corporation (NasdaqGM: HCAP)

Great
Elm Capital Corp. (NasdaqGM: GECC)

Portman
Ridge Financial Corp (NasdaqGS: PTMN)

Garrison
Capital (NasdaqGS: GARS)

Investcorp
Credit Management BDC Inc. (NasdaqGS: ICMB)



The
old peer group was comprised of the following companies:



Equus
Total Return, Inc. (NYSE: EQS)

Firsthand
Technology Value Fund, Inc. (NasdaqGS: SVVC)

GSV
Capital Corp. (NasdaqCM: GSVC)

180
Degree Capital Corp. (NasdaqGM: TURN)



We
selected the new peer group because it is our belief that the five issuers included in this group are organized and have investment
objectives that are similar to ours, as they are each an externally managed BDC that pays a regular cash dividend, and among the
publicly traded companies, they are relatively similar in size to us. The old peer group consisted of companies that were focused
on a total return model that returned value to shareholders through realized gains on their equity investments and share price
appreciation, but did not pay a dividend.



The
performance graph information provided above will not be deemed to be “soliciting material” or “filed”
with the SEC or subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act, unless
in the future we specifically request that the information be treated as soliciting material or specifically incorporate it by
reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.



31







Item
6. Selected Financial Data



The
following table provides selected consolidated financial data for the periods indicated. You should read the selected financial
data set forth below in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and with the consolidated financial statements and related notes appearing within Item 8 of this
Annual Report.



|                                      |  | Balance Sheet Data as of December 31: |           
|------------------------------------- |  | ------------------------------------- | ----------
|                                      |  | 2019                                  |           
|Total assets                          |  | $                                     | 64,791,449
|Total liabilities                     |  | $                                     | 11,162,933
|Net assets                            |  | $                                     | 53,628,516
|Net asset value per outstanding share |  | $                                     | 3.66      
|Shares of common stock outstanding    |  |                                       | 14,655,321



|                                                                                 |  | Operating Data for the Years Ended December 31: |           
|-------------------------------------------------------------------------------- |  | ----------------------------------------------- | ----------
|                                                                                 |  | 2019                                            |           
|Investment income                                                                |  | $                                               | 2,724,696 
|Total expenses                                                                   |  | $                                               | 2,770,716 
|Net investment (loss) gain, net of tax                                           |  | $                                               | (85,697   
|Net realized gain (loss) on sales and dispositions of investments, net of tax    |  | $                                               | 861,838   
|Net change in unrealized depreciation or appreciation on investments, net of tax |  | $                                               | (3,065,811
|Net (decrease) increase in net assets from operations                            |  | $                                               | (2,289,670



32







Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations



You
should read the following discussion and analysis of our financial condition and results of operations in conjunction with the
consolidated financial statements and related notes included within Item 8 of this Annual Report.



FORWARD
LOOKING STATEMENTS



Statements
included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in
this Annual Report that do not relate to present or historical conditions are “forward-looking statements” within
the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Exchange Act, including
with respect to our planned RIC Election and intended regular cash dividends to shareholders. Additional oral or written forward-looking
statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with
the SEC. Forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially
from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements
relating to our plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,”
“intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans”
and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements
are based are assumptions concerning the state of the United States economy and the local markets in which our portfolio companies
operate, the state of the securities markets in which the securities of our portfolio companies could be traded, liquidity within
the United States financial markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described under the caption “Risk Factors” contained in Part I, Item 1A of this Annual Report.



There
may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement
speaks only as of the date when it is made and, except as required by law, we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect,
and we cannot predict all of them.



Overview



We
are an externally managed investment company that lends to and invests in small to medium sized companies. We have elected to
be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940
Act”). As a BDC, we are required to comply with certain regulatory requirements. We have historically made the majority
of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (“Rand SBIC”), which operates as a
small business investment company (“SBIC”) and has been licensed by the U.S. Small Business Administration (“SBA”)
since 2002.



On
November 8, 2019, Rand completed a stock sale transaction (the “Closing”) with East Asset Management (“East”).
The stock sale transaction consisted of a $25 million investment in Rand by East, in exchange for approximately 8.3 million shares
of Rand common stock. The consideration paid by East for the shares of Rand common stock was comprised of $15.5 million of cash
and a contribution of $9.5 million of portfolio assets. Concurrent with the Closing of the stock sale transaction with East, Rand’s
management and staff became employees of Rand Capital Management, LLC (“RCM”), a registered investment adviser that
has been retained by Rand as its external investment adviser. In connection with retaining RCM as our investment adviser, Rand
entered into an investment advisory and management agreement (the “Investment Management Agreement”) and an administration
agreement (the “Administration Agreement”) with RCM pursuant to which RCM will serve as Rand’s investment adviser
and administrator. Pursuant to the terms of the Investment Management Agreement, Rand will pay RCM a base management fee and may
pay an incentive fee.



33







With
the completion of the Transactions, we also changed our investment objectives and strategy. We have adopted an investment strategy
focused on higher yielding debt investments. We intend to elect U.S. federal tax treatment as a RIC and, if such RIC Election
occurs, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we
timely distribute to our shareholders as dividends. To maintain our RIC status, we need to meet specified source-of-income and
asset diversification requirements and distribute annually to our stockholders at least 90.0% of our ordinary net income and realized
net short-term capital gains in excess of realized net long-term capital losses, if any. Accordingly, our Board has expressed
its intent to adopt a new dividend policy that may include regular cash dividends to shareholders going forward.



At
the end of 2019, we had $25.8 million in cash and cash equivalents available for future investments and expenses, an increase
of $21.8 million from the end of 2018. The increase was primarily due to the approximately $15.5 million received in November
2019 as part of the stock sale transaction with East and $6.6 million in portfolio company loans repaid during 2019 as well as
$2.25 million of additional SBA leverage drawn down during the year ended December 31, 2019.



2019
Portfolio and Investment Activity



We
believe the change in net asset value over time is the leading metric of performance. Exits from our portfolio holdings are the
key driver of growth in net asset value over time.



| | ● | Net
    asset value of our portfolio decreased to $3.66 per share, or $53.6 million, at December 31, 2019, down ($1.33) per share,
    or (26.7%), compared with net asset value of $4.99 per share, or $31.5 million, at the end of the prior year. NAV benefited
    from the net gain on the sale of the equity investment in Microcision as well as an increase in net unrealized appreciation
    in other portfolio investments, including ACV Auctions, Inc., in accordance with our valuation policy. Offsetting this was
    the $0.83 per share dilutive impact of issuing approximately 8.3 million shares to East in conjunction with the closing of
    the stock sale transaction in November 2019.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | At
    year end, the estimated value of our portfolio, which included investments in securities from 32 active companies, was $37.0
    million. This value included $7.6 million in net pre-tax unrealized depreciation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | Approximately
    59% of the portfolio was in equity investments with the remainder being debt and loan investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ● | The
    portfolio generated approximately $2.7 million in interest, fee, dividend and other income in 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ● | During
    2019, we invested $2.79 million in six companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



Trends
and Opportunities



We
believe the combination of cash on hand, proceeds from portfolio exits, SBA leverage, and prospective investment income provide
sufficient capital for us to continue to add new investments to our portfolio while reinvesting in existing portfolio companies
that demonstrate continued growth potential.



The
following short and long-term trends provide us confidence in our ability to grow Rand:



| | ● | We
    expect that well run businesses will require capital to grow and should be able to compete effectively given eager reception
    of new technologies and service concepts, regardless of the macroeconomic environment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | We
    continue to manage risk by investing with other investors, when possible.                                                                                                                                              



34







| | ● | We
    are involved with the governance and management of a majority of our portfolio companies, which enables us to support their
    operating and marketing efforts and facilitate their growth.                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | As
    our portfolio expands, we are able to better leverage our infrastructure.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ● | We
    believe receipt of cash and portfolio assets as consideration in the stock sale transaction with East, as well as the establishment
    of RCM as our external investment advisor, broadens our potential pipeline of investment opportunities in order to build our
    portfolio and grow further. Strategically, we expect to advance our efforts to increase our income-producing investments so
    as to support a regular cash dividend for shareholders and complement our equity investments that drive capital appreciation.
| | ● | We
    have sufficient cash to invest in new opportunities and to repurchase shares. At the year end, we had authorization to repurchase
    an additional 1,000,000 shares of our Common Stock.                                                                                                                                                                                                                                                                                                                                             



Critical
Accounting Policies



We
prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, or GAAP,
which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. For a summary of
all significant accounting policies, including critical accounting policies, see Note 1 to the consolidated financial statements
in Item 8 of this Annual Report.



The
increasing complexity of the business environment and applicable authoritative accounting guidance require us to monitor our accounting
policies and procedures. We have two critical accounting policies that require the use of significant judgment. The following
summary of critical accounting policies is intended to enhance a reader’s ability to assess our financial condition and
results of operations and the potential volatility due to changes in estimates.



Valuation
of Investments



Investments
are valued at fair value as determined in good faith by RCM and approved by our Board of Directors. We invest in loan, debt, and
equity instruments and there is no single standard for determining fair value of these investments. As a result, determining fair
value requires that judgment be applied to the specific facts and circumstances of each portfolio company while employing a consistent
valuation process. We analyze and value each investment quarterly, and record unrealized depreciation for an investment that we
believe has become impaired, including where collection of a loan or realization of the recorded value of an equity security is
doubtful. Conversely, we will record unrealized appreciation if we believe that an underlying portfolio company has appreciated
in value and, therefore, its equity security has also appreciated in value. These estimated fair values may differ from the values
that would have been used had a ready market for the investments existed and these differences could be material if our assumptions
and judgments differ from results of actual liquidation events.



Our
investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820, “Fair Value Measurements
and Disclosures”, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurements.



Loan
investments are defined as traditional loan financings with no equity features. Debt investments are defined as debt financings
that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A
financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the
portfolio company.



35







We
utilize several approaches to determine the fair value of an investment. The main approaches are:



| | ● | Loan
    and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets
    or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they
    may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of
    the investment. A loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in
    doubt or insufficient liquidation proceeds exist.                                                                                                                                                                                                                                                                                                                                     
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ● | Equity
    securities may be valued using the “asset approach”, “market approach” or “income approach.”
    The asset approach involves estimating the liquidation value of the portfolio company’s assets. This approach values
    the equity at the value remaining after the portfolio company pays of its debt and loan balances and its outstanding liabilities.
    The market approach uses observable prices and other relevant information generated by similar market transactions. It may
    include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, we
    adjust valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing
    by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an
    investment.



ASC
820 classifies the inputs used to measure fair value into the following hierarchy:



Level
1: Quoted prices in active markets for identical assets or liabilities, used in our valuation at the measurement date.



Level
2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities
in markets that are not active, or other observable inputs other than quoted prices.



Level
3: Unobservable and significant inputs to determining the fair value.



Financial
assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.



Any
changes in estimated fair value are recorded in the statement of operations as “Net change in unrealized depreciation on
investments.”



Under
the valuation policy, we value unrestricted publicly traded companies, categorized as Level 1 investments, at the average closing
bid price for the last three trading days of the reporting period. There were no Level 1 or Level 2 investments as of December
31, 2019.



In
the valuation process, we value restricted securities, categorized as Level 3 investments, using information from these portfolio
companies, which may include:



| | ● | Audited
    and unaudited statements of operations, balance sheets and operating budgets;                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | Current
    and projected financial, operational and technological developments of the portfolio company;                                            
| | ● | Current
    and projected ability of the portfolio company to service its debt obligations;                                                          
| | ● | The
    current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event
    were to occur;
| | ● | Pending
    debt or capital restructuring of the portfolio company;                                                                                  
| | ● | Current
    information regarding any offers to purchase the investment, or recent fundraising transactions;                                         
| | ● | Current
    ability of the portfolio company to raise additional financing if needed;                                                                
| | ● | Changes
    in the economic environment which may have a material impact on the operating results of the portfolio company;                          
| | ● | Internal
    circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio
    company;
| | ● | Qualitative
    assessment of key management;                                                                                                        
| | ● | Contractual
    rights, obligations or restrictions associated with the investment; and                                                              
| | ● | Other
    factors deemed relevant to assess valuation.                                                                                               



36







The
valuation may be reduced if a portfolio company’s performance and potential have deteriorated significantly. If the factors
that led to a reduction in valuation are overcome, the valuation may be readjusted.



Equity
Securities



Equity
Securities may include preferred stock, common stock, warrants and limited liability company membership interests.



The
significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest, taxes
and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance
of the business, and the senior equity preferences that may exist in a deemed liquidation event. Standard industry multiples may
be used when available; however, our portfolio companies are typically small and in early stages of development and these industry
standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company. Due
to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals.
Significant changes to the unobservable inputs, such as variances in financial performance from expectations, may result in a
significantly higher or lower fair value measurement. Significant changes in any of these unobservable inputs may result in a
significantly higher or lower fair value estimate.



Another
key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic
unrelated new investor entered into by the portfolio company. The terms of these equity transactions may not be identical to the
equity transactions between the portfolio company and us, and the impact of the difference in transaction terms on the market
value of the portfolio company may be difficult or impossible to quantify.



When
appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model
requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the
valuation of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable
inputs may result in a significantly higher or lower fair value estimate.



For
recent investments, we generally rely on the cost basis, which is deemed to represent fair value, unless other fair market value
inputs are identified causing us to depart from this basis.



Loans
and Debt Securities



The
significant unobservable inputs used in the fair value measurement of our loan and debt securities are the financial and operational
performance of the portfolio company, similar debt with similar terms with other portfolio companies, current market rates for
underlying risks associated with the particular company, as well as the market acceptance of the portfolio company’s products
or services and its future performance. These inputs will likely provide an indicator as to the probability of principal recovery
of the investment. Our debt investments are often junior secured or unsecured debt securities. Fair value may also be determined
based on other criteria where appropriate. Significant changes to the unobservable inputs may result in a change in fair value.



For
recent investments, we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair market
value inputs are identified causing us to depart from this basis.



37







Revenue
Recognition



Interest
income generally is recognized on the accrual basis except where the investment is in default or otherwise presumed to be in doubt.
In such cases, interest income is recognized at the time of receipt. A reserve for possible losses on interest receivable is maintained
when appropriate.



Our
SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting Requirements
for Small Business Investment Companies.” Under these rules, interest income cannot be recognized if collection is doubtful,
and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial doubt
about a portfolio company’s ability to continue as a going concern or the loan is in default more than 120 days. RCM also
uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of any
accrued interest.



We
hold debt securities in our investment portfolio that contain payment-in-kind (“PIK”) interest provisions. PIK interest,
computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt
and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal
repayment.



We
may receive distributions from portfolio companies that are limited liability companies or corporations. These distributions are
classified as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when
it can be reasonably estimated.



We
hold preferred equity securities that may contain cumulative dividend provisions. Cumulative dividends are recorded as dividend
income when they are declared and deemed a contractual obligation. Any dividends in arrears are added to the balance of the preferred
equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred security
is redeemed.



38







Financial
Condition



Overview:



|                  |  | 12/31/19 |            |  | 12/31/18 |   |            | Increase |  |   | %
    Increase | 
|----------------- |  | -------- | ---------- |  | -------- | - | ---------- | -------- |  | - | -------------- | 
|Total assets      |  | $        | 64,791,449 |  |          | $ | 40,521,724 |          |  | $ | 24,269,725     | 
|Total liabilities |  |          | 11,162,933 |  |          |   | 8,997,537  |          |  |   | 2,165,396      | 
|Net assets        |  | $        | 53,628,516 |  |          | $ | 31,524,187 |          |  | $ | 22,104,329     | 



Net
asset value was $3.66 per share at December 31, 2019 versus $4.99 per share at December 31, 2018.



The
outstanding SBA debentures at December 31, 2019 and 2018 were $11,000,000 and $8,750,000, respectively. The debentures mature
from 2022 through 2029.



Cash
approximated 48% of net assets at December 31, 2019 compared to 13% at December 31, 2018.



Composition
of the Investment Portfolio



Our
financial condition is dependent on the success of our portfolio holdings, which are investments in small companies. The following
summarizes our investment portfolio at the year ends indicated.



|                                     |  | 12/31/19 |            |   | 12/31/18 |   |            | Change |  |   | %
    Change |  
|------------------------------------ |  | -------- | ---------- | - | -------- | - | ---------- | ------ |  | - | ------------ | -
|Investments, at cost                 |  | $        | 44,619,463 |   |          | $ | 38,292,143 |        |  | $ | 6,327,320    |  
|Unrealized depreciation,
    net     |  |          | (7,598,671 | ) |          |   | (3,625,339 | )      |  |   | (3,973,332   | )
|Investments,
    at fair value       |  | $        | 37,020,792 |   |          | $ | 34,666,804 |        |  | $ | 2,353,988    |  
|Number of Active Portfolio Companies |  |          | 32         |   |          |   | 30         |        |  |   |              |  



Our
total investments at fair value, as estimated by RCM, and approved by the Board of Directors, approximated 69% of net assets at
December 31, 2019 and 110% of net assets at December 31, 2018.



The
change in investments, at cost, during the year ended December 31, 2019, is comprised of the following:



|New and contributed investments:                                      |  | Cost
Increase
(Decrease) |           
|--------------------------------------------------------------------- |  | ------------------------ | ----------
|AIKG
    LLC (Andretti)                                               |  | $                        | 4,398,125 
|Filterworks Acquisition
    USA, LLC (Filterworks)                    |  |                          | 2,865,152 
|GoNoodle, Inc. (GoNoodle)                                             |  |                          | 1,500,037 
|HDI Acquisition
    LLC (Hilton Displays)                             |  |                          | 1,249,539 
|Mattison Avenue
    Holdings LLC (Mattison)                           |  |                          | 1,036,678 
|Tilson Technology
    Management, Inc. (Tilson)                       |  |                          | 500,012   
|Genicon Inc. (Genicon)                                                |  |                          | 250,000   
|Tech 2000, Inc.
    (Tech 2000)                                       |  |                          | 250,000   
|Open Exchange, Inc.
    (formerly KnowledgeVision) (Open Exchange)    |  |                          | 150,000   
|Advantage
    24/7 LLC (Advantage 24/7)                               |  |                          | 140,000   
|Total of new and
    contributed investments                          |  |                          | 12,339,543
|                                                                      |  |                          |           
|Other changes to
    investments:                                     |  |                          |           
|Genicon interest
    conversion and OID amortization                  |  |                          | 354,172   
|Open Exchange interest
    conversion                                 |  |                          | 126,939   
|Empire Genomics
    interest conversion                               |  |                          | 75,481    
|PostProcess Technologies,
    Inc. (Post Process) interest conversion |  |                          | 48,875    
|Microcision LLC
    (Microcision) interest conversion                 |  |                          | 19,406    
|GoNoodle
    interest conversion                                      |  |                          | 11,178    
|Total of other changes
    to investments                             |  |                          | 636,051   
|                                                                      |  |                          |           
|Investments repaid,
    sold or liquidated:                           |  |                          |           
|eHealth Global Technologies,
    Inc. (eHealth) repayment             |  |                          | (3,500,000
|GoNoodle repayment                                                    |  |                          | (1,048,382
|Tilson repayment                                                      |  |                          | (1,000,000
|SOMS Technologies,
    LLC (SOMS) realized loss                       |  |                          | (472,632  
|Microcision repayment                                                 |  |                          | (452,760  
|Advantage
    24/7 repayment                                          |  |                          | (174,500  
|Total
    of investments repaid, sold or liquidated                   |  |                          | (6,648,274
|                                                                      |  |                          |           
|Net
    change in investments, at cost                                |  | $                        | 6,327,320 



39







Our
top five portfolio companies represented 54% of total assets at December 31, 2019:



|Company                            |  | Industry              |  | Fair
    Value at
December 31, 2019 |           |  | %
    of Total
Assets at
December 31,
2019 | 
|---------------------------------- |  | --------------------- |  | ----------------------------------- | --------- |  | ------------------------------------------ | 
|ACV Auctions, Inc.                 |  | Software              |  | $                                   | 6,531,815 |  |                                            | 
|AIKG LLC (Andretti)                |  | Entertainment         |  | $                                   | 4,398,125 |  |                                            | 
|Tilson Technology Management, Inc. |  | Professional Services |  | $                                   | 3,960,012 |  |                                            | 
|Filterworks Acquisition USA, LLC   |  | Automotive            |  | $                                   | 2,865,153 |  |                                            | 
|Outmatch Holdings, LLC             |  | Software              |  | $                                   | 2,145,498 |  |                                            | 



Our
top five portfolio companies represented 39% of total assets at December 31, 2018:



|Company                            |  | Industry                         |  | Fair
    Value at December 31, 2018 |           |  | %
    of Total
Assets at
December 31,
2018 | 
|---------------------------------- |  | -------------------------------- |  | ----------------------------------- | --------- |  | ------------------------------------------ | 
|Genicon, Inc.                      |  | Health Care – Testing
    Device |  | $                                   | 4,423,086 |  |                                            | 
|eHealth Global Technologies, Inc.  |  | Health Care                      |  | $                                   | 3,500,000 |  |                                            | 
|ACV Auctions, Inc.                 |  | Software                         |  | $                                   | 2,776,907 |  |                                            | 
|Tilson Technology Management, Inc. |  | Professional Services            |  | $                                   | 2,600,000 |  |                                            | 
|Microcision, LLC                   |  | Manufacturing                    |  | $                                   | 2,543,353 |  |                                            | 



Below
is the geographic breakdown of our investments at fair value as of December 31, 2019 and 2018:



|Geographic
    Region                           |  | %
    of Net Asset 
    Value at 
    December 31, 2019 |    |   | %
    of Net Asset 
    Value at 
    December 31, 2018 | 
|----------------------------------------------- |  | ------------------------------------------------------- | -- | - | ------------------------------------------------------- | 
|USA
    – East                                  |  |                                                         | 41 | % |                                                         | 
|USA
    - South                                 |  |                                                         | 28 | % |                                                         | 
|Total investments
    as a % of net asset value |  |                                                         | 69 | % |                                                         | 



40







As
of December 31, 2019 and 2018, the investment portfolio consisted of the following types of investments:



|                                           |  | Cost |            |  | Percentage
    
    of Total Portfolio |  |     | Fair
    Value |  |   | Percentage
    
    of Total Portfolio | 
|------------------------------------------ |  | ---- | ---------- |  | -------------------------------------- |  | --- | -------------- |  | - | -------------------------------------- | 
|December
    31, 2019:                     |  |      |            |  |                                        |  |     |                |  |   |                                        | 
|Subordinated Debt and Promissory
    Notes |  | $    | 19,148,942 |  |                                        |  | 43  | %              |  | $ | 15,060,145                             | 
|Convertible Debt                           |  |      | 1,571,302  |  |                                        |  | 3   |                |  |   | 157,654                                | 
|Equity and Membership Interests            |  |      | 23,119,031 |  |                                        |  | 52  |                |  |   | 21,802,930                             | 
|Equity Warrants                            |  |      | 780,188    |  |                                        |  | 2   |                |  |   | 63                                     | 
|Total                                      |  | $    | 44,619,463 |  |                                        |  | 100 | %              |  | $ | 37,020,792                             | 
|December
    31, 2018:                     |  |      |            |  |                                        |  |     |                |  |   |                                        | 
|Subordinated Debt and Promissory Notes     |  | $    | 14,017,541 |  |                                        |  | 36  | %              |  | $ | 13,296,948                             | 
|Convertible Debt                           |  |      | 1,866,615  |  |                                        |  | 5   |                |  |   | 1,036,808                              | 
|Equity and Membership Interests            |  |      | 22,155,337 |  |                                        |  | 58  |                |  |   | 20,260,523                             | 
|Equity Warrants                            |  |      | 252,650    |  |                                        |  | 1   |                |  |   | 72,525                                 | 
|Total                                      |  | $    | 38,292,143 |  |                                        |  | 100 | %              |  | $ | 34,666,804                             | 



41







Results
of Operations



Investment
Income



Comparison
of the years ended December 31, 2019 and 2018



|                                      |  | December
    31, 2019 |           |  | December
    31, 2018 |   |           | Increase |  |   | %
    Increase | 
|------------------------------------- |  | --------------------- | --------- |  | --------------------- | - | --------- | -------- |  | - | -------------- | 
|Interest from portfolio
    companies |  | $                     | 1,520,540 |  |                       | $ | 1,498,740 |          |  | $ | 21,800         | 
|Interest from other investments       |  |                       | 166,556   |  |                       |   | 37,614    |          |  |   | 128,942        | 
|Dividend and other investment income  |  |                       | 579,848   |  |                       |   | 384,382   |          |  |   | 195,466        | 
|Fee income                            |  |                       | 457,752   |  |                       |   | 186,218   |          |  |   | 271,534        | 
|Total
    investment income           |  | $                     | 2,724,696 |  |                       | $ | 2,106,954 |          |  | $ | 617,742        | 



Investment
income was received, on a current basis, during the year ended December 31, 2019 from 17 portfolio companies. This is an increase
from the 9 portfolio companies generating current investment income for the year ended December 31, 2018.



Interest
from portfolio companies – Interest from portfolio companies was substantially unchanged during the year ended December
31, 2019 compared to the year ended December 31, 2018.



The
following investments are on non-accrual status: BeetNPath, LLC (Beetnpath), G-TEC Natural Gas Systems (G-Tec) and a portion of
the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balances.



Interest
from other investments - The increase in interest from other investments is primarily due to higher interest rates and higher
average cash balance during the year ended December 31, 2019 versus the year ended December 31, 2018.



Dividend
and other investment income - Dividend income is comprised of cash distributions from limited liability companies (LLCs) and
corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to
us for payment of income taxes on our allocable share of the LLC’s profits. These portfolio companies may also elect to
make additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and corporations
and the timing of the distributions or the impact of new investments or divestitures. The dividend distributions for the respective
periods were:



|                                                      |  | December
    31, 2019 |         |  | December
    31, 2018 |  
|----------------------------------------------------- |  | --------------------- | ------- |  | --------------------- | -
|Somerset Gas Transmission
    Company, LLC (Somerset) |  | $                     | 256,542 |  |                       | $
|Knoa Software, Inc. (Knoa)                            |  |                       | 193,934 |  |                       |  
|Carolina Skiff LLC (Carolina Skiff)                   |  |                       | 76,914  |  |                       |  
|Tilson Technology Management, Inc. (Tilson)           |  |                       | 49,958  |  |                       |  
|Advantage 24/7 LLC (Advantage 24/7)                   |  |                       | 2,500   |  |                       |  
|New Monarch Machine Tool, Inc. (New
    Monarch)      |  |                       | -       |  |                       |  
|Empire Genomics
    LLC (Empire Genomics)             |  |                       | -       |  |                       |  
|Total
    dividend and other investment income        |  | $                     | 579,848 |  |                       | $



Fee
income - Fee income generally consists of the revenue associated with the amortization of financing fees charged to the portfolio
companies upon successful closing of SBIC financings, income from portfolio company board attendance fees and other miscellaneous
fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized fees
are carried on the balance sheet under the line item “Deferred revenue.”



42







The
income associated with the amortization of financing fees was $69,252 and $41,872 for the years ended December 31, 2019 and 2018,
respectively. During the year ended December 31, 2019, we recognized a one-time fee of $225,000 in conjunction with the repayment
of the eHealth Global Technologies, Inc. (eHealth) loan instrument, a one-time $112,500 change of control fee from Open Exchange,
Inc. (Open Exchange) and a one-time loan modification fee of $50,000 from GoNoodle, Inc. (GoNoodle). During the year ended December
31, 2018, we recorded a one-time debt modification fee approximately $142,000 from Empire Genomics, which was capitalized into
the Empire Genomics loan balance as part of the debt modification.



The
board fees were $1,000 and $2,000 for the years ended December 31, 2019 and 2018, respectively.



Comparison
of the years ended December 31, 2018 and 2017



|                                      |  | December
    31, 2018 |           |  | December
    31, 2017 |   |           | Increase |  |   | %
    Increase | 
|------------------------------------- |  | --------------------- | --------- |  | --------------------- | - | --------- | -------- |  | - | -------------- | 
|Interest from portfolio
    companies |  | $                     | 1,498,740 |  |                       | $ | 1,155,316 |          |  | $ | 343,424        | 
|Interest from other investments       |  |                       | 37,614    |  |                       |   | 30,761    |          |  |   | 6,853          | 
|Dividend and other investment income  |  |                       | 384,382   |  |                       |   | 243,614   |          |  |   | 140,768        | 
|Fee income                            |  |                       | 186,218   |  |                       |   | 25,091    |          |  |   | 161,127        | 
|Total investment
    income           |  | $                     | 2,106,954 |  |                       | $ | 1,454,782 |          |  | $ | 652,172        | 



Investment
income that was received on a current basis for the year ended December 31, 2018 was received from 9 portfolio companies. This
contrasts with the 11 portfolio companies generating current investment income for the year ended December 31, 2017.



Interest
from portfolio companies – Interest from portfolio companies was approximately 30% higher during the year ended December
31, 2018 versus the same period in 2017 due to the fact that we originated more income-producing debt investments during 2018.
The new debt instruments were originated from KnowledgeVision Systems, Inc. (Knowledgevision), Tech 2000, Inc. (Tech 2000), Genicon
Inc. (Genicon) and several other portfolio companies. In addition, during 2018 the Empire Genomics loans were modified and resulted
in a recording of interest that had previously not been accrued of approximately $91,000. This amount was capitalized into the
loan balance as part of the debt modification and is non-recurring.



The
following investments are on non-accrual status: G-TEC Natural Gas Systems (G-Tec) and a portion of the Mercantile Adjustment
Bureau, LLC (Mercantile) outstanding loan balances.



Interest
from other investments - The increase in interest from other investments was primarily due to higher average cash balances
during the year ended December 31, 2018 versus the year ended December 31, 2017.



Dividend
and other investment income - Dividend income is comprised of:



|                                               |  | December
    31, 2018 |         |  | December
    31, 2017 |  
|---------------------------------------------- |  | --------------------- | ------- |  | --------------------- | -
|Carolina Skiff LLC (Carolina
    Skiff)        |  | $                     | 251,913 |  |                       | $
|Advantage 24/7 LLC (Advantage 24/7)            |  |                       | 60,000  |  |                       |  
|Tilson Technology Management, Inc. (Tilson)    |  |                       | 39,002  |  |                       |  
|New Monarch Machine Tool, LLC (Monarch)        |  |                       | 27,409  |  |                       |  
|Empire Genomics, LLC (Empire Genomics)         |  |                       | 6,058   |  |                       |  
|SOMS Technologies,
    LLC (SOMS)              |  |                       | -       |  |                       |  
|Total dividend
    and other investment income |  | $                     | 384,382 |  |                       | $



Fee
income – The income associated with the amortization of financing fees was $41,872 and $24,091 for the years ended December
31, 2018 and 2017, respectively. In addition, we recorded a one-time debt modification fee of approximately $142,000 from Empire
Genomics, which was capitalized into the Empire Genomics loan balances as part of the debt modification.



43







Fees
paid for board service at the portfolio companies were $2,000 and $1,000 for the years ended December 31, 2018 and 2017, respectively.



Expenses



Comparison
of the years ended December 31, 2019 and 2018



|               |  | December
    31, 2019 |           |  | December
    31, 2018 |   |           | Increase |  |   | %
    Increase | 
|-------------- |  | --------------------- | --------- |  | --------------------- | - | --------- | -------- |  | - | -------------- | 
|Total expenses |  | $                     | 2,770,716 |  |                       | $ | 2,193,672 |          |  | $ | 577,044        | 



On
November 8, 2019, we completed a stock sale transaction with East Asset Management (East) and concurrently externalized the management
of our portfolio to Rand Capital Management, LLC (RCM) as our external investment adviser and administrator. Our primary operating
expenses, after the closing, include the payment of fees to RCM under the Investment Management Agreement, and our allocable portion
of overhead expenses and other administrative expenses under the Administration Agreement with RCM. Under the terms of Investment
Management Agreement, the compensation of the investment professionals of RCM and its staff, and the general office and overhead
expenses incurred by RCM in maintaining its place of business, will be provided and paid for by RCM and not by us. We will be
responsible for all other operating expenses, including those relating to:



| | (i)    | organization;                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)   | costs
    of calculating our net asset value (including the cost and expenses of any independent valuation firm);                                                                                                                                                                                                                                                                                                                                               
| | (iii)  | expenses
    incurred by RCM payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal
    affairs and in monitoring the our investments and performing due diligence on its prospective portfolio companies;                                                                                                                                                                                                
| | (iv)   | interest
    payable on debt, if any, incurred to finance our investments;                                                                                                                                                                                                                                                                                                                                                                                      
| | (v)    | offerings
    of our Common Stock and other securities;                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vi)   | investment
    advisory and management fees payable under the Investment Management Agreement, but excluding any fees payable to any Sub-Adviser;                                                                                                                                                                                                                                                                                                               
| | (vii)  | administration
    fees payable under the Administration Agreement;                                                                                                                                                                                                                                                                                                                                                                                             
| | (viii) | transfer
    agent and custodial fees;                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ix)   | federal
    and state registration fees;                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (x)    | all
    costs of registration and listing our shares on any securities exchange;                                                                                                                                                                                                                                                                                                                                                                                
| | (xi)   | federal,
    state and local taxes;                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (xii)  | independent
    directors’ fees and expenses;                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (xiii) | costs
    of preparing and filing reports or other documents required by governmental bodies (including the SEC);                                                                                                                                                                                                                                                                                                                                               
| | (xiv)  | costs
    of any reports, proxy statements or other notices to shareholders, including printing costs;                                                                                                                                                                                                                                                                                                                                                          
| | (xv)   | our
    allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance
    premiums;                                                                                                                                                                                                                                                                                                          
| | (xvi)  | direct
    costs and expenses of administration, including independent auditors and outside legal costs; and                                                                                                                                                                                                                                                                                                                                                    
| | (xvii) | all
    other expenses incurred by us or RCM in connection with administering our business (including payments under the Administration
    Agreement based upon our allocable portion of the RCM’s overhead in performing its obligations under the Administration
    Agreement, including rent and the allocable portion of the cost of our chief financial officer and chief compliance officer
    and their respective staffs (including travel expenses))



The
increase in expenses during the year ended December 31, 2019 versus the same period in 2018 was primarily caused by the additional
shareholder and professional fees required to close the Transactions in November 2019. Shareholder expense was $557,546 and $230,050
for the years ended December 31, 2019 and 2018, respectively, a 142% increase. Professional fees were $548,041 and $407,159 for
the years ended December 31, 2019 and 2018, respectively, a 35% increase.



Base
Management Fees payable to RCM for the year ended December 31, 2109 was $85,483. This represents Base Management Fees for the
period November 8, 2019 through December 31, 2019. There were no Incentive Fees earned for the year ended December 31, 2019 by
RCM.



44







Comparison
of the years ended December 31, 2018 and 2017



|               |  | December
    31, 2018 |           |  | December
    31, 2017 |   |           | Increase |  |   | %
    Increase | 
|-------------- |  | --------------------- | --------- |  | --------------------- | - | --------- | -------- |  | - | -------------- | 
|Total expenses |  | $                     | 2,193,672 |  |                       | $ | 2,010,977 |          |  | $ | 182,695        | 



Expenses
predominately consist of interest expense on outstanding SBA borrowings, compensation expense, and general and administrative
expenses, including stockholder and office operating expenses and professional fees.



The
increase in expenses during the year ended December 31, 2018 versus the same period in 2017 was primarily caused by a 14%, or
approximately $50,000, increase in professional fees. Professional fees were higher during 2018 primarily as a result of expenses
incurred in the consideration of strategic alternatives. These expenses included external legal, tax consulting and other advisory
expenses to support analysis of our strategic alternatives, which involved assessing options relative to the complex regulatory
environment in which we operate.



In
addition, bonus and profit sharing expense went from $12,000 during the year ended December 31, 2017 to $125,000 during the year
ended December 31, 2018, a $113,000 increase.



Net
Realized Gains and Losses on Investments



|                                                                            |  | December
    31, 2019 |           |  | December
    31, 2018 |   |            | December
    31, 2017 | 
|--------------------------------------------------------------------------- |  | --------------------- | --------- |  | --------------------- | - | ---------- | --------------------- | 
|Net realized gain (loss)
    on sales and dispositions, before income taxes |  | $                     | 1,117,761 |  |                       | $ | (1,464,142 | )                     | 



During
the year ended December 31, 2019, we sold our equity interest in Microcision LLC (Microcision) and recognized a gain of $1,510,000.
In addition, we realized a loss of $472,632 on our investment in SOMS Technologies, LLC after the company ceased doing business.
We also recognized a $40,500 gain on our investment in Advantage 24/7 LLC after the Corporation converted its equity into a debt
instrument, and we received a final distribution of proceeds of $39,893 from Gemcor II, LLC, a portfolio company we exited in
2016.



During
the year ended December 31, 2018, we recognized a realized loss of $1,125,673 on our investment in Intrinsiq Material, Inc. (Intrinsiq)
when the company was sold and we did not receive any proceeds. In addition, we restructured our notes in First Wave Technologies,
Inc. (First Wave) and converted the notes into equity. As part of that restructuring, we recognized a realized loss of $338,469
on the junior note and the warrants.



During
the year ended December 31, 2017, one of our portfolio companies, Athenex Inc. (Athenex) completed an initial public offering
and its common stock became publicly traded on the Nasdaq Global Select Market under the symbol “ATNX”. We sold our
shares in Athenex and recognized a net realized gain, before income taxes, of $638,240 on the sale of the 46,296 Athenex shares.
In addition, during 2017, we recognized a realized loss of $500,000 on our investment in City Dining Cards (Loupe) when the company
ceased operations.



45







Net
Change in Unrealized Depreciation on Investments



The
change in net unrealized depreciation, before income taxes, for the year ended December 31, 2019 was comprised of the following:



|                                                                                   |  | Year
    ended  December 31, 2019 |           
|---------------------------------------------------------------------------------- |  | --------------------------------- | ----------
|Genicon, Inc. (Genicon)                                                            |  | $                                 | (4,277,257
|Rheonix, Inc. (Rheonix)                                                            |  |                                   | (1,500,000
|SocialFlow, Inc. (Socialflow)                                                      |  |                                   | (1,321,300
|SciAps, Inc. (Sciaps)                                                              |  |                                   | (950,000  
|Microcision LLC (Microcision) realized
    gain                                    |  |                                   | (610,000  
|BeetNPath, LLC (Beetnpath)                                                         |  |                                   | (523,904  
|Mezmeriz, Inc. (Mezmeriz)                                                          |  |                                   | (351,477  
|Empire Genomics, LLC (Empire Genomics)                                             |  |                                   | (249,661  
|Open Exchange, Inc. (Open Exchange)
    (formerly KnowledgeVision)                 |  |                                   | (200,001  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                     |  |                                   | (200,000  
|PostProcess Technologies, Inc. (PostProcess)                                       |  |                                   | 122,728   
|SOMS Technologies, LLC (SOMS) realized
    loss                                    |  |                                   | 472,632   
|Tilson Technology Management, Inc. (Tilson)                                        |  |                                   | 1,860,000 
|ACV Auctions,
    Inc. (ACV)                                                       |  |                                   | 3,754,908 
|Total
    change in net unrealized depreciation of investments before income taxes |  | $                                 | (3,973,332



The
valuations of our investments in Beetnpath, Empire Genomics, Mercantile, Mezmeriz, Open Exchange, Rheonix, Sciaps, and Socialflow
were decreased after each of the portfolio company’s operations, commercial progress against their business plan, and past
and projected financial condition were reviewed and it was determined that a valuation adjustment was appropriate.



Our
valuation of Genicon was decreased due to a recent round of financing and after a review of their financial condition.



In
accordance with our valuation policy, we increased the value of our holdings in ACV, Post Process and Tilson based on significant
equity financings for each of these companies, during 2019 with sophisticated new non-strategic outside investors at a higher
valuation than their prior financing round valuation.



We
recognized a realized gain on the sale of the Microcision equity during 2019 and reversed the previously recorded unrealized appreciation.
We recognized a realized loss on our investment in SOMS during the year ended December 31, 2019.



The
change in unrealized depreciation, before income taxes, for the year ended December 31, 2018 was comprised of the following:



|                                                                                   |  | Year
    ended 
    December 31, 2018 |          
|---------------------------------------------------------------------------------- |  | ------------------------------------- | ---------
|Empire Genomics, LLC (Empire
    Genomics)                                         |  | $                                     | (901,360 
|Rheonix, Inc. (Rheonix)                                                            |  |                                       | (735,999 
|SOMS Technologies, LLC (SOMS)                                                      |  |                                       | (528,348 
|BeetNPath, LLC (Beetnpath)                                                         |  |                                       | (388,723 
|KnowledgeVision Systems, Inc. (Knowledgevision)                                    |  |                                       | (300,000 
|Mercantile Adjustment Bureau, LLC (Mercantile)                                     |  |                                       | (249,040 
|G-Tec Natural Gas Systems (Gtec)                                                   |  |                                       | (100,000 
|Genicon, Inc. (Genicon)                                                            |  |                                       | (82,500  
|OnCore Golf Technology, Inc. (Oncore)                                              |  |                                       | (77,712  
|First Wave Products Group (First Wave)                                             |  |                                       | 121,469  
|GiveGab, Inc. (Givegab)                                                            |  |                                       | 191,907  
|Microcision LLC (Microcision)                                                      |  |                                       | 610,000  
|Intrinsiq Material, Inc. (Intrinsiq)
    reclassed to a realized loss              |  |                                       | 725,673  
|ACV Auctions,
    Inc. (ACV)                                                       |  |                                       | 2,494,551
|Total
    change in net unrealized depreciation of investments before income taxes |  | $                                     | 779,918  



The
valuations of our investments in Beetnpath, Empire Genomics, Gtec, Mercantile, Oncore, Rheonix, and SOMS were decreased after
we reviewed each of the portfolio company’s operations, commercial progress against their business plan, and past and projected
financial condition and determined that a valuation adjustment was appropriate.



46







Our
valuation of First Wave was changed to reflect a conversion from debt instruments to equity holdings. As part of this restructure
we recognized a realized loss on the junior note and the warrants.



Givegab’s
value was increased to the cost basis of the investment after a financial analysis of the portfolio company indicating continued
improved performance.



Our
valuation of Knowledgevision and Genicon were decreased during the year ended December 31, 2018 to revalue our holdings based
upon liquidation preferences of our securities and on a recent round of financing.



In
accordance with our valuation policy, we increased the value of our holdings in ACV and Microcision. ACV was increased based on
a significant equity financing during 2018 with sophisticated new non-strategic outside investors at a higher valuation than their
prior financing round valuation. Microcision was increased based on a financial analysis of the company indicating positive cash
flow from operations for the past two years.



The
Intrinsiq investment was written off after the company was sold during 2018 and we did not receive any proceeds.



The
change in unrealized depreciation, before income taxes, for the year ended December 31, 2017 was comprised of the following:



|                                                                                   |  | Year
    ended  December 31, 2017 |         
|---------------------------------------------------------------------------------- |  | --------------------------------- | --------
|SciAps, Inc. (Sciaps)                                                              |  | $                                 | (554,710
|Teleservices Solutions Holdings, LLC
    (Teleservices)                            |  |                                   | (395,398
|Intrinsiq Materials, Inc. (Intrinsiq)                                              |  |                                   | (380,000
|Athenex, Inc. (Athenex) reclass to a
    realized gain                             |  |                                   | (273,379
|Mercantile Adjustment Bureau, LLC (Mercantile)                                     |  |                                   | (250,000
|BeetNPath, LLC (Beetnpath)                                                         |  |                                   | 29,723  
|ACV Auctions, Inc. (ACV)                                                           |  |                                   | 119,356 
|Carolina Skiff LLC (Carolina Skiff)                                                |  |                                   | 650,000 
|Knoa Software,
    Inc. (Knoa)                                                     |  |                                   | 779,700 
|Total
    change in net unrealized depreciation of investments before income taxes |  | $                                 | (274,708



The
valuations of our investments in Intrinsiq, Mercantile and Teleservices were decreased after we reviewed each portfolio company
and its current and projected financial condition and determined that a valuation adjustment was appropriate.



In
accordance with our valuation policy, we adjusted the value of our investments in ACV, Beetnpath and Sciaps based on significant
equity financings by new non-strategic outside entities, and consideration of the related affect on the liquidation preferences
of our existing investment instrument in each of the companies. In addition, our investments in Carolina Skiff and Knoa were increased
based on a financial analysis of each portfolio company indicating improved performance.



All
of these value adjustments resulted from a review by RCM at December 31, 2019 and management for the years ending December 31,
2018 and 2017, respectively, using the guidance set forth by ASC 820 and our established valuation policy.



Net
Decrease in Net Assets from Operations



We
account for our operations under GAAP for investment companies. The principal measure of our financial performance is “Net
decrease in net assets from operations” on our consolidated statements of operations. During the year ended December 31,
2019, the net decrease in net assets from operations was ($2,289,670) as compared with net decreases of ($394,498) in 2018 and
($710,678) in 2017.



47







Liquidity
and Capital Resources



With
the completion of the Transactions with East we changed our investment objectives and strategy. Previously, our principal investment
objective was to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from debenture
and pass-through equity instruments to fund expenses. With our plan to elect U.S. federal tax treatment as a RIC, our new investment
objective is to maximize total return to our shareholders with current income combined with capital appreciation. As a result,
our recent and future investments will be made primarily in yield generating investments and may include related equity options,
such as warrants or preferred equity.



As
of December 31, 2019, our total liquidity consisted of approximately $25,800,000 in cash and cash equivalents. In addition, we
had an outstanding SBA leverage commitment of $3,000,000 at December 31, 2019.



Net
cash used by operating activities has averaged approximately $1,400,000 over the last three years. The cash used for investments
in portfolio companies has averaged approximately $3,600,000 over the last three years. Our cash flow will fluctuate based on
the timing of the receipt of dividend income, realized exits and the associated income taxes paid. We will generally use cash
to fund our operating expenses and to invest in companies as we build our portfolio. We anticipate that we will continue to exit
investments. However, the timing of liquidation events within the portfolio is difficult to project. Starting in 2022 (See Note
5 in the Notes to the Consolidated Financial Statements), our outstanding SBA debt begins to mature and this will require us to
identify sources of future funding if liquidation of investments is not sufficient to fund operations and repay the SBA debt obligation.



The
following table summarizes the SBA leverage at the year ends indicated:



|                         |  | December
    31, 2019 |            |  | December
    31, 2018 |  
|------------------------ |  | --------------------- | ---------- |  | --------------------- | -
|Outstanding SBA leverage |  | $                     | 11,000,000 |  |                       | $
|Undrawn SBA commitment   |  | $                     | 3,000,000  |  |                       | $



The
following table summarizes the cash estimated to be received over the next five years from existing portfolio companies based
on contractual obligations as of December 31, 2019. These payments represent scheduled principal and interest payments that are
due under the terms of the investment securities we own in each portfolio company and are subject to change based on factors such
as conversions and restructurings. It does not include any equity investments, which may provide additional proceeds upon exit
of the investment.



|Cash
    Receipts due by year                                      
|-------------------------------------------------------------------
|                                                                   
|Scheduled cash receipts
    from portfolio companies               
|Number of companies contributing to
    the scheduled cash receipts



We
believe that the cash on hand at December 31, 2019, the undrawn SBA leverage commitment and the scheduled interest payments on
our portfolio investments will be sufficient to meet our cash needs throughout 2020. We continue to pursue potential exits from
portfolio companies to increase the liquidity available for new investments, operating activities and future SBA debenture obligations.



48







Contractual
Obligations



The
following table shows our specified contractual obligations at December 31, 2019. We do not have any capital lease obligations
or other long-term liabilities reflected on our consolidated statement of financial position.



|Payments
    due by period                            
|------------------------------------------------------
|                                                      
|                                                      
|SBA debentures                                        
|SBA interest expense                                  
|Operating lease obligations (Rent of
    office space)
|Total                                                 



Item
7A. Quantitative and Qualitative Disclosures about Market Risk



Our
investment activities contain elements of risk. The portion of our investment portfolio consisting of debt and equity securities
in private companies is subject to valuation risk. Because there is typically no public market for the debt and equity securities
in which we invest, the valuations of the debt and equity interests in the portfolio are stated at “fair value” as
determined in good faith by RCM and approved by our Board of Directors. This is in accordance with our investment valuation policy.
(The discussion of valuation policy contained in “Note 1- Summary of Significant Accounting Policies - Investments”
in the consolidated financial statements contained in Item 8 of this report is incorporated herein by reference.) In the absence
of readily ascertainable market values, the estimated value of the portfolio may differ significantly from the values that would
be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated
statement of operations as “Net change in unrealized depreciation on investments.”



At
times, a portion of our portfolio may include marketable securities traded in the over-the-counter market or on a stock exchange.
In addition, there may be a portion of the portfolio for which no regular trading market exists. In order to realize the full
value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be
made. Should an economic or other event occur that would not allow markets to trade in an orderly fashion, we may not be able
to realize the fair value of our marketable investments or other investments in a timely manner.



As
of December 31, 2019, we did not have any off-balance sheet arrangements or hedging or similar derivative financial instrument
investments.



49







Item
8. Financial Statements and Supplementary Data



The
following consolidated financial statements and consolidated supplemental schedule of the Corporation and report of Independent
Registered Public Accounting Firm thereon are set forth below:





|Consolidated
    Statements of Financial Position as of December 31, 2019 and 2018                                              | 51
|------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                                |   
|Consolidated
    Statements of Operations for the three years in the period ended December 31, 2019                             | 52
|                                                                                                                                |   
|Consolidated
    Statements of Changes in Net Assets for the three years in the period ended December 31, 2019                  | 53
|                                                                                                                                |   
|Consolidated
    Statements of Cash Flows for the three years in the period ended December 31, 2019                             | 54
|                                                                                                                                |   
|Consolidated
    Schedule of Portfolio Investments as of December 31, 2019                                                      | 55
|                                                                                                                                |   
|Consolidated
    Schedule of Portfolio Investments as of December 31, 2018                                                      | 63
|                                                                                                                                |   
|Financial
    Highlights Schedule for the five years in the period ended December 31, 2019                                      | 71
|                                                                                                                                |   
|Notes
    to the Consolidated Financial Statements                                                                              | 72
|                                                                                                                                |   
|Supplemental
    Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31, 2019 | 93
|                                                                                                                                |   
|Report
    of Independent Registered Public Accounting Firm                                                                     | 94





50







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION

December
31,







|                                                                                                                                                                                                             |  | 2019 |            |   | 2018 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | -
|ASSETS                                                                                                                                                                                                       |  |      |            |   |      |  
|Investments at fair
    value:                                                                                                                                                                               |  |      |            |   |      |  
|Control
    investments (cost of $0 and $99,500, respectively)                                                                                                                                               |  | $    | 0          |   |      | $
|Affiliate
    investments (cost of $19,035,446 and $20,708,659, respectively)                                                                                                                                |  |      | 12,151,435 |   |      |  
|Non-
    Control/Non-Affiliate investments (cost of $25,584,017 and $17,483,984, respectively)                                                                                                               |  |      | 24,869,357 |   |      |  
|Total investments,
    at fair value (cost of $44,619,463 and $38,292,143, respectively)                                                                                                                     |  |      | 37,020,792 |   |      |  
|Cash and cash equivalents                                                                                                                                                                                    |  |      | 25,815,720 |   |      |  
|Interest receivable
    (net of allowance of $166,413 and $161,000, respectively)                                                                                                                            |  |      | 142,265    |   |      |  
|Deferred tax asset                                                                                                                                                                                           |  |      | 1,204,198  |   |      |  
|Prepaid income taxes                                                                                                                                                                                         |  |      | 343,096    |   |      |  
|Other
    assets                                                                                                                                                                                             |  |      | 265,378    |   |      |  
|Total
    assets                                                                                                                                                                                             |  | $    | 64,791,449 |   |      | $
|                                                                                                                                                                                                             |  |      |            |   |      |  
|LIABILITIES
    AND STOCKHOLDERS’ EQUITY (NET ASSETS)                                                                                                                                                        |  |      |            |   |      |  
|Liabilities:                                                                                                                                                                                                 |  |      |            |   |      |  
|Debentures guaranteed
    by the SBA (net of debt issuance costs)                                                                                                                                            |  | $    | 10,786,913 |   |      | $
|Profit sharing and
    bonus payable                                                                                                                                                                         |  |      | 80,000     |   |      |  
|Accounts payable
    and accrued expenses                                                                                                                                                                    |  |      | 258,437    |   |      |  
|Deferred
    revenue                                                                                                                                                                                         |  |      | 37,583     |   |      |  
|Total liabilities                                                                                                                                                                                            |  |      | 11,162,933 |   |      |  
|Commitments and
    contingencies (See Note 8)                                                                                                                                                               |  |      |            |   |      |  
|                                                                                                                                                                                                             |  |      |            |   |      |  
|Stockholders’
    equity (net assets):                                                                                                                                                                       |  |      |            |   |      |  
|Common stock, $0.10 par; shares authorized
    100,000,000 and 10,000,000, respectively; shares issued 15,196,367 and 6,863,034, respectively; shares outstanding 14,655,321
    and 6,321,988, respectively |  |      | 1,519,637  |   |      |  
|Capital in excess of par value                                                                                                                                                                               |  |      | 34,142,455 |   |      |  
|Accumulated net investment loss                                                                                                                                                                              |  |      | (1,751,249 | ) |      |  
|Undistributed net realized gain on investments                                                                                                                                                               |  |      | 27,083,281 |   |      |  
|Net unrealized depreciation on investments                                                                                                                                                                   |  |      | (5,896,503 | ) |      |  
|Treasury stock,
    at cost: 541,046 shares                                                                                                                                                                  |  |      | (1,469,105 | ) |      |  
|Total
    stockholders’ equity (net assets) (per share - 2019: $3.66, 2018: $4.99)                                                                                                                           |  |      | 53,628,516 |   |      |  
|Total
    liabilities and stockholders’ equity (net assets)                                                                                                                                                  |  | $    | 64,791,449 |   |      | $



See
accompanying notes



51







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF OPERATIONS

For
The Years Ended December 31, 2019, 2018 and 2017



|                                                                            |  | 2019 |            |   | 2018 |   |            | 2017 | 
|--------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Investment income:                                                          |  |      |            |   |      |   |            |      | 
|Interest from portfolio
    companies:                                      |  |      |            |   |      |   |            |      | 
|Control investments                                                         |  | $    | -          |   |      | $ | -          |      | 
|Affiliate
    investments                                                   |  |      | 823,565    |   |      |   | 741,432    |      | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | 696,975    |   |      |   | 757,308    |      | 
|Total interest from
    portfolio companies                                 |  |      | 1,520,540  |   |      |   | 1,498,740  |      | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Interest from other
    investments:                                        |  |      |            |   |      |   |            |      | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | 166,556    |   |      |   | 37,614     |      | 
|Total interest from
    other investments                                   |  |      | 166,556    |   |      |   | 37,614     |      | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Dividend and other
    investment income:                                   |  |      |            |   |      |   |            |      | 
|Control investments                                                         |  |      | -          |   |      |   | 60,000     |      | 
|Affiliate investments                                                       |  |      | 320,806    |   |      |   | 318,324    |      | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | 259,042    |   |      |   | 6,058      |      | 
|Total
    dividend and other investment income                              |  |      | 579,848    |   |      |   | 384,382    |      | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Fee income:                                                                 |  |      |            |   |      |   |            |      | 
|Affiliate investments                                                       |  |      | 27,639     |   |      |   | 15,667     |      | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | 430,113    |   |      |   | 170,551    |      | 
|Total
    fee income                                                        |  |      | 457,752    |   |      |   | 186,218    |      | 
|Total
    investment income                                                 |  |      | 2,724,696  |   |      |   | 2,106,954  |      | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Expenses:                                                                   |  |      |            |   |      |   |            |      | 
|Salaries                                                                    |  |      | 621,290    |   |      |   | 679,499    |      | 
|Profit sharing and
    bonuses                                              |  |      | 115,000    |   |      |   | 125,000    |      | 
|Employee benefits                                                           |  |      | 189,157    |   |      |   | 194,818    |      | 
|Directors’
    fees                                                         |  |      | 117,500    |   |      |   | 128,750    |      | 
|Professional fees                                                           |  |      | 548,041    |   |      |   | 407,159    |      | 
|Shareholders and
    office operating                                       |  |      | 557,546    |   |      |   | 230,050    |      | 
|Insurance                                                                   |  |      | 38,302     |   |      |   | 34,187     |      | 
|Corporate development                                                       |  |      | 67,441     |   |      |   | 62,117     |      | 
|Base management
    fee (see Note 11)                                       |  |      | 85,483     |   |      |   | -          |      | 
|Other
    operating                                                         |  |      | 17,504     |   |      |   | 21,092     |      | 
|                                                                            |  |      | 2,357,264  |   |      |   | 1,882,672  |      | 
|Interest on SBA
    obligations                                             |  |      | 408,039    |   |      |   | 311,000    |      | 
|Bad
    debt expense                                                        |  |      | 5,413      |   |      |   | -          |      | 
|Total
    expenses                                                          |  |      | 2,770,716  |   |      |   | 2,193,672  |      | 
|Investment loss before
    income taxes                                     |  |      | (46,020    | ) |      |   | (86,718    | )    | 
|Income
    tax expense (benefit)                                            |  |      | 39,677     |   |      |   | (18,312    | )    | 
|Net
    investment loss                                                     |  |      | (85,697    | ) |      |   | (68,406    | )    | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Net realized gain
    (loss) on sales and dispositions of investments:      |  |      |            |   |      |   |            |      | 
|Control investments                                                         |  |      | 80,393     |   |      |   | -          |      | 
|Affiliate investments                                                       |  |      | (472,632   | ) |      |   | (1,464,142 | )    | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | 1,510,000  |   |      |   | -          |      | 
|Net realized gain
    (loss) on sales and dispositions, before income taxes |  |      | 1,117,761  |   |      |   | (1,464,142 | )    | 
|Income
    tax expense (benefit)                                            |  |      | 255,923    |   |      |   | (469,847   | )    | 
|Net realized gain
    (loss) on sales and dispositions of investments       |  |      | 861,838    |   |      |   | (994,295   | )    | 
|Net change in unrealized
    depreciation on investments:                   |  |      |            |   |      |   |            |      | 
|Control investments                                                         |  |      | -          |   |      |   | -          |      | 
|Affiliate investments                                                       |  |      | (3,970,007 | ) |      |   | 608,207    |      | 
|Non-Control/Non-Affiliate
    investments                                   |  |      | (3,325     | ) |      |   | 171,711    |      | 
|Change in unrealized depreciation
    before income taxes                   |  |      | (3,973,332 | ) |      |   | 779,918    |      | 
|Deferred
    income tax (benefit) expense                                   |  |      | (907,521   | ) |      |   | 111,715    |      | 
|Net
    change in unrealized depreciation on investments                    |  |      | (3,065,811 | ) |      |   | 668,203    |      | 
|                                                                            |  |      |            |   |      |   |            |      | 
|Net
    realized and unrealized (loss) on investments                       |  |      | (2,203,973 | ) |      |   | (326,092   | )    | 
|Net
    decrease in net assets from operations                              |  | $    | (2,289,670 | ) |      | $ | (394,498   | )    | 
|Weighted average shares outstanding                                         |  |      | 7,532,034  |   |      |   | 6,321,988  |      | 
|Basic and diluted
    net decrease in net assets from operations per share  |  |      | (0.30      | ) |      |   | (0.06      | )    | 



See
accompanying notes



52







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CHANGES IN NET ASSETS

For
The Years Ended December 31, 2019, 2018 and 2017










|                                                                      |  | 2019 |            |   | 2018 |   |            | 2017 | 
|--------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Net assets at beginning
    of year                                   |  | $    | 31,524,187 |   |      | $ | 31,918,685 |      | 
|                                                                      |  |      |            |   |      |   |            |      | 
|Net investment loss                                                   |  |      | (85,697    | ) |      |   | (68,406    | )    | 
|Net realized gain (loss) on sales and
    dispositions of investments |  |      | 861,838    |   |      |   | (994,295   | )    | 
|Net change in
    unrealized depreciation on investments              |  |      | (3,065,811 | ) |      |   | 668,203    |      | 
|Net decrease in net assets from operations                            |  |      | (2,289,670 | ) |      |   | (394,498   | )    | 
|                                                                      |  |      |            |   |      |   |            |      | 
|Issuance of capital
    stock, net                                    |  |      | 24,393,999 |   |      |   | -          |      | 
|Total increase
    (decrease) in net assets                           |  |      | 22,104,329 |   |      |   | (394,498   | )    | 
|Net
    assets at end of year                                         |  |      | 53,628,516 |   |      | $ | 31,524,187 |      | 
|Accumulated
    net investment loss                                   |  | $    | (1,751,249 | ) |      | $ | (1,665,552 | )    | 



See
accompanying notes.



53







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CASH FLOWS

For
The Years Ended December 31, 2019, 2018 and 2017







|                                                                                                                |  | 2019 |            |   | 2018 |   |            | 2017 | 
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|                                                                                                                |  |      |            |   |      |   |            |      | 
|Cash flows from operating
    activities:                                                                       |  |      |            |   |      |   |            |      | 
|Net decrease in net assets
    from operations                                                                  |  | $    | (2,289,670 | ) |      | $ | (394,498   | )    | 
|Adjustments to reconcile net decrease
    in net assets to net cash provided by (used in) operating activities: |  |      |            |   |      |   |            |      | 
|Investments originated                                                                                          |  |      | (2,650,049 | ) |      |   | (2,487,627 | )    | 
|Proceeds from sale
    of portfolio investments                                                                 |  |      | 1,549,893  |   |      |   | -          |      | 
|Proceeds from loan
    repayments                                                                               |  |      | 6,076,142  |   |      |   | 70,131     |      | 
|Net realized (gain)
    loss on portfolio investments                                                           |  |      | (1,117,761 | ) |      |   | 1,464,142  |      | 
|Change in unrealized
    depreciation on investments                                                            |  |      | 3,973,332  |   |      |   | (779,918   | )    | 
|Deferred tax (benefit)
    expense                                                                              |  |      | (679,000   | ) |      |   | 26,665     |      | 
|Depreciation and
    amortization                                                                               |  |      | 37,295     |   |      |   | 29,686     |      | 
|Original issue discount
    accretion                                                                           |  |      | (40,767    | ) |      |   | (39,653    | )    | 
|Change in interest
    receivable allowance                                                                     |  |      | 5,413      |   |      |   | -          |      | 
|Non-cash conversion
    of debenture interest                                                                   |  |      | (595,286   | ) |      |   | (609,817   | )    | 
|Changes in operating
    assets and liabilities:                                                                |  |      |            |   |      |   |            |      | 
|(Increase) decrease
    in interest receivable                                                                  |  |      | (2,146     | ) |      |   | 85,516     |      | 
|(Increase) decrease
    in other assets                                                                         |  |      | (253,949   | ) |      |   | 28,936     |      | 
|Decrease (increase)
    in prepaid income taxes                                                                 |  |      | 795,612    |   |      |   | (376,661   | )    | 
|Decrease in income
    taxes payable                                                                            |  |      | -          |   |      |   | -          |      | 
|Decrease in profit
    sharing and bonus payable                                                                |  |      | (45,000    | ) |      |   | (19,000    | )    | 
|Increase (decrease)
    in accounts payable and accrued liabilities                                             |  |      | 12,679     |   |      |   | 67,410     |      | 
|(Decrease)
    increase in deferred revenue                                                                     |  |      | (34,751    | ) |      |   | 34,629     |      | 
|Total adjustments                                                                                               |  |      | 7,031,657  |   |      |   | (2,505,561 | )    | 
|Net
    cash provided by (used in) operating activities                                                         |  |      | 4,741,987  |   |      |   | (2,900,059 | )    | 
|                                                                                                                |  |      |            |   |      |   |            |      | 
|Cash flows from financing
    activities:                                                                       |  |      |            |   |      |   |            |      | 
|Issue capital stock
    (net)                                                                                   |  |      | 14,844,504 |   |      |   | -          |      | 
|Proceeds from SBA
    debentures                                                                                |  |      | 2,250,000  |   |      |   | 750,000    |      | 
|Origination
    costs to SBA                                                                                    |  |      | (54,563    | ) |      |   | (78,188    | )    | 
|Net
    cash provided by financing activities                                                                   |  |      | 17,039,941 |   |      |   | 671,812    |      | 
|Net increase
    (decrease) in cash                                                                             |  |      | 21,781,928 |   |      |   | (2,228,247 | )    | 
|Cash and cash equivalents:                                                                                      |  |      |            |   |      |   |            |      | 
|Beginning of
    year                                                                                           |  |      | 4,033,792  |   |      |   | 6,262,039  |      | 
|End of year                                                                                                     |  | $    | 25,815,720 |   |      | $ | 4,033,792  |      | 
|                                                                                                                |  |      |            |   |      |   |            |      | 
|Supplemental disclosure
    of non-cash financing activities                                                    |  |      |            |   |      |   |            |      | 
|Receipt of Contributed
    Assets in exchange for issuance of common stock (see Note 1)                         |  | $    | 9,549,543  |   |      |   | -          |      | 



See
accompanying notes



54







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019





|Company,
    Geographic Location, Business
    Description, (Industry) and Website                                                                                                                                                                                                                                                          |  | (a)
    
    Type of Investment      |  | (b)
    
    Date Acquired |  | (c)
    Equity |    |   | Cost |   |           | (d)(f)
    
    Fair Value |  |   | Percent
    of Net
    Assets | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | -------------------------- |  | -------------- | -- | - | ---- | - | --------- | -------------------------- |  | - | ----------------------------- | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|Non-Control/Non-Affiliate
    Investments — 46.3% of net assets: (j)                                                                                                                                                                                                                                                                        |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|ACV
                                         Auctions, Inc. (e)(g) Buffalo,
                                         NY. Live mobile wholesale auctions for new and used car dealers. (Software) www.acvauctions.com                                                                                                                        |  | 1,181,160
    Series A Preferred.    |  | 8/12/16                    |  |                | <1 | % |      | $ | 163,000   |                            |  | $ | 6,531,815                     | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|Advantage
    24/7 LLC (g)(h)                                                                                                                                                                                                                                                                                                               |  | $140,000
    Term Note at 7% due     |  | 12/30/10                   |  |                | 0  | % |      |   |           |                            |  |   |                               | 
|Williamsville,
    NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com                                                                                                                                                                                                                            |  | January
    1, 2022                  |  |                            |  |                |    |   |      |   | 65,000    |                            |  |   | 65,000                        | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|AIKG
    LLC (Andretti) (l)                                                                                                                                                                                                                                                                                                                 |  | $4,250,000
    Term Notes at 12%     |  | 11/8/19                    |  |                | 0  | % |      |   |           |                            |  |   |                               | 
|Marietta,
    GA. Entertainment company engaged in                                                                                                                                                                                                                                                                                          |  | (+4%
    PIK) due December 28,       |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|indoor
    karting, games and food. (Entertainment) www.andrettikarting.com                                                                                                                                                                                                                                                                 |  | 2023.                                |  |                            |  |                |    |   |      |   | 4,398,125 |                            |  |   | 4,398,125                     | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|Centivo
    Corporation (e)(g)                                                                                                                                                                                                                                                                                                              |  | 190,967
    Series A-1 Preferred.    |  | 7/5/17                     |  |                | <1 | % |      |   | 200,000   |                            |  |   | 200,000                       | 
|New
    York, NY. Tech-enabled health solutions                                                                                                                                                                                                                                                                                             |  | 337,808
    Series A-2 Preferred.    |  |                            |  |                |    |   |      |   | 101,342   |                            |  |   | 101,342                       | 
|company
    that helps self-insured employers and                                                                                                                                                                                                                                                                                           |  | Total
    Centivo                    |  |                            |  |                |    |   |      |   | 301,342   |                            |  |   | 301,342                       | 
|their
    employees save money and have a better experience. (Health Care) www.centivo.com                                                                                                                                                                                                                                                  |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|Empire
    Genomics, LLC (g)                                                                                                                                                                                                                                                                                                                |  | $1,209,014
    Senior Secured        |  | 6/13/14                    |  |                | 0  | % |      |   |           |                            |  |   |                               | 
|Buffalo,
    NY. Molecular diagnostics company that                                                                                                                                                                                                                                                                                         |  | Convertible
    Term Notes at 10%    |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|offers
    a comprehensive menu of assay services for                                                                                                                                                                                                                                                                                       |  | due
    December 31, 2020.           |  |                            |  |                |    |   |      |   | 1,308,675 |                            |  |   | 157,654                       | 
|diagnosing
    and guiding patient therapeutic treatments.                                                                                                                                                                                                                                                                                  |  | $444,915
    Promissory Note at 9%   |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|(Health
    Care)                                                                                                                                                                                                                                                                                                                           |  | (5%
    deferred) due December 31,   |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|www.empiregenomics.com                                                                                                                                                                                                                                                                                                                      |  | 2020.                                |  |                            |  |                |    |   |      |   | 444,915   |                            |  |   | 444,915                       | 
|                                                                                                                                                                                                                                                                                                                                            |  | Total
    Empire                     |  |                            |  |                |    |   |      |   | 1,753,590 |                            |  |   | 602,569                       | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|First
                                         Wave Technologies, Inc. (e)(g) Batavia,
                                         NY. Sells First Crush automated pill crusher that crushes and grinds pills for nursing
                                         homes and medical institutions. (Health Care) www.firstwavetechnologies.com |  | 670,443.2
    Class A Common.        |  | 4/19/12                    |  |                | 4  | % |      |   | 661,563   |                            |  |   | 33,000                        | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|GiveGab,
                                         Inc. (e)(g) Ithaca,
                                         NY. Nonprofit giving platform that provides an easy and effective way for fundraising
                                         professionals to raise money online. (Software) www.givegab.com                               |  | 5,084,329
    Series Seed Preferred. |  | 3/13/13                    |  |                | 4  | % |      |   | 616,221   |                            |  |   | 616,221                       | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|GoNoodle,
    Inc. (g)(l)                                                                                                                                                                                                                                                                                                                   |  | $1,500,000
    Secured Note at 12%   |  | 2/6/15                     |  |                | <1 | % |      |   |           |                            |  |   |                               | 
|Nashville,
    TN. Student engagement education                                                                                                                                                                                                                                                                                             |  | (1%
    PIK) due September 30, 2024. |  |                            |  |                |    |   |      |   | 1,502,458 |                            |  |   | 1,502,458                     | 
|software
    providing core aligned physical activity                                                                                                                                                                                                                                                                                       |  | Warrant
    for 47,324 Series C      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|breaks.
    (Software)                                                                                                                                                                                                                                                                                                                      |  | Preferred.                           |  |                            |  |                |    |   |      |   | 25        |                            |  |   | 25                            | 
|www.gonoodle.com                                                                                                                                                                                                                                                                                                                            |  | Warrant
    for 21,948 Series D      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|                                                                                                                                                                                                                                                                                                                                            |  | Preferred.                           |  |                            |  |                |    |   |      |   | 38        |                            |  |   | 38                            | 
|                                                                                                                                                                                                                                                                                                                                            |  | Total
    GoNoodle                   |  |                            |  |                |    |   |      |   | 1,502,521 |                            |  |   | 1,502,521                     | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|HDI
    Acquisition LLC (Hilton Displays) (l)                                                                                                                                                                                                                                                                                               |  | $1,245,119
    Term Loan at 12%      |  | 11/8/19                    |  |                | 0  | % |      |   |           |                            |  |   |                               | 
|Greenville,
    NC. HDI is engaged in manufacturing, installation and maintenance of signage and brands. (Manufacturing) www.hiltondisplays.com                                                                                                                                                                                             |  | (+2%
    PIK) due June 20, 2023.     |  |                            |  |                |    |   |      |   | 1,249,539 |                            |  |   | 1,249,539                     | 
|                                                                                                                                                                                                                                                                                                                                            |  |                                      |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|Mattison
    Avenue Holdings LLC (l)                                                                                                                                                                                                                                                                                                        |  | $1,031,406
    Second Amended,       |  | 11/8/19                    |  |                | 0  | % |      |   |           |                            |  |   |                               | 
|Dallas,
    TX. Provider of upscale salon spaces for lease.                                                                                                                                                                                                                                                                                 |  | Restated
    and Consolidated        |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|(Professional
    Services)                                                                                                                                                                                                                                                                                                                 |  | Promissory
    Note at 14% (2% PIK)  |  |                            |  |                |    |   |      |   |           |                            |  |   |                               | 
|www.mattisonsalonsuites.com                                                                                                                                                                                                                                                                                                                 |  | due
    June 9, 2022.                |  |                            |  |                |    |   |      |   | 1,036,678 |                            |  |   | 1,036,678                     | 



55







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)



|Company,
    Geographic Location, Business 
    Description, (Industry) and Website                                                                                                                                                                                                  |  | (a)
    
    Type of Investment                                     |  | (b)
    
    Date Acquired |  | (c)
    Equity |    |   | Cost |   |            | (d)(f)
    
    Fair Value |  |   | Percent

    of Net
 Assets | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------- |  | -------------------------- |  | -------------- | -- | - | ---- | - | ---------- | -------------------------- |  | - | --------------------------- | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Mercantile
    Adjustment Bureau, LLC (g)                                                                                                                                                                                                                                            |  | $1,199,039
    Subordinated Secured Note                            |  | 10/22/12                   |  |                | 4  | % |      |   |            |                            |  |   |                             | 
|Williamsville,
    NY. Full service accounts                                                                                                                                                                                                                                         |  | at
    13% (3% for the calendar year                                |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|receivable
    management and collections company.                                                                                                                                                                                                                                   |  | 2019)
    due January 31, 2022.                                     |  |                            |  |                |    |   |      |   | 1,199,040  |                            |  |   | 500,000                     | 
|(Contact
    Center) www.mercantilesolutions.com                                                                                                                                                                                                                                     |  | (e)
    $150,000 Subordinated Debenture at 8% due January 31, 2022. |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  | Warrant for 3.29%
    Membership Interests. Option for 1.5%         |  |                            |  |                |    |   |      |   | 150,000    |                            |  |   | -                           | 
|                                                                                                                                                                                                                                                                                     |  | Membership
    Interests.                                           |  |                            |  |                |    |   |      |   | 97,625     |                            |  |   | -                           | 
|                                                                                                                                                                                                                                                                                     |  | Total
    Mercantile                                                |  |                            |  |                |    |   |      |   | 1,446,665  |                            |  |   | 500,000                     | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Microcision
    LLC (g)(l)                                                                                                                                                                                                                                                           |  | $1,500,000
    Subordinated Promissory                              |  | 9/24/09                    |  |                | 0  | % |      |   |            |                            |  |   |                             | 
|Pennsauken
    Township, NJ. Manufacturer of                                                                                                                                                                                                                                         |  | Note
    at 12% (1% PIK) due December                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|precision
    machined medical implants, components and assemblies. (Manufacturing)                                                                                                                                                                                                  |  | 31,
    2024.                                                       |  |                            |  |                |    |   |      |   | 1,500,000  |                            |  |   | 1,500,000                   | 
|www.microcision.com                                                                                                                                                                                                                                                                  |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Open
    Exchange, Inc. (g)                                                                                                                                                                                                                                                          |  | 397,899
    Series C Preferred                                      |  | 11/13/13                   |  |                | 4  | % |      |   | 1,193,697  |                            |  |   | 543,283                     | 
|(Formerly
    KnowledgeVision Systems, Inc.)                                                                                                                                                                                                                                         |  | 397,899
    Common.                                                 |  |                            |  |                |    |   |      |   | 208,243    |                            |  |   | 108,656                     | 
|Lincoln,
    MA. Online presentation and training                                                                                                                                                                                                                                    |  | $450,000
    Replacement Term Note at                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|software.
    (Software)                                                                                                                                                                                                                                                             |  | 9%
    due September 30, 2022.                                      |  |                            |  |                |    |   |      |   | 450,000    |                            |  |   | 450,000                     | 
|www.openexc.com                                                                                                                                                                                                                                                                      |  | Total
    Open Exchange                                             |  |                            |  |                |    |   |      |   | 1,851,940  |                            |  |   | 1,101,939                   | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Outmatch
    Holdings, LLC (e)(g)                                                                                                                                                                                                                                                    |  | 3,081,522
    Class P1 Units.                                       |  | 11/18/10                   |  |                | 4  | % |      |   | 2,140,007  |                            |  |   | 2,140,007                   | 
|Dallas,
    TX. Web based predictive employee selection
    and reference checking. (Software)                                                                                                                                                                                       |  | 109,788
    Class C1 Units.                                         |  |                            |  |                |    |   |      |   | 5,489      |                            |  |   | 5,489                       | 
|www.outmatch.com                                                                                                                                                                                                                                                                     |  | Total
    Outmatch                                                  |  |                            |  |                |    |   |      |   | 2,145,496  |                            |  |   | 2,145,496                   | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|PostProcess
    Technologies, Inc. (e)(g)                                                                                                                                                                                                                                            |  | 360,002
    Series A1 Preferred.                                    |  | 7/25/16                    |  |                | <1 | % |      |   | 348,875    |                            |  |   | 471,603                     | 
|Buffalo,
    NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com                                                                                                                                        |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Rheonix,
    Inc. (e)                                                                                                                                                                                                                                                                |  | 9,676
    Common.                                                   |  | 10/29/09                   |  |                | 4  | % |      |   | -          |                            |  |   | -                           | 
|Ithaca,
    NY. Developer of fully automated                                                                                                                                                                                                                                         |  | (g)1,839,422 Series A Preferred.                                    |  |                            |  |                |    |   |      |   | 2,099,999  |                            |  |   | -                           | 
|microfluidic
    based molecular assay and diagnostic                                                                                                                                                                                                                                |  | (g)50,593 Common.                                                   |  |                            |  |                |    |   |      |   | -          |                            |  |   | -                           | 
|testing
    devices. (Health Care)                                                                                                                                                                                                                                                   |  | (g)589,420 Series B Preferred.                                      |  |                            |  |                |    |   |      |   | 702,732    |                            |  |   | 702,732                     | 
|www.rheonix.com                                                                                                                                                                                                                                                                      |  | Total
    Rheonix                                                   |  |                            |  |                |    |   |      |   | 2,802,731  |                            |  |   | 702,732                     | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|SocialFlow,
    Inc. (e)(g)                                                                                                                                                                                                                                                          |  | 1,049,538
    Series B Preferred.                                   |  | 4/5/13                     |  |                | 4  | % |      |   | 500,000    |                            |  |   | 209,908                     | 
|New
    York, NY. Provides instant analysis of social                                                                                                                                                                                                                                |  | 1,204,819
    Series B-1 Preferred.                                 |  |                            |  |                |    |   |      |   | 750,000    |                            |  |   | 324,761                     | 
|networks
    using a proprietary, predictive analytic                                                                                                                                                                                                                                |  | 717,772
    Series C Preferred.                                     |  |                            |  |                |    |   |      |   | 500,000    |                            |  |   | 215,332                     | 
|algorithm
to optimize advertising and publishing.                                                                                                                                                                                                                                    |  | Total
    Social Flow                                               |  |                            |  |                |    |   |      |   | 1,750,000  |                            |  |   | 750,000                     | 
|(Software) www.socialflow.com                                                                                                                                                                                                                                                        |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Somerset
                                         Gas Transmission Company, LLC (e)(m)
                                                                         Columbus,
                                         OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com |  | 26.5337
    Units.                                                  |  | 7/10/02                    |  |                | 3  | % |      |   | 719,097    |                            |  |   | 500,000                     | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Tech
    2000, Inc. (Lumious) (g)                                                                                                                                                                                                                                                    |  | $850,000
    Replacement Term Note at                               |  | 11/16/18                   |  |                | 0  | % |      |   |            |                            |  |   |                             | 
|Herndon,
    VA. Develops and delivers IT training. (Software) www.t2000inc.com                                                                                                                                                                                                      |  | 14%
    due November 15, 2021.                                      |  |                            |  |                |    |   |      |   | 860,777    |                            |  |   | 860,777                     | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Other
    Non-Control/Non-Affiliate Investments:                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|DataView,
                                         LLC (e)                                                                                                                                                                                                                           |  | Membership
    Interest.                                            |  | 10/1/98                    |  |                | 5  | % |      |   | 310,357    |                            |  |   | -                           | 
|(Software)                                                                                                                                                                                                                                                                           |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|UStec/Wi3
                                         (e)                                                                                                                                                                                                                               |  | Common
    stock.                                                   |  | 12/17/98                   |  |                | <1 | % |      |   | 100,500    |                            |  |   | 24,869,357                  | 
|(Manufacturing)                                                                                                                                                                                                                                                                      |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                     |  |                                                                     |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Subtotal
    Non-Control/Non-Affiliate Investments                                                                                                                                                                                                                                   |  |                                                                     |  |                            |  |                |    |   |      | $ | 25,584,017 |                            |  | $ | 24,869,357                  | 



56







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)



|Company,
    Geographic Location, Business 
    Description, (Industry) and Website                                                                                                                                                                                                                                                        |  | (a)
    
    Type of Investment           |  | (b)
    
    Date Acquired |  | (c)
    Equity |    |   | Cost |   |           | (d)(f)
    
    Fair Value |  |   | Percent

    of Net
 Assets | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------- |  | -------------------------- |  | -------------- | -- | - | ---- | - | --------- | -------------------------- |  | - | --------------------------- | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Affiliate
    Investments — 22.7% of net assets (k)                                                                                                                                                                                                                                                                                        |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|BeetNPath,
    LLC (Grainful) (e)(g)(m)                                                                                                                                                                                                                                                                                                    |  | 1,119,024
    Series A-2 Preferred        |  | 10/20/14                   |  |                | 9  | % |      |   |           |                            |  |   |                             | 
|Ithaca,
    NY. Frozen entrees made from 100%                                                                                                                                                                                                                                                                                              |  | Membership
    Units.                     |  |                            |  |                |    |   |      | $ | 359,000   |                            |  | $ | -                           | 
|whole
    grain steel cut oats under Grainful brand                                                                                                                                                                                                                                                                                        |  | 1,032,918
    Series B Preferred          |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|name.
    (Consumer Product)                                                                                                                                                                                                                                                                                                               |  | Membership
    Units.                     |  |                            |  |                |    |   |      |   | 261,277   |                            |  |   | -                           | 
|www.grainful.com                                                                                                                                                                                                                                                                                                                           |  | $262,626.64
    Convertible Secured Notes |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                                                                           |  | at 8% due December 21, 2019.              |  |                            |  |                |    |   |      |   | 262,627   |                            |  |   | -                           | 
|                                                                                                                                                                                                                                                                                                                                           |  | Total
    BeetNPath                       |  |                            |  |                |    |   |      |   | 882,904   |                            |  |   | -                           | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Carolina
    Skiff LLC (g)(m)                                                                                                                                                                                                                                                                                                              |  | 6.0825%
    Class A Common Membership     |  | 1/30/04                    |  |                | 7  | % |      |   |           |                            |  |   |                             | 
|Waycross,
    GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com                                                                                                                                                                                                                                  |  | Interest.                                 |  |                            |  |                |    |   |      |   | 15,000    |                            |  |   | 1,750,000                   | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|ClearView
                                         Social, Inc. (e)(g) Buffalo,
                                         NY. Social media publishing tool for law, CPA and professional firms. (Software) www.clearviewsocial.com                                                                                                          |  | 312,500
    Series Seed Plus Preferred.   |  | 1/4/16                     |  |                | 6  | % |      |   | 200,000   |                            |  |   | 200,000                     | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Filterworks
    Acquisition USA, LLC (l)(m)                                                                                                                                                                                                                                                                                                |  | $2,283,702
    Term Note at 12% (+2%      |  | 11/8/19                    |  |                | 9  | % |      |   |           |                            |  |   |                             | 
|Deerfield
    Beach, FL. Provides spray booth                                                                                                                                                                                                                                                                                              |  | PIK)
    due December 4, 2023.            |  |                            |  |                |    |   |      |   | 2,302,653 |                            |  |   | 2,302,653                   | 
|equipment,
    frame repair machines and paint booth                                                                                                                                                                                                                                                                                       |  | 562.5
    Class A Units                   |  |                            |  |                |    |   |      |   | 562,500   |                            |  |   | 562,500                     | 
|filter
services for collision shops. (Automotive)                                                                                                                                                                                                                                                                                          |  | Total
    Filterworks                     |  |                            |  |                |    |   |      |   | 2,865,153 |                            |  |   | 2,865,153                   | 
|www.filterworksusa.com                                                                                                                                                                                                                                                                                                                     |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Genicon,
    Inc. (e)(g)(l)                                                                                                                                                                                                                                                                                                                |  | 1,586,902
    Series B Preferred.         |  | 4/10/15                    |  |                | 6  | % |      |   | 1,000,000 |                            |  |   | -                           | 
|Winter
    Park, FL. Designs, produces and                                                                                                                                                                                                                                                                                                 |  | $3,250,000
    Promissory Notes at 10%    |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|distributes
    patented surgical instrumentation.                                                                                                                                                                                                                                                                                         |  | due
    June 12, 2022, (10% PIK).         |  |                            |  |                |    |   |      |   | 3,727,573 |                            |  |   | 500,000                     | 
|(Health
    Care)                                                                                                                                                                                                                                                                                                                          |  | $250,000
    Promissory Note at 10% due   |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|www.geniconendo.com                                                                                                                                                                                                                                                                                                                        |  | June
    12, 2021 (10% PIK).              |  |                            |  |                |    |   |      |   | 262,184   |                            |  |   | 250,000                     | 
|                                                                                                                                                                                                                                                                                                                                           |  | Warrants
    for Common.                  |  |                            |  |                |    |   |      |   | 120,000   |                            |  |   | -                           | 
|                                                                                                                                                                                                                                                                                                                                           |  | Total
    Genicon                         |  |                            |  |                |    |   |      |   | 5,109,757 |                            |  |   | 750,000                     | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Knoa
    Software, Inc. (e)(g)                                                                                                                                                                                                                                                                                                             |  | 973,533
    Series A-1 Convertible        |  | 11/20/12                   |  |                | 7  | % |      |   |           |                            |  |   |                             | 
|New
    York, NY. End user experience                                                                                                                                                                                                                                                                                                      |  | Preferred.                                |  |                            |  |                |    |   |      |   | 750,000   |                            |  |   | 750,000                     | 
|management
    and performance (EMP) solutions                                                                                                                                                                                                                                                                                             |  | 1,876,922
    Series B Preferred.         |  |                            |  |                |    |   |      |   | 479,155   |                            |  |   | 479,155                     | 
|utilizing
enterprise applications. (Software)                                                                                                                                                                                                                                                                                              |  | Total
    Knoa                            |  |                            |  |                |    |   |      |   | 1,229,155 |                            |  |   | 1,229,155                   | 
|www.knoa.com                                                                                                                                                                                                                                                                                                                               |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|Mezmeriz,
                                         Inc. (e)(g) Ithaca,
                                         NY. Technology company developing novel reality capture tools for 3D mapping, reality
                                         modeling, object tracking and classification. (Electronics Developer)                       |  | 1,554,565
    Series Seed Preferred.      |  | 1/9/08                     |  |                | 12 | % |      |   | 742,850   |                            |  |   | -                           | 
|www.mezmeriz.com                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|New
                                         Monarch Machine Tool, Inc. (g) Cortland,
                                         NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing) www.monarchmt.com                                                                                                      |  | 22.84
    Common.                         |  | 9/24/03                    |  |                | 15 | % |      |   | 22,841    |                            |  |   | 22,841                      | 
|                                                                                                                                                                                                                                                                                                                                           |  |                                           |  |                            |  |                |    |   |      |   |           |                            |  |   |                             | 
|OnCore
                                         Golf Technology, Inc. (e)(g) Buffalo,
                                         NY. Patented and proprietary golf balls
                                                                                     

utilizing technology and innovation.

(Consumer Product)

www.oncoregolf.com |  | 300,483
    Preferred AA.                 |  | 12/31/14                   |  |                | 8  | % |      |   | 752,712   |                            |  |   | 300,000                     | 



57







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)



|Company,
    Geographic Location, Business 
Description, (Industry) and Website |  | (a)
    
    Type of Investment               |  | (b)
    
    Date Acquired |  | (c)
    Equity |    |   | Cost |   |            | (d)(f)
    
    Fair Value |  |   | Percent

    of Net
 Assets | 
|------------------------------------------------------------------------------- |  | --------------------------------------------- |  | -------------------------- |  | -------------- | -- | - | ---- | - | ---------- | -------------------------- |  | - | --------------------------- | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|SciAps,
    Inc. (e)(g)                                                         |  | 187,500
    Series A Preferred.               |  | 7/12/13                    |  |                | 6  | % |      |   | 1,500,000  |                            |  |   | -                           | 
|Woburn,
    MA. Instrumentation company                                         |  | 274,299
    Series A-1 Convertible Preferred. |  |                            |  |                |    |   |      |   | 504,710    |                            |  |   | -                           | 
|producing portable analytical devices using XRF,                                |  | 117,371
    Series B Convertible Preferred.   |  |                            |  |                |    |   |      |   | 250,000    |                            |  |   | 250,000                     | 
|LIBS
and RAMAN spectroscopy to identify                                         |  | 113,636
    Series C Convertible Preferred.   |  |                            |  |                |    |   |      |   | 175,000    |                            |  |   | 175,000                     | 
|compounds,
    minerals, and elements.                                          |  | 369,698
    Series C-1 Convertible Preferred. |  |                            |  |                |    |   |      |   | 399,274    |                            |  |   | 399,274                     | 
|(Manufacturing)                                                                 |  | 147,059
    Series D Convertible Preferred.   |  |                            |  |                |    |   |      |   | 250,000    |                            |  |   | 250,000                     | 
|www.sciaps.com                                                                  |  | Total
    SciAps                              |  |                            |  |                |    |   |      |   | 3,078,984  |                            |  |   | 1,074,274                   | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Teleservices
    Solutions Holdings, LLC (e) (g)(l)                             |  | 250,000
    Class B Preferred Units.          |  | 5/30/14                    |  |                | 6  | % |      |   | 250,000    |                            |  |   | -                           | 
|Montvale,
    NJ. Customer contact center                                       |  | 1,000,000
    Class C Preferred Units.        |  |                            |  |                |    |   |      |   | 1,190,680  |                            |  |   | -                           | 
|specializing
    in customer acquisition and retention                          |  | 80,000
    Class D Preferred Units.           |  |                            |  |                |    |   |      |   | 91,200     |                            |  |   | -                           | 
|for
    selected industries. (Contact Center)                                   |  | 104,198
    Class E Preferred Units.          |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|www.ipacesetters.com                                                            |  | PIK
    dividend for Series C and D at 12%    |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                |  | and
    14%, respectively.                    |  |                            |  |                |    |   |      |   | 104,198    |                            |  |   | -                           | 
|                                                                                |  | Total
    Teleservices                        |  |                            |  |                |    |   |      |   | 1,636,078  |                            |  |   | -                           | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Tilson
    Technology Management, Inc. (g)(h)                                   |  | 120,000
    Series B Preferred.               |  | 1/20/15                    |  |                | 9  | % |      |   | 600,000    |                            |  |   | 1,950,000                   | 
|Portland,
    ME. Provides network deployment                                   |  | 21,391
    Series C Preferred.                |  |                            |  |                |    |   |      |   | 200,000    |                            |  |   | 347,604                     | 
|construction
    and information system services                                |  | 70,176
    Series D Preferred.                |  |                            |  |                |    |   |      |   | 800,000    |                            |  |   | 1,140,360                   | 
|management
    for cellular, fiber optic and wireless                           |  | 15,385
    Series E Preferred.                |  |                            |  |                |    |   |      |   | 500,012    |                            |  |   | 500,012                     | 
|systems
    providers. Its affiliated entity, SQF, LLC                          |  | 211,567
    SQF Hold Co. Common.              |  |                            |  |                |    |   |      |   | -          |                            |  |   | 22,036                      | 
|is
    a CLEC supporting small cell 5G deployment.                              |  | Total
    Tilson                              |  |                            |  |                |    |   |      |   | 2,100,012  |                            |  |   | 3,960,012                   | 
|(Professional
    Services)                                                     |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|www.tilsontech.com                                                              |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Other
    Affiliate Investments:                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|G-TEC
    Natural Gas Systems(e)(m)                                             |  | Membership
    Interest                       |  | 8/31/99                    |  |                | 17 | % |      |   | 400,000    |                            |  |   | -                           | 
|(Manufacturing)                                                                 |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|Subtotal
    Affiliate Investments                                              |  |                                               |  |                            |  |                |    |   |      | $ | 19,035,446 |                            |  | $ | 12,151,435                  | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|TOTAL
    INVESTMENTS - 69%                                                     |  |                                               |  |                            |  |                |    |   |      | $ | 44,619,463 |                            |  | $ | 37,020,792                  | 
|OTHER
    ASSETS IN EXCESS OF LIABILITIES - 31%                                 |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   | 16,607,724                  | 
|                                                                                |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  |   |                             | 
|NET
    ASSETS – 100%                                                           |  |                                               |  |                            |  |                |    |   |      |   |            |                            |  | $ | 53,628,516                  | 



58







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)



Notes
to the Consolidated Schedule of Portfolio Investments



(a)
At December 31, 2019, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities
are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in
form of shares unless otherwise noted as units or interests, i.e., preferred shares, common shares.



(b)
The Date Acquired column indicates the date on which the Corporation first acquired an investment in the company or a predecessor
company.



(c)
Each equity percentage estimates the Corporation’s ownership interest in the applicable portfolio investment. The estimated
ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage
of voting securities held by the Corporation upon exercise of warrants or conversion of debentures, or other available data. If
applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.



(d)
The Corporation’s investments are carried at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures,” which defines fair value and establishes
guidelines for measuring fair value. At December 31, 2019, ASC 820 designates 100% of the Corporation’s investments as “Level
3” assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are valued at the average
closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject
to restrictions on resale, and are valued at fair value as determined by RCM and submitted to the Board of Directors for approval.
Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when
sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may
ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable differences
could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition
and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market
prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of
the portfolio company (see Note 3. “Investments” to the Consolidated Financial Statements).



(e)
These investments are non-income producing. All other investments are income producing. Non-income producing investments have
not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or
are not expected to do so going forward. However, if a debt or a preferred equity fails to make its most recent payment, then
the investment will also be classified as non-income producing.



(f)
As of December 31, 2019, the total cost of investment securities was approximately $44.6 million. Net unrealized depreciation
was approximately ($7.6) million, which was comprised of $10.1 million of unrealized appreciation of investment securities and
($17.7) million of unrealized depreciation of investment securities. At December 31, 2019, the aggregate gross unrealized gain
for federal income tax purposes was $10.2 million and the aggregate gross unrealized loss for federal income tax purposes was
($14.7) million. The net unrealized loss for federal income tax purposes was ($4.5) million based on a tax cost of $41.4 million.



(g)
Rand Capital SBIC, Inc. investment.



(h)
Reduction in cost and value from previously reported balances reflects current principal repayment.



(i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporation’s Consolidated
Statements of Financial Position. (None at December 31, 2019)



(j)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.



(k)
Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as those Non-Control
investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.



(l)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.



(m)
Equity holdings are held in a wholly owned (100%) “blocker corporation” of Rand Capital Corporation or Rand Capital
SBIC, Inc. for federal income tax and Regulated Investment Company (RIC) compliance.



59







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)



|Investments
    in and Advances to Affiliates
|---------------------------------------------
|Company                                      
|Control Investments:                         
|Advantage
    24/7 LLC                       
|Gemcor
    II, LLC                           
|                                             
|                                             
|Affiliate
    Investments:                   
|BeetNPath,
    LLC                           
|                                             
|                                             
|                                             
|                                             
|Carolina
    Skiff LLC                       
|                                             
|ClearView
    Social, Inc.                   
|                                             
|Filterworks                                  
|Acquisition
    USA, LLC                     
|                                             
|                                             
|First
    Wave Technologies, Inc.            
|                                             
|Genicon,
    Inc.                            
|                                             
|                                             
|                                             
|                                             
|                                             
|G-TEC
    Natural Gas Systems                
|                                             
|Knoa
    Software, Inc.                      
|                                             
|                                             
|                                             
|KnowledgeVision
    Systems, Inc.            
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|Mezmeriz,
    Inc.                           
|                                             
|Microcision
    LLC                          
|                                             
|                                             
|                                             
|New
    Monarch Machine Tool, Inc.           
|                                             
|OnCore
    Golf Technology, Inc.             



60







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)





|Investments
    in and Advances to Affiliates
|---------------------------------------------
|Company                                      
|SciAps,
    Inc.                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|SOMS
    Technologies, LLC                   
|                                             
|Teleservices
    Solutions Holdings, LLC     
|                                             
|                                             
|                                             
|                                             
|                                             
|Tilson                                       
|Technology                                   
|Management,                                  
|Inc.                                         
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             



This
schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated
Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.



(1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments,
capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or
net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another
category.



(2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions,
net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new
securities and the movement of an existing portfolio company out of this category and into another category.



(3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was
included in Control or Affiliate categories, respectively.



61







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2019 (Continued)








|Industry
    Classification |  | Percentage
    of Total
    Investments (at fair value)
    as of December 31, 2019 |     
|--------------------------- |  | ----------------------------------------------------------------------------------- | ----
|Software                    |  |                                                                                     | 40.4
|Manufacturing               |  |                                                                                     | 16.4
|Professional
    Services   |  |                                                                                     | 13.6
|Entertainment               |  |                                                                                     | 11.9
|Automotive                  |  |                                                                                     | 7.7 
|Healthcare                  |  |                                                                                     | 6.4 
|Contact
    Center          |  |                                                                                     | 1.3 
|Oil
    and Gas             |  |                                                                                     | 1.3 
|Consumer
    Product        |  |                                                                                     | 0.8 
|Marketing                   |  |                                                                                     | 0.2 
|Total
    Investments       |  |                                                                                     | 100 



62







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018



|Company,
    Geographic Location, Business
    Description, (Industry) and Website                                                                                       |  | (a)
    
    Type of Investment                                                              |  | (b)
    
    Date
    Acquired |  | (c)
    Equity |     |   | Cost |   |           | (d)(f)
    Fair
    Value |  |   | Percent
    of Net
    Assets | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------- |  | ------------------------------ |  | -------------- | --- | - | ---- | - | --------- | ------------------------- |  | - | ----------------------------- | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Non-Control/Non-Affiliate
    Investments – 55.7% of net assets: (j)                                                                                                     |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|ACV
    Auctions, Inc. (e)(g)                                                                                                                                            |  | 1,181,160
    Series A Preferred.                                                            |  | 8/12/16                        |  |                | <1% |   |      | $ | 163,000   |                           |  | $ | 2,776,907                     | 
|Buffalo,
    NY. Live mobile wholesale auctions for new and used car dealers. (Software)                                                                                 |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|www.acvauctions.com                                                                                                                                                      |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Centivo
    Corporation (e)(g)                                                                                                                                           |  | 190,967
    Series A-1 Preferred.                                                            |  | 7/5/17                         |  |                | <1% |   |      |   | 200,000   |                           |  |   | 200,000                       | 
|New
    York, NY. Tech-enabled health solutions company that helps self-insured employers and their employees save money and have
    a better experience. (Health Care) |  | 337,808
    Series A-2 Preferred.                                                            |  |                                |  |                |     |   |      |   | 101,342   |                           |  |   | 101,342                       | 
|www.centivo.com                                                                                                                                                          |  | Total
    Centivo                                                                            |  |                                |  |                |     |   |      |   | 301,342   |                           |  |   | 301,342                       | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|eHealth
    Global Technologies, Inc. (g)                                                                                                                                |  | $3,500,000
    Term Note at 13%                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Henrietta,
    NY. eHealth Connect® improves                                                                                                                             |  | due
    December 31, 2020.                                                                   |  | 6/28/16                        |  |                | 0   | % |      |   | 3,500,000 |                           |  |   | 3,500,000                     | 
|health care
    delivery through intelligently aggregated clinical record and images for patient referrals. (Health Care)                                                |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|www.ehealthtechnologies.com                                                                                                                                              |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Empire
    Genomics, LLC (g)(m)                                                                                                                                          |  | $1,209,014
    Senior Secured                                                                |  | 6/13/14                        |  |                | 0   | % |      |   |           |                           |  |   |                               | 
|Buffalo,
    NY. Molecular diagnostics company that offers
    a comprehensive menu of assay                                                                             |  | Convertible
    Term Notes at 10% (8% PIK through September 30, 2019) due December 31, 2020. |  |                                |  |                |     |   |      |   | 1,233,195 |                           |  |   | 474,181                       | 
|services for diagnosing and guiding
patient therapeutic treatments. (Health Care) www.empiregenomics.com                                                                 |  | $444,915
    Promissory Note at 9% (4% PIK) due December 31, 2020.                           |  |                                |  |                |     |   |      |   | 444,915   |                           |  |   | 302,569                       | 
|                                                                                                                                                                         |  | Total
    Empire                                                                             |  |                                |  |                |     |   |      |   | 1,678,110 |                           |  |   | 776,750                       | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|GiveGab,
    Inc. (e)(g)                                                                                                                                                 |  | 5,084,329
    Series Seed Preferred.                                                         |  | 3/13/13                        |  |                | 4   | % |      |   | 616,221   |                           |  |   | 616,221                       | 
|Ithaca,
    NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)                                                 |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|www.givegab.com                                                                                                                                                          |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|GoNoodle,
    Inc. (g)(m)                                                                                                                                                |  | $1,000,000
    Secured Note at                                                               |  | 2/6/15                         |  |                | <1  | % |      |   |           |                           |  |   |                               | 
|Nashville,
                                         TN. Student engagement education                                                                                     |  | 12%
    due January 31, 2020, (1% PIK).                                                      |  |                                |  |                |     |   |      |   | 1,039,663 |                           |  |   | 1,039,663                     | 
|software
    providing core aligned physical activity breaks. (Software) www.gonoodle.com                                                                                |  | Warrant
    for 47,324 Series C Preferred.                                                   |  |                                |  |                |     |   |      |   | 25        |                           |  |   | 25                            | 
|                                                                                                                                                                         |  | Total
    GoNoodle                                                                           |  |                                |  |                |     |   |      |   | 1,039,688 |                           |  |   | 1,039,688                     | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Mercantile
                                         Adjustment Bureau, LLC (g)                                                                                           |  | $1,199,039
    Subordinated Secured                                                          |  | 10/22/12                       |  |                | 4   | % |      |   |           |                           |  |   |                               | 
|Williamsville,
NY. Full service accounts receivablemanagement
and collections company.                                                                                   |  | Note
at 13% (3% for the calendar year 2018) due January 31, 2019.                            |  |                                |  |                |     |   |      |   | 1,199,040 |                           |  |   | 700,000                       | 
|(Contact Center) www.mercantilesolutions.com                                                                                                                             |  | (e) $150,000 Subordinated Debenture at 8% due
    June 30, 2018.                             |  |                                |  |                |     |   |      |   | 150,000   |                           |  |   | -                             | 
|                                                                                                                                                                         |  | Warrant
    for 3.29% Membership Interests. Option for 1.5% Membership Interests.            |  |                                |  |                |     |   |      |   | 97,625    |                           |  |   | -                             | 
|                                                                                                                                                                         |  | (i)
    Interest receivable $50,254.                                                         |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  | Total
    Mercantile                                                                         |  |                                |  |                |     |   |      |   | 1,446,665 |                           |  |   | 700,000                       | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|Outmatch
    Holdings, LLC (e)(g)                                                                                                                                        |  | 2,798,883
    Class P1 Units.                                                                |  | 11/18/10                       |  |                | 4   | % |      |   | 2,140,007 |                           |  |   | 2,140,007                     | 
|(Chequed
    Holdings, LLC)                                                                                                                                              |  | 109,788
    Class C1 Units.                                                                  |  |                                |  |                |     |   |      |   | 5,489     |                           |  |   | 5,489                         | 
|Dallas,
    TX. Web based predictive employee                                                                                                                            |  | Total
    Outmatch                                                                           |  |                                |  |                |     |   |      |   | 2,145,496 |                           |  |   | 2,145,496                     | 
|selection and reference checking. (Software)www.outmatch.com                                                                                                             |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|                                                                                                                                                                         |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 
|PostProcess
                                         Technologies LLC (e)(g)                                                                                             |  | $300,000
    Convertible Promissory                                                          |  | 7/25/16                        |  |                | 0   | % |      |   |           |                           |  |   |                               | 
|Buffalo,
    NY. Provides innovative solutions for the                                                                                                                   |  | Note
    at 5% due July 28, 2020.                                                            |  |                                |  |                |     |   |      |   | 300,000   |                           |  |   | 300,000                       | 
|post-processing
    of additive manufactured 3D parts. (Manufacturing) www.postprocess.com                                                                               |  |                                                                                              |  |                                |  |                |     |   |      |   |           |                           |  |   |                               | 



63







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



|Company,
    Geographic Location, Business 
    Description, (Industry) and Website                                                                                                                                                                                      |  | (a)
    
    Type of Investment                                                      |  | (b)
    
    Date
    Acquired |  | (c)
    Equity |    |   | Cost |   |            | (d)(f)
    
    Fair
    Value |  |   | Percent
    of Net
    Assets | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------ |  | ------------------------------ |  | -------------- | -- | - | ---- | - | ---------- | ------------------------------ |  | - | ----------------------------- | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Rheonix,
    Inc. (e)                                                                                                                                                                                                                                                    |  | 9,676
    Common.                                                                    |  | 10/29/09                       |  |                | 4  | % |      |   | -          |                                |  |   | -                             | 
|Ithaca,
    NY. Developer of fully                                                                                                                                                                                                                                       |  | (g)1,839,422 Series A Preferred.                                                     |  |                                |  |                |    |   |      |   | 2,099,999  |                                |  |   | 1,500,000                     | 
|automated
    microfluidic based molecular                                                                                                                                                                                                                               |  | (g)
    50,593 Common.                                                               |  |                                |  |                |    |   |      |   | -          |                                |  |   | -                             | 
|assay
    and diagnostic testing devices. (Health Care)                                                                                                                                                                                                                  |  | (g)
    589,420 Series B Preferred.                                                  |  |                                |  |                |    |   |      |   | 702,732    |                                |  |   | 702,732                       | 
|www.rheonix.com                                                                                                                                                                                                                                                          |  | Total
    Rheonix                                                                    |  |                                |  |                |    |   |      |   | 2,802,731  |                                |  |   | 2,202,732                     | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|SocialFlow,
    Inc. (e)(g)                                                                                                                                                                                                                                              |  | 1,049,538
    Series B Preferred.                                                    |  | 4/5/13                         |  |                | 4  | % |      |   | 500,000    |                                |  |   | 731,431                       | 
|New
    York, NY. Provides instant analysis of social                                                                                                                                                                                                                    |  | 1,204,819
    Series B-1 Preferred.                                                  |  |                                |  |                |    |   |      |   | 750,000    |                                |  |   | 839,648                       | 
|networks using a proprietary,
    predictive analytic algorithm to optimize advertising andpublishing. (Software)                                                                                                                                                        |  | 717,772
    Series C Preferred.                                                      |  |                                |  |                |    |   |      |   | 500,000    |                                |  |   | 500,221                       | 
|www.socialflow.com                                                                                                                                                                                                                                                       |  | Total
    Social Flow                                                                |  |                                |  |                |    |   |      |   | 1,750,000  |                                |  |   | 2,071,300                     | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Somerset Gas Transmission Company, LLC (e)
                                                                               Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com                                                                    |  | 26.5337
    Units.                                                                   |  | 7/10/02                        |  |                | 3  | % |      |   | 719,097    |                                |  |   | 500,000                       | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Tech 2000, Inc. (g)(m)
                                                                               Herndon, VA. Develops and delivers IT training. (Software) www.t2000inc.com                                                                                        |  | $600,000
    Term Note at 14% (PIK through December 31, 2018) due November 15, 2021. |  | 11/16/18                       |  |                | 0  | % |      |   | 610,777    |                                |  |   | 610,777                       | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Other
    Non-Control/Non-Affiliate Investments:                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|DataView,
    LLC (e) (Software)                                                                                                                                                                                                                                         |  | Membership
    Interest.                                                             |  | 10/1/98                        |  |                | 5  | % |      |   | 310,357    |                                |  |   | -                             | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|UStec/Wi3
    (e) (Manufacturing)                                                                                                                                                                                                                                        |  | Common
    stock.                                                                    |  | 12/17/98                       |  |                | <1 | % |      |   | 100,500    |                                |  |   | -                             | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Subtotal
    Non-Control/Non-Affiliate Investments                                                                                                                                                                                                                       |  |                                                                                      |  |                                |  |                |    |   |      | $ | 17,483,984 |                                |  | $ | 17,541,213                    | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Affiliate
    Investments – 54.0% of net assets (k)                                                                                                                                                                                                                      |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|BeetNPath, LLC (Grainful) (e)(g)
                                                                                Ithaca,
                                         NY. Frozen entrées made from                                                                           |  | 1,119,024
    Series A-2 Preferred Membership Units.                                 |  | 10/20/14                       |  |                | 9  | % |      | $ | 359,000    |                                |  | $ | -                             | 
|100% whole grain steel cut oats under                                                                                                                                                                                                                                    |  | 1,032,918
    Series B Preferred Membership Units.                                   |  |                                |  |                |    |   |      |   | 261,277    |                                |  |   | 261,277                       | 
|Grainful brand name. (Consumer Product)
                                                                                www.grainful.com                                                                                                                                 |  | $262,626.64
    Convertible Secured Notes at 8% due December 21, 2019.               |  |                                |  |                |    |   |      |   | 262,627    |                                |  |   | 262,627                       | 
|                                                                                                                                                                                                                                                                         |  | Total
    BeetNPath                                                                  |  |                                |  |                |    |   |      |   | 882,904    |                                |  |   | 523,904                       | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|Carolina Skiff LLC (g)
                                                                               Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com                                                              |  | 6.0825%
    Class A Common Membership Interest.                                      |  | 1/30/04                        |  |                | 7  | % |      |   | 15,000     |                                |  |   | 1,750,000                     | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|ClearView
                                         Social, Inc. (e)(g)
                                                                                Buffalo, NY. Social media publishing tool for law, CPA and professional firms. (Software) www.clearviewsocial.com |  | 312,500
    Series Seed Plus Preferred.                                              |  | 1/4/16                         |  |                | 6  | % |      |   | 200,000    |                                |  |   | 200,000                       | 
|                                                                                                                                                                                                                                                                         |  |                                                                                      |  |                                |  |                |    |   |      |   |            |                                |  |   |                               | 
|First
    Wave Technologies, Inc. (e)(g) Batavia, NY. Sells First Crush automated
    pill crusher that crushes and grinds pills for nursing homes and medical institutions. (Health Care) www.firstwaveproducts.com                                                     |  | 670,443.2
    Class A Common.                                                        |  | 4/19/12                        |  |                | 5  | % |      |   | 661,563    |                                |  |   | 33,000                        | 



64







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



|Company,
    Geographic Location, Business
    Description, (Industry) and Website                                                                                                                                                           |  | (a)
    Type of Investment                                               |  | (b)
    Date Acquired |  | (c)
    Equity |    |   | Cost |  |           | (d)(f)
    Fair Value |  |  | Percent
    of Net
    Assets | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | --------------------- |  | -------------- | -- | - | ---- |  | --------- | --------------------- |  |  | ----------------------------- | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|Genicon,
Inc. (g) (m)                                                                                                                                                                                                                        |  | 1,586,902
    Series B Preferred.                                        |  | 4/10/15               |  |                | 6  | % |      |  | 1,000,000 |                       |  |  | 1,000,000                     | 
|Winter
    Park, FL. Designs, produces and distributes
    patented surgical instrumentation.                                                                                                                                                |  | $3,250,000
    Promissory Notes at 10% due May 1, 2020, (8% PIK).        |  |                       |  |                |    |   |      |  | 3,385,586 |                       |  |  | 3,385,586                     | 
|(Health
    Care)                                                                                                                                                                                                                            |  | Warrants
    for 500,000 Common.                                         |  |                       |  |                |    |   |      |  | 120,000   |                       |  |  | 37,500                        | 
|www.geniconendo.com                                                                                                                                                                                                                          |  | Total
    Genicon                                                        |  |                       |  |                |    |   |      |  | 4,505,586 |                       |  |  | 4,423,086                     | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|Knoa
Software, Inc. (e)(g)                                                                                                                                                                                                                   |  | 973,533
    Series A-1 Convertible Preferred.                            |  | 11/20/12              |  |                | 7  | % |      |  | 750,000   |                       |  |  | 750,000                       | 
|New
    York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications.                                                                                                                          |  | 1,876,922
    Series B Preferred.                                        |  |                       |  |                |    |   |      |  | 479,155   |                       |  |  | 479,155                       | 
|(Software)
    www.knoa.com                                                                                                                                                                                                                  |  | Total
    Knoa                                                           |  |                       |  |                |    |   |      |  | 1,229,155 |                       |  |  | 1,229,155                     | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|KnowledgeVision
    Systems, Inc. (g)                                                                                                                                                                                                        |  | 200,000
    Series A-1 Preferred.                                        |  | 11/13/13              |  |                | 7  | % |      |  | 250,000   |                       |  |  | -                             | 
|Lincoln,
    MA. Online presentation and training                                                                                                                                                                                            |  | 214,285
    Series A-2 Preferred.                                        |  |                       |  |                |    |   |      |  | 300,000   |                       |  |  | -                             | 
|software.
    (Software)                                                                                                                                                                                                                     |  | 129,033
    Series A-3 Preferred.                                        |  |                       |  |                |    |   |      |  | 165,001   |                       |  |  | 165,001                       | 
|www.knowledgevision.com                                                                                                                                                                                                                      |  | Warrant
    for 46,743 Series A-3.                                       |  |                       |  |                |    |   |      |  | 35,000    |                       |  |  | 35,000                        | 
|                                                                                                                                                                                                                                             |  | $75,000
    Subordinated Promissory Notes                                |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|                                                                                                                                                                                                                                             |  | at
    8% payable on demand of majority of                               |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|                                                                                                                                                                                                                                             |  | holders
    after August 31, 2019.(e)                                    |  |                       |  |                |    |   |      |  | 75,000    |                       |  |  | 75,000                        | 
|                                                                                                                                                                                                                                             |  | $750,000
    Term Note at 11% due April                                  |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|                                                                                                                                                                                                                                             |  | 30,
    2021.                                                            |  |                       |  |                |    |   |      |  | 750,000   |                       |  |  | 750,000                       | 
|                                                                                                                                                                                                                                             |  | Total
    KnowledgeVision                                                |  |                       |  |                |    |   |      |  | 1,575,001 |                       |  |  | 1,025,001                     | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|Mezmeriz,
    Inc. (e)(g)Ithaca, NY. Technology company developing novel reality
    capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer) www.mezmeriz.com                            |  | 1,554,565
    Series Seed Preferred.                                     |  | 1/9/08                |  |                | 12 | % |      |  | 742,850   |                       |  |  | 351,477                       | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|Microcision
    LLC (g)(m)Pennsauken Township, NJ. Manufacturer of                                                                                                                                                                           |  | $1,500,000
    Subordinated Promissory Note at 12% (1% PIK) due December |  | 9/24/09               |  |                | 15 | % |      |  |           |                       |  |  |                               | 
|precision
    machined medical implants,                                                                                                                                                                                                     |  | 31,
    2024.                                                            |  |                       |  |                |    |   |      |  | 1,933,353 |                       |  |  | 1,933,353                     | 
|components
    and assemblies. (Manufacturing)                                                                                                                                                                                               |  | 15%
    Class A Common Membership                                        |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|www.microcision.com                                                                                                                                                                                                                          |  | Interest.                                                                |  |                       |  |                |    |   |      |  | -         |                       |  |  | 610,000                       | 
|                                                                                                                                                                                                                                             |  | Total
    Microcision                                                    |  |                       |  |                |    |   |      |  | 1,933,353 |                       |  |  | 2,543,353                     | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|New
    Monarch Machine Tool, Inc. (g)Cortland, NY. Manufactures and
    services vertical/horizontal machining centers. (Manufacturing) www.monarchmt.com                                                                                   |  | 22.84
    Common.                                                        |  | 9/24/03               |  |                | 15 | % |      |  | 22,841    |                       |  |  | 22,841                        | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|OnCore
    Golf Technology, Inc. (e)(g)Buffalo, NY. Patented and Proprietary
    Golf Balls utilizing breakthrough technology and innovation, inspiring golfers at all skill levels and abilities. (Consumer
    Product) www.oncoregolf.com |  | 300,483
    Preferred AA.                                                |  | 12/31/14              |  |                | 8  | % |      |  | 752,712   |                       |  |  | 300,000                       | 
|                                                                                                                                                                                                                                             |  |                                                                          |  |                       |  |                |    |   |      |  |           |                       |  |  |                               | 
|SciAps,
Inc. (e)(g)                                                                                                                                                                                                                          |  | 187,500
    Series A Preferred.                                          |  | 7/12/13               |  |                | 6  | % |      |  | 1,500,000 |                       |  |  | 700,000                       | 
|Woburn,
    MA. Instrumentation company                                                                                                                                                                                                      |  | 274,299
    Series A-1 Convertible Preferred.                            |  |                       |  |                |    |   |      |  | 504,710   |                       |  |  | 250,000                       | 
|producing
    portable analytical devices using XRF,                                                                                                                                                                                         |  | 117,371
    Series B Convertible Preferred.                              |  |                       |  |                |    |   |      |  | 250,000   |                       |  |  | 250,000                       | 
|LIBS
    and RAMAN spectroscopy to identify                                                                                                                                                                                                  |  | 113,636
    Series C Convertible Preferred.                              |  |                       |  |                |    |   |      |  | 175,000   |                       |  |  | 175,000                       | 
|compounds,
    minerals, and elements. (Manufacturing)                                                                                                                                                                                       |  | 369,698
    Series C-1 Convertible Preferred.                            |  |                       |  |                |    |   |      |  | 399,274   |                       |  |  | 399,274                       | 
|www.sciaps.com                                                                                                                                                                                                                               |  | 147,059
    Series D Convertible Preferred.                              |  |                       |  |                |    |   |      |  | 250,000   |                       |  |  | 250,000                       | 
|                                                                                                                                                                                                                                             |  | Total
    SciAps                                                         |  |                       |  |                |    |   |      |  | 3,078,984 |                       |  |  | 2,024,274                     | 



65







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



|Company,
    Geographic Location, Business
    Description, (Industry) and Website                                                                                                   |  | (a)
    Type of Investment                 |  | (b)
    Date Acquired |  | (c)
    Equity |    |   | Cost |   |            | (d)(f)
    Fair Value |  |   | Percent
    of Net
    Assets |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ |  | --------------------- |  | -------------- | -- | - | ---- | - | ---------- | --------------------- |  | - | ----------------------------- | -
|Teleservices
    Solutions Holdings, LLC (e)                                                                                                                                         |  | 250,000
    Class B Preferred Units.       |  | 5/30/14               |  |                | 6  | % |      |   | 250,000    |                       |  |   | -                             |  
|(g)(m)                                                                                                                                                                               |  | 1,000,000
    Class C Preferred Units.     |  |                       |  |                |    |   |      |   | 1,190,680  |                       |  |   | -                             |  
|Montvale,
    NJ. Customer contact center                                                                                                                                            |  | 80,000
    Class D Preferred Units.        |  |                       |  |                |    |   |      |   | 91,200     |                       |  |   | -                             |  
|specializing
    in customer acquisition and retention                                                                                                                               |  | 104,198
    Class E Preferred Units.       |  |                       |  |                |    |   |      |   | 104,198    |                       |  |   | -                             |  
|for
    selected industries. (Contact Center)                                                                                                                                        |  | PIK
    dividend for Series C and D at 12% |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|www.ipacesetters.com                                                                                                                                                                 |  | and
    14%, respectively.                 |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|                                                                                                                                                                                     |  | Total
    Teleservices                     |  |                       |  |                |    |   |      |   | 1,636,078  |                       |  |   | -                             |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Tilson
    Technology Management, Inc. (g)                                                                                                                                           |  | 120,000
    Series B Preferred.            |  | 1/20/15               |  |                | 11 | % |      |   | 600,000    |                       |  |   | 600,000                       |  
|Portland,
    ME. Cellular, fiber optic and wireless                                                                                                                                 |  | 21,391
    Series C Preferred.             |  |                       |  |                |    |   |      |   | 200,000    |                       |  |   | 200,000                       |  
|information
    systems, construction, and                                                                                                                                           |  | 70,176
    Series D Preferred.             |  |                       |  |                |    |   |      |   | 800,000    |                       |  |   | 800,000                       |  
|management.
    (Professional Services)                                                                                                                                              |  | $800,000
    Subordinated Promissory       |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|www.tilsontech.com                                                                                                                                                                   |  | Notes
    at 8% due December 1, 2022.      |  |                       |  |                |    |   |      |   | 800,000    |                       |  |   | 800,000                       |  
|                                                                                                                                                                                     |  | $200,000
    Subordinated Promissory       |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|                                                                                                                                                                                     |  | Note
    at 8% due September 28, 2021.     |  |                       |  |                |    |   |      |   | 200,000    |                       |  |   | 200,000                       |  
|                                                                                                                                                                                     |  | Total
    Tilson                           |  |                       |  |                |    |   |      |   | 2,600,000  |                       |  |   | 2,600,000                     |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Other
    Affiliate Investments:                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|G-TEC
    Natural Gas Systems(e) (Manufacturing)                                                                                                                                     |  | Membership
    Interest                    |  | 8/31/99               |  |                | 17 | % |      |   | 400,000    |                       |  |   | -                             |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|SOMS
    Technologies, LLC (e)(g) (Consumer Products)                                                                                                                                |  | Membership
    Interest                    |  | 12/2/08               |  |                | 9  | % |      |   | 472,632    |                       |  |   | -                             |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Subtotal
    Affiliate Investments                                                                                                                                                   |  |                                            |  |                       |  |                |    |   |      | $ | 20,708,659 |                       |  | $ | 17,026,091                    |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Control
    Investments – 0.3% of net assets (l)                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Advantage
    24/7 LLC (g)                                                                                                                                                           |  | 45%
    Membership Interest.               |  | 12/30/10              |  |                | 45 | % |      | $ | 99,500     |                       |  | $ | 99,500                        |  
|Williamsville,
    NY. Marketing program for wine                                                                                                                                    |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|and
                                         spirits dealers. (Marketing Company)
                                                                             www.advantage24-7.com |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|Subtotal
    Control Investments                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      | $ | 99,500     |                       |  | $ | 99,500                        |  
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|TOTAL
    INVESTMENTS – 110%                                                                                                                                                         |  |                                            |  |                       |  |                |    |   |      | $ | 38,292,143 |                       |  | $ | 34,666,804                    |  
|LIABILITIES
    IN EXCESS OF OTHER ASSETS – (10%)                                                                                                                                    |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   | (3,142,617                    | )
|                                                                                                                                                                                     |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  |   |                               |  
|NET
    ASSETS – 100%                                                                                                                                                                |  |                                            |  |                       |  |                |    |   |      |   |            |                       |  | $ | 31,524,187                    |  



66







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



Notes
to the Consolidated Schedule of Portfolio Investments



(a)
At December 31, 2018, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities
are subject to one or more restrictions on resale and are not freely marketable. Type of investment for equity position is in
form of shares unless otherwise noted as units or interests, i.e., preferred shares, common shares.



(b)
The Date Acquired column indicates the date in which the Corporation first acquired an investment in the company or a predecessor
company.



(c)
Each equity percentage estimates the Corporation’s ownership interest in the applicable portfolio investment. The estimated
ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage
of voting securities held by the Corporation upon exercise of warrants or conversion of debentures, or other available data. If
applicable, the symbol “<1%” indicates that the Corporation holds an equity interest of less than one percent.



(d)
The Corporation’s investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 “Fair
Value Measurements and Disclosures,” which defines fair value and establishes guidelines for measuring fair value. At December
31, 2018, ASC 820 designates 100% of the Corporation’s investments as “Level 3” assets. Under the valuation
policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities
for the last three trading days of the reporting period. Restricted securities are subject to restrictions on resale, and are
valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval.
Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when
sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may
ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable differences
could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition
and operating results, projected operations, and other analytical data relating to the investment. Also considered are the market
prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of
the portfolio company (see Note 2 “Investments” to the Consolidated Financial Statements).



(e)
These investments are non-income producing. All other investments are income producing. Non-income producing investments have
not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve months, or
are not expected to do so going forward. However, if a debt or a preferred equity fails to make its most recent payment, then
the investment will also be classified as non-income producing.



(f)
As of December 31, 2018 the total cost of investment securities was approximately $38.3 million. Net unrealized depreciation was
approximately ($3.6) million, which was comprised of $5.3 million of unrealized appreciation of investment securities and ($8.9)
million of unrealized depreciation of investment securities. At December 31, 2018, the aggregate gross unrealized gain for federal
income tax purposes was $5.2 million and the aggregate gross unrealized loss for federal income tax purposes was ($5.9) million.
The net unrealized loss for federal income tax purposes was ($0.7) million based on a tax cost of $35.4 million.



(g)
Rand Capital SBIC, Inc. investment.



(h)
Reduction in cost and value from previously reported balances reflects current principal repayment.



(i)
Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporation’s Consolidated
Statements of Financial Position.



(j)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.



(k)
Affiliate Investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as those Non-Control
investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation.



(l)
Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are
owned by the Corporation or where greater than 50% of the board representation is maintained.



(m)
Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.



67







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



|Investments
    in and Advances to Affiliates                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------
|Company                                                                                                                                                  
|Control
                                                                             Investments: Advantage
                                         24/7
|LLC                                                                                                                                                      
|                                                                                                                                                         
|                                                                                                                                                         
|Affiliate Investments:                                                                                                                                   
|BeetNPath,
    LLC                                                                                                                                       
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|Carolina
    Skiff LLC                                                                                                                                   
|                                                                                                                                                         
|ClearView
    Social, Inc.                                                                                                                               
|                                                                                                                                                         
|First
    Wave                                                                                                                                           
|                                                                                                                                                         
|Technologies,
    Inc.                                                                                                                                   
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|Genicon,
    Inc.                                                                                                                                        
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|GiveGab,
    Inc.                                                                                                                                        
|                                                                                                                                                         
|G-TEC
    Natural Gas Systems                                                                                                                            
|                                                                                                                                                         
|Intrinsiq
    Materials, Inc.                                                                                                                            
|                                                                                                                                                         
|Knoa
    Software, Inc.                                                                                                                                  
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|KnowledgeVision                                                                                                                                          
|Systems,
    Inc.                                                                                                                                        
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|Mezmeriz,
    Inc.                                                                                                                                       
|                                                                                                                                                         
|Microcision
    LLC                                                                                                                                      
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|New
    Monarch Machine Tool, Inc.                                                                                                                       
|                                                                                                                                                         



68







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)



|Investments in and Advances to Affiliates                      
|---------------------------------------------------------------
|Company                                                        
|OnCore
    Golf                                                
|Technology,
    Inc.                                           
|                                                               
|                                                               
|SciAps,
    Inc.                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|SOMS
                                         Technologies, LLC
|                                                               
|Teleservices                                                   
|Solutions                                                      
|Holdings,
    LLC                                              
|                                                               
|                                                               
|                                                               
|Tilson
    Technology                                          
|Management,
    Inc.                                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               



This
schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Consolidated
Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.



(1)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow on investments,
capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or
net decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another
category.



(2)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions,
net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new
securities and the movement of an existing portfolio company out of this category and into another category.



(3)
Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was
included in Control or Affiliate categories, respectively.



69







RAND
CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED
SCHEDULE OF PORTFOLIO INVESTMENTS

December
31, 2018 (Continued)










|Industry
                                         Classification |  | Percentage
    of Total
    Investments (at fair value)
    as of December 31, 2018 |     
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- | ----
|Software                                                         |  |                                                                                     | 33.8
|Healthcare                                                       |  |                                                                                     | 32.4
|Manufacturing                                                    |  |                                                                                     | 19.2
|Professional
    Services                                        |  |                                                                                     | 7.5 
|Consumer
    Product                                             |  |                                                                                     | 2.4 
|Contact
    Center                                               |  |                                                                                     | 2.0 
|Oil
    and Gas                                                  |  |                                                                                     | 1.4 
|Electronics                                                      |  |                                                                                     | 1.0 
|Marketing                                                        |  |                                                                                     | 0.3 
|Total
    Investments                                            |  |                                                                                     | 100 



70







RAND
CAPITAL CORPORATION AND SUBSIDIARIES

FINANCIAL
HIGHLIGHTS SCHEDULE

For
the Five Years Ended December 31, 2019, 2018, 2017, 2016 and 2015







The
following is a schedule of financial highlights for the years ended:



|                                                                         |  | 2019 |            | 2018 |   | 2017       |  | 2016 |            | 2015 |  
|------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | -
|Per
    Share Data:                                                      |  |      |            |      |   |            |  |      |            |      |  
|Income
    from investment operations (1):                               |  |      |            |      |   |            |  |      |            |      |  
|Investment
    income                                                    |  | $    | 0.36       |      | $ | 0.33       |  | $    | 0.23       |      | $
|Expenses                                                                 |  |      | 0.37       |      |   | 0.34       |  |      | 0.32       |      |  
|Investment
    (loss) gain before income taxes                           |  |      | (0.01)     |      |   | (0.01)     |  |      | (0.09)     |      |  
|Income
    tax (benefit) expense                                         |  |      | (0.00)     |      |   | (0.00)     |  |      | (0.09)     |      |  
|Net
    investment (loss) gain                                           |  |      | (0.01)     |      |   | (0.01)     |  |      | (0.00)     |      |  
|Issuance
    of common stock                                             |  |      | 3.24       |      |   | 0.00       |  |      | 0.00       |      |  
|Net
    realized and unrealized (loss) gain on investments               |  |      | (0.29)     |      |   | (0.05)     |  |      | (0.11)     |      |  
|(Decrease)
    increase in net asset value                               |  |      | 2.94       |      |   | (0.06)     |  |      | (0.11)     |      |  
|Net
    asset value, beginning of year, based on weighted average shares |  |      | 4.99       |      |   | 5.05       |  |      | 5.16       |      |  
|Net
    asset value, end of year, based on weighted average shares       |  | $    | 7.92       |      | $ | 4.99       |  | $    | 5.05       |      | $
|Per
    share market value, end of year                                  |  | $    | 2.68       |      | $ | 2.50       |  | $    | 3.02       |      | $
|Total
    return based on market value                                   |  |      | 7.20%      |      |   | (17.22)%   |  |      | (4.43)%    |      |  
|Total
    return based on net asset value                                |  |      | (14.11)%   |      |   | (1.24)%    |  |      | (2.18)%    |      |  
|Supplemental
    Data:                                                   |  |      |            |      |   |            |  |      |            |      |  
|Ratio
    of expenses before income taxes to average net assets(2)       |  |      | 7.70%      |      |   | 6.92%      |  |      | 6.23%      |      |  
|Ratio
    of expenses including taxes to average net assets (2)          |  |      | 6.00%      |      |   | 5.73%      |  |      | 6.29%      |      |  
|Ratio
    of net investment (loss) gain to average net assets (2)        |  |      | (0.24)%    |      |   | (0.22)%    |  |      | (0.06)%    |      |  
|Portfolio
    turnover                                                   |  |      | 8.8%       |      |   | 7.4%       |  |      | 18.1%      |      |  
|Net
    assets end of year                                               |  | $    | 53,628,516 |      | $ | 31,524,187 |  | $    | 31,918,685 |      | $
|Weighted average
    shares outstanding, end of year                     |  |      | 7,532,034  |      |   | 6,321,988  |  |      | 6,321,988  |      |  



(1)
Per share data are based on weighted average shares outstanding and results are rounded.

(2)
Average net assets are computed on a quarterly basis for 2019.



71







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS








NOTE
1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature
of Business -Rand Capital Corporation (“Rand”) was incorporated under the laws of New York in 1969. Beginning
in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was registered under Section 8 of
the Investment Company Act of 1940 (the “1940 Act”). In 2001, Rand elected to be treated as a business development
company (“BDC”) under the 1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the purpose of operating it
as a small business investment company (“SBIC”) licensed by the U.S. Small Business Administration (“SBA”).
The subsidiary received an SBA license to operate as an SBIC in 2002. The subsidiary, which had been organized as a Delaware limited
partnership, was converted into a New York corporation on December 31, 2008, at which time its operations as a licensed SBIC were
continued by the newly formed corporation under the name of Rand Capital SBIC, Inc. (“Rand SBIC”). In 2012, the SEC
granted an Order of Exemption for Rand with respect to the operations of Rand SBIC. At that time, although Rand SBIC was operated
as if it were a BDC, it was registered as an investment company under the 1940 Act. Upon Rand’s receipt of the order granting
the exemptions, Rand SBIC filed an election to be regulated as a BDC under the 1940 Act.



On
January 24, 2019 the Corporation entered into a Stock Purchase Agreement with East Asset Management, LLC (“East”).
Pursuant to the terms of the Stock Purchase Agreement, at the closing of the transaction on November 8, 2019 (the “Closing”),
East purchased 8,333,333 shares (the “Shares”) of Rand’s common stock, par value $0.10 per share, at a purchase
price of $3.00 per Share for an aggregate purchase price of $25 million (the “Stock Purchase”), which
consideration was paid to Rand in cash of $15.5 million and partially through the contribution of $9.5 million in existing loans
and other securities (the “Contributed Assets”). At the Closing, Rand entered into an investment advisory and management
agreement (the “Investment Management Agreement”) with Rand Capital Management, LLC (“RCM”) pursuant to
which RCM serves as Rand’s external investment adviser. Rand also entered into an administration agreement (the “Administration
Agreement”) with RCM pursuant to which RCM serves as Rand’s administrator. In connection with the completion of this
transaction, Rand expects to accelerate its shift to an investment strategy focused on higher yielding debt investments and anticipates
electing U.S. federal tax treatment as a regulated investment company (“RIC”) during 2020. In connection with the
RIC election, Rand intends to pay a special dividend to shareholders which was announced on March 3, 2020, and intends to adopt
a new dividend policy going forward that may include regular cash dividends to shareholders. In order to qualify to make the RIC
election, Rand placed several of its investments in newly formed holding companies that facilitate a tax structure that is advantageous
to the RIC election. In December 2019 Rand formed Rand Somerset Holdings Corp., Rand BeetNPath Holdings Corp., Rand Carolina Skiff
Holdings Corp., Rand Filterworks Holdings Corp. and Rand GTEC Holdings Corp., (“Blocker Corp’s”) as wholly owned
subsidiaries of Rand to hold certain equity investments. These subsidiaries are consolidated for U.S. GAAP financial reporting
purposes.



The
following discussion describes the operations of Rand and its wholly-owned subsidiaries Rand SBIC, Rand Somerset Holdings Corp.,
Rand BeetNPath Holdings Corp., Rand Carolina Skiff Holdings Corp., Rand Filterworks Holdings Corp. and Rand GTEC Holdings Corp.,
(collectively, the “Corporation”).



72







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS








Principles
of Consolidation - The consolidated financial statements include the accounts of Rand and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.



Fair
Value of Financial Instruments – The carrying amounts reported in the consolidated statement of financial position
of cash and cash equivalents, interest receivable, accounts payable and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial instruments.



Fair
Value of SBA Debentures -In September 2019, the SBIC Funding Corporation completed a pooling of SBA debentures that have
a coupon rate of 2.283%, excluding a mandatory SBA annual charge of 0.094%, resulting in a total estimated fixed rate for ten
years of 2.377%. The carrying value of Rand’s SBA debentures is a reasonable estimate of fair value because their stated
interest rates approximate current interest rates that are available for debt with similar terms.



Investment
Classification –In accordance with the provisions of the 1940 Act, the Corporation classifies its investments by
level of control. Under the 1940 Act “Control Investments” are investments in companies that the Corporation is deemed
to “Control” if it owns more than 25% of the voting securities of the company or has greater than 50% representation
on the company’s board. “Affiliate Investments” are companies in which the Corporation owns between 5% and 25%
of the voting securities. “Non-Control/Non-Affiliate Investments” are those companies that are neither Control Investments
nor Affiliate Investments.



Investments- Investments are valued at fair value as determined in good faith by RCM and approved by the Board of Directors. The
Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining
fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances
of each portfolio investment while employing a consistent valuation process. The Corporation analyzes and values each investment
quarterly, and records unrealized depreciation for an investment that it believes has become impaired, including where collection
of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation
will record unrealized appreciation if it believes that an underlying portfolio company has appreciated in value and, therefore,
its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been
used had a ready market for the investments existed and these differences could be material if RCM’s assumptions and judgments
differ from results of actual liquidation events. (See Note 2 “Investments.”)



Qualifying
Assets- All of the Corporation’s investments have been made in privately held small business enterprises, that
were not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section
55(a) of the 1940 Act.



Cash
and Cash Equivalents - Temporary cash investments having a maturity of less than a year when purchased are considered
to be cash equivalents.



73







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS








Revenue
Recognition - Interest Income - Interest income is recognized on the accrual basis except where the investment is in default
or otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible losses
on interest receivable is maintained when appropriate.



Rand
SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting Requirements
for Small Business Investment Companies.” Under these rules, interest income cannot be recognized if collection is doubtful,
and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial doubt
about a portfolio company’s ability to continue as a going concern or a loan is in default for more than 120 days. Management
also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability
of any accrued interest.



The
following investments are on non-accrual status: BeetNPath, LLC (Beetnpath), G-TEC Natural Gas Systems (G-Tec) and a portion of
the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance.



The
Corporation holds debt securities in its investment portfolio that contain payment-in-kind (“PIK”) interest provisions.
PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance
of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of
debt principal repayment.



Revenue
Recognition - Dividend Income –The Corporation may receive cash distributions from portfolio companies that are
limited liability companies or corporations and these distributions are classified as dividend income on the consolidated statement
of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated.



The
Corporation may hold preferred equity securities that contain cumulative dividend provisions. Cumulative dividends are recorded
as dividend income, if declared and deemed collectible, and any dividends in arrears are recognized into income and added to the
balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time
as the preferred equity is redeemed.



Revenue
Recognition - Fee Income– Consists of the revenue associated with the amortization of financing fees charged to
the portfolio companies upon successful closing of a financing and income associated with portfolio company board attendance fees.
The income associated with the amortization of financing fees was $69,252, $41,872 and $24,091 for the years ended December 31,
2019, 2018 and 2017, respectively, and is estimated to be approximately $11,000 in 2020, $9,000 in 2021 and $6,000 in 2022. The
board fees were $1,000, $2,000 and $1,000 for the years ended December 31, 2019, 2018 and 2017, respectively. During the year
ended December 31, 2019, the Corporation recorded non-recurring fees in the amount of $387,500 that represented closing and incentive
fees and a change of control fee. During the year ended December 31, 2018, the Corporation recorded a debt modification fee of
approximately $142,000.



74







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS








Realized
Gain or Loss and Unrealized Appreciation or Depreciation of Investments -Amounts reported as realized gains and losses
are measured by the difference between the proceeds from the sale or exchange and the cost basis of the investment without regard
to unrealized gains or losses recorded in prior periods. Proceeds held in escrow are reported in other assets. The cost of securities
that have, in management’s judgment, become worthless are written off and reported as realized losses when appropriate.
Unrealized appreciation or depreciation reflects the difference between the valuation of the investments and the cost basis of
the investments.



Original
Issue Discount – Investments may include “original issue discount”, or OID, income. This occurs, for
example, when the Corporation purchases a warrant and a note from a portfolio company simultaneously, which requires an allocation
of a portion of the purchase price to the warrant and reduces the purchase price allocated to the note by an equal amount in the
form of a note discount or OID. The note is reported net of the OID and the OID is accreted into interest income over the life
of the loan. The Corporation recognized $40,767, $39,653 and $32,129 in OID income for the years ended December 31, 2019, 2018
and 2017, respectively. OID income is estimated to be approximately $16,000 for 2020.



Deferred
Debenture Costs - SBA debenture origination and commitment costs, which are netted against the debenture obligation (See
Note 5 “SBA Debenture Obligations”), will be amortized ratably over the terms of the SBA debentures. Amortization
expense was $37,000 for the year ended December 31, 2019 and $27,400 for each of the years ended December 31, 2018 and 2017, respectively.
Amortization expense on currently outstanding debentures for the next five years is estimated to average $30,000 per year.



Net
Assets Per Share - Net assets per share are based on the number of shares of common stock outstanding. There are no common
stock equivalents outstanding.



Supplemental
Cash Flow Information - Income taxes refunded (paid) during the years ended December 31, 2019, 2018 and 2017 amounted
to $728,523, $26,448 and ($486,769), respectively. Interest paid during the years ended December 31, 2019, 2018 and 2017 was $339,605,
$282,875 and $282,875, respectively. During 2019, 2018 and 2017, the Corporation converted $595,286, $609,817 and $269,445, respectively,
of interest receivable and payment-in-kind (PIK) interest into debt investments.



Concentration
of Credit and Market Risk – The Corporation’s financial instruments potentially subject it to concentrations
of credit risk. Cash is invested with banks in amounts which, at times, exceed insured limits. Management does not anticipate
non-performance by the banks.



As
of December 31, 2019, 54% of the Corporation’s total investment value was held in debt and equity securities of five portfolio
companies. As of December 31, 2018, 45% of the Corporation’s total investment value was held in debt and equity securities
in five portfolio companies.



75







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS








The
following are the concentrations of the top five portfolio company values to the fair value of the Corporation’s total investment
portfolio:



|                                                   |  | December
    31, 2019 |   
|-------------------------------------------------- |  | --------------------- | --
|ACV
    Auctions, Inc. (ACV)                       |  |                       | 18
|AIKG,
    LLC (Andretti)                           |  |                       | 12
|Tilson
    Technology Management, Inc. (Tilson)    |  |                       | 11
|Filterworks
    Acquisition USA, LLC (Filterworks) |  |                       | 8 
|Outmatch
    (Outmatch)                            |  |                       | 6 



|                                                 |  | December
    31, 2018 |   
|------------------------------------------------ |  | --------------------- | --
|Genicon,
    Inc. (Genicon)                      |  |                       | 13
|eHealth
    Global Technologies, Inc. (eHealth), |  |                       | 10
|ACV
    Auctions, Inc. (ACV)                     |  |                       | 8 
|Tilson
    Technology Management, Inc. (Tilson)  |  |                       | 7 
|Microcision,
    LLC. (Microcision)              |  |                       | 7 



Income
Taxes -The Corporation reviews the tax positions it has taken to determine if they meet the “more likely than not
threshold” for the benefit of the tax position to be recognized in the financial statements. A tax position that fails to
meet the more likely than not recognition threshold will result in either a reduction of a current or deferred tax asset or receivable,
or the recording of a current or deferred tax liability. (See Note 4 “Income Taxes.”)



Accounting
Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.



SBA
Debenture -The Corporation had $11,000,000 and $8,750,000 in outstanding SBA debentures at December 31, 2019 and December
31, 2018, respectively, with a weighted average interest rate of 3.45% as of December 31, 2019. The $11,000,000 in outstanding
SBA debentures matures from 2022 through 2029.



As
a requirement of being licensed the SBA, Rand SBIC has accepted the SBA’s standard default language which states that Rand
SBIC has consented to the exercise by the SBA of all rights of the SBA under 13 C.F.R. 107.1810(i) “SBA remedies for automatic
events of default” and has agreed to take all actions that the SBA may so require, which may include automatic consent to
the appointment of the SBA or its designee as receiver under Section 311(c) of the Small Business Investment Act of 1958.



76







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










Recent
Accounting Developments



Fair
Value Measurements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework
– Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), resulting in various disclosures
related to fair value measurements being eliminated, modified or supplemented. ASU 2018-13 is effective for interim and annual
periods beginning after December 15, 2019, with an option to early adopt any eliminated or modified disclosures, and to delay
adoption of the additional disclosures, until the effective date.



NOTE
2. – INVESTMENTS



The
Corporation’s investments are carried at fair value in accordance with FASB Accounting Standards Codification (ASC) 820,
“Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value
in accordance with GAAP, and expands disclosures about fair value measurements.



Loan
investments are defined as traditional loan financings with no equity features. Debt investments are defined as debt financings
that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A
financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the
company.



The
Corporation uses several approaches to determine the fair value of an investment. The main approaches are:



| | ● | Loan
    and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets
    or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they
    may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of
    the investment. A loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in
    doubt or insufficient liquidation proceeds exist.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | Equity
    securities may be valued using the “asset approach”, “market approach” or “income approach.”
    The asset approach involves estimating the liquidation value of the portfolio company’s assets. To the extent the value
    exceeds the remaining principal amount of the debt or loan securities of the portfolio company, the fair value of such securities
    is generally estimated to be their cost. However, where value is less than the remaining principal amount of the loan and
    debt securities, the Corporation may discount the value of an equity security. The market approach uses observable prices
    and other relevant information generated by similar market transactions. It may include the use of market multiples derived
    from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a subsequent
    significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated
    new investor. The income approach employs a cash flow and discounting methodology to value an investment.





77







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS







ASC
820 classifies the inputs used to measure fair value into the following hierarchy:



Level
1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s valuation at the measurement
date. Under the valuation policy, the Corporation values unrestricted publicly traded companies, categorized as Level 1 investments,
at the average closing bid price for the last three trading days of the reporting period.



Level
2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities
in markets that are not active, or other observable inputs other than quoted prices.



Level
3: Unobservable and significant inputs to determining the fair value.



Financial
assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Any changes
in estimated fair value are recorded in the statement of operations.



There
were no Level 1 or 2 investments as of December 31, 2019 or December 31, 2018.



In
the valuation process, the Corporation values restricted securities, categorized as Level 3 investments, using information from
these portfolio companies, which may include:



| | ● | Audited
    and unaudited statements of operations, balance sheets and operating budgets;                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | Current
    and projected financial, operational and technological developments of the portfolio company;                                            
| | ● | Current
    and projected ability of the portfolio company to service its debt obligations;                                                          
| | ● | The
    current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event
    were to occur;
| | ● | Pending
    debt or capital restructuring of the portfolio company;                                                                                  
| | ● | Current
    information regarding any offers to purchase the investment, or recent fundraising transactions;                                         
| | ● | Current
    ability of the portfolio company to raise additional financing if needed;                                                                
| | ● | Changes
    in the economic environment which may have a material impact on the operating results of the portfolio company;                          
| | ● | Internal
    circumstances and events that may have an impact (both positive and negative) on the operating performance of the portfolio
    company;
| | ● | Qualitative
    assessment of key management;                                                                                                        
| | ● | Contractual
    rights, obligations or restrictions associated with the investment; and                                                              
| | ● | Other
    factors deemed relevant to assess valuation.                                                                                               



The
valuation may be reduced if a portfolio company’s performance and potential have deteriorated significantly. If the factors
that led to a reduction in valuation are overcome, the valuation may be readjusted.



Equity
Securities



Equity
securities may include preferred stock, common stock, warrants and limited liability company membership interests.



78







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










The
significant unobservable inputs used in the fair value measurement of the Corporation’s equity investments are earnings
before interest, tax and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational
performance of the business, and the debt and senior equity preferences that may exist in a deemed liquidation event. Standard
industry multiples may be used when available; however, the Corporation’s portfolio companies are typically small and in
early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational
performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other
criteria, which may include third party appraisals. Significant changes in any of these unobservable inputs may result in a significantly
higher or lower fair value estimate.



Another
key factor used in valuing equity investments is a significant recent arms-length equity transaction entered into by the portfolio
company with a sophisticated, non-strategic, unrelated, new investor. The terms of these equity transactions may not be identical
to the equity transactions between the portfolio company and the Corporation, and the impact of the difference in transaction
terms on the market value of the portfolio company may be difficult or impossible to quantify.



When
appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model
requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the
valuation of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable
inputs may result in a significantly higher or lower fair value estimate.



For
investments made within the last year, the Corporation generally relies on the cost basis, which is deemed to represent the fair
value, unless other fair value inputs are identified causing the Corporation to depart from this basis.



Loan
and Debt Securities



The
significant unobservable inputs used in the fair value measurement of the Corporation’s loan and debt securities are the
financial and operational performance of the portfolio company, similar debt with similar terms with other portfolio companies,
as well as the market acceptance for the portfolio company’s products or services. These inputs will likely provide an indicator
as to the probability of principal recovery of the investment. The Corporation’s loan and debt investments are often junior
secured or unsecured securities. Fair value may also be determined based on other criteria where appropriate. Significant changes
to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation generally relies on the
cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation
to depart from this basis.



79







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










The
following table provides a summary of the significant unobservable inputs used to determine the fair value of the Corporation’s
Level 3 portfolio investments as of December 31, 2019:





|Investment Type                         |  | Market Approach EBITDA Multiple |                 |  | Market Approach Liquidation Seniority |   |             | Market Approach Revenue Multiple |  |   | Market Approach Transaction Pricing |  |  | Totals |                  
|--------------------------------------- |  | ------------------------------- | --------------- |  | ------------------------------------- | - | ----------- | -------------------------------- |  | - | ----------------------------------- |  |  | ------ | -----------------
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Non-Control/Non-Affiliate Equity        |  | $                               | -               |  |                                       | $ | 1,452,732   |                                  |  | $ | 2,645,496                           |  |  | $      | 8,605,983        
|Non-Control/Non-Affiliate Loan and Debt |  |                                 | 500,000         |  |                                       |   | 2,363,235   |                                  |  |   | 602,569                             |  |  |        | 8,699,342        
|Total Non-Control/Non-Affiliate         |  | $                               | 500,000         |  |                                       | $ | 3,815,967   |                                  |  | $ | 3,248,065                           |  |  | $      | 17,305,325       
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Affiliate Equity                        |  | $                               | 1,750,000       |  |                                       | $ | 22,841      |                                  |  | $ | 2,503,429                           |  |  | $      | 4,822,512        
|Affiliate Loan and Debt                 |  |                                 | -               |  |                                       |   | 750,000     |                                  |  |   | -                                   |  |  |        | 2,302,653        
|Total Affiliate                         |  | $                               | 1,750,000       |  |                                       | $ | 772,841     |                                  |  | $ | 2,503,429                           |  |  | $      | 7,125,165        
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Total Level 3 Investments               |  | $                               | 2,250,000       |  |                                       | $ | 4,588,808   |                                  |  | $ | 5,751,494                           |  |  | $      | 24,430,490       
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Range                                   |  |                                 | 4.5X – 5.0XX    |  |                                       |   | 1X          |                                  |  |   | 1X-4X                               |  |  |        | Not Applicable   
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Unobservable Input                      |  |                                 | EBITDA Multiple |  |                                       |   | Asset Value |                                  |  |   | Revenue Multiple                    |  |  |        | Transaction Price
|                                        |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Weighted Average                        |  |                                 | 4.6X            |  |                                       |   | 1X          |                                  |  |   | 3.1X                                |  |  |        | Not Applicable   



The
following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at December 31, 2019:



|                   |  | Fair Value Measurements at Reported Date Using |           
|------------------ |  | ---------------------------------------------- | ----------
|Description        |  | December 31, 2019                              |           
|Loan investments   |  | $                                              | 1,570,692 
|Debt investments   |  |                                                | 13,647,107
|Equity investments |  |                                                | 21,802,993
|Total              |  | $                                              | 37,020,792



80







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










The
following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
for the year ended December 31, 2019:



|                                                                                              |  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments |           
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ----------
|Description                                                                                   |  | Loan
                                                                                Investments    |           
|Ending Balance, December 31, 2018, of Level 3 Assets                                          |  | $                                                                                                   | 4,935,777 
|                                                                                              |  |                                                                                                     |           
|Realized gain included in net change in net assets from operations:                           |  |                                                                                                     |           
|Advantage 24/7 LLC (Advantage 24/7)                                                           |  |                                                                                                     | -         
|Gemcor II LLC (Gemcor)                                                                        |  |                                                                                                     | -         
|Microcision LLC (Microcision)                                                                 |  |                                                                                                     | -         
|SOMS Technologies, LLC (SOMS)                                                                 |  |                                                                                                     | -         
|Total Realized Gains                                                                          |  |                                                                                                     | -         
|                                                                                              |  |                                                                                                     |           
|Total Change in Unrealized Depreciation included in net change in net assets from operations: |  |                                                                                                     |           
|ACV Auctions, Inc. (ACV)                                                                      |  |                                                                                                     | -         
|BeetNPath, LLC (Beetnpath)                                                                    |  |                                                                                                     | -         
|Empire Genomics, LLC (Empire Genomics)                                                        |  |                                                                                                     | -         
|Genicon, Inc. (Genicon)                                                                       |  |                                                                                                     | -         
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                |  |                                                                                                     | -         
|Mezmeriz, Inc. (Mezmeriz)                                                                     |  |                                                                                                     | -         
|Microcision                                                                                   |  |                                                                                                     | -         
|Open Exchange, Inc. (formerly KnowledgeVision Systems, Inc. (Open Exchange)                   |  |                                                                                                     | -         
|PostProcess Technologies, Inc. (Post Process)                                                 |  |                                                                                                     | -         
|Rheonix, Inc. (Rheonix)                                                                       |  |                                                                                                     | -         
|SciAps, Inc. (Sciaps)                                                                         |  |                                                                                                     | -         
|SocialFlow, Inc. (Socialflow)                                                                 |  |                                                                                                     | -         
|SOMS                                                                                          |  |                                                                                                     | -         
|Tilson Technology Management, Inc. (Tilson)                                                   |  |                                                                                                     | -         
|Total Change
in Unrealized Depreciation                                                       |  |                                                                                                     | -         
|                                                                                              |  |                                                                                                     |           
|Purchases and additions of Securities/Changes to Securities/Non-cash conversions:             |  |                                                                                                     |           
|Advantage 24/7                                                                                |  |                                                                                                     | 140,000   
|AIKG LLC (Andretti) *                                                                         |  |                                                                                                     | -         
|Empire Genomics                                                                               |  |                                                                                                     | -         
|Filterworks Acquisition USA, LLC *                                                            |  |                                                                                                     | -         
|Genicon                                                                                       |  |                                                                                                     | -         
|GoNoodle, Inc. (GoNoodle)                                                                     |  |                                                                                                     | -         
|HDI Acquisition LLC (Hilton Displays) *                                                       |  |                                                                                                     | -         
|Mattison Avenue Holdings LLC (Mattison) *                                                     |  |                                                                                                     | -         
|Microcision LLC (Microcision)                                                                 |  |                                                                                                     | -         
|Open Exchange                                                                                 |  |                                                                                                     | 150,000   
|Post Process                                                                                  |  |                                                                                                     | -         
|Tech 2000, Inc. (Lumious)                                                                     |  |                                                                                                     | -         
|Tilson                                                                                        |  |                                                                                                     | -         
|Total Purchases and additions of Securities/Changes to Securities/Non-cash conversions        |  |                                                                                                     | 290,000   
|                                                                                              |  |                                                                                                     |           
|Repayments and Sale of Securities:                                                            |  |                                                                                                     |           
|Advantage 24/7                                                                                |  |                                                                                                     | (75,000   
|eHealth Global Technologies, Inc. (eHealth)                                                   |  |                                                                                                     | (3,500,000
|Gemcor                                                                                        |  |                                                                                                     | -         
|GoNoodle                                                                                      |  |                                                                                                     | -         
|Microcision                                                                                   |  |                                                                                                     | -         
|Tilson                                                                                        |  |                                                                                                     | -         
|Total Repayments and Sale of Securities                                                       |  |                                                                                                     | (3,575,000
|Transfers within Level 3                                                                      |  |                                                                                                     | (80,085   
|Ending
Balance, December 31, 2019, of Level 3 Assets                                          |  | $                                                                                                   | 1,570,692 



*
The investment in these portfolio companies was acquired as part of the East purchase of the Corporation’s common shares
in November 2019.



|Change in unrealized depreciation on investments for the period included in changes in net assets |  | $ | (3,973,332 | )
|------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|Net realized gain on investments for the period included in changes in net assets                 |  | $ | 1,117,761  |  



81







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










The
following table provides a summary of the significant unobservable inputs used to determine the fair value of the Corporation’s
Level 3 portfolio investments as of December 31, 2018:



|Investment Type                  |  | Market Approach EBITDA Multiple |                 |  | Market Approach Liquidation Seniority |   |             | Market Approach Revenue Multiple |  |   | Market Approach Transaction Pricing |  |  | Totals |                  
|-------------------------------- |  | ------------------------------- | --------------- |  | ------------------------------------- | - | ----------- | -------------------------------- |  | - | ----------------------------------- |  |  | ------ | -----------------
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Non-Control/Non-Affiliate Equity |  | $                               | -               |  |                                       | $ | 25          |                                  |  | $ | 2,645,496                           |  |  | $      | 7,968,502        
|Non-Control/Non-Affiliate Debt   |  | $                               | 700,000         |  |                                       |   | 5,316,413   |                                  |  |   | -                                   |  |  |        | 910,777          
|Total Non-Control/Non-Affiliate  |  | $                               | 700,000         |  |                                       | $ | 5,316,438   |                                  |  | $ | 2,645,496                           |  |  | $      | 8,879,279        
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Affiliate Equity                 |  | $                               | 2,360,000       |  |                                       | $ | 22,841      |                                  |  | $ | 4,690,930                           |  |  | $      | 2,545,754        
|Affiliate Debt                   |  |                                 | 1,933,353       |  |                                       |   | -           |                                  |  |   | 3,385,586                           |  |  |        | 2,087,627        
|Total Affiliate                  |  | $                               | 4,293,353       |  |                                       | $ | 22,841      |                                  |  | $ | 8,076,516                           |  |  | $      | 4,633,381        
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Control Equity                   |  | $                               | -               |  |                                       | $ | -           |                                  |  | $ | -                                   |  |  | $      | 99,500           
|Total Control                    |  | $                               | -               |  |                                       | $ | -           |                                  |  | $ | -                                   |  |  | $      | 99,500           
|Total Level 3 Investments        |  | $                               | 4,993,353       |  |                                       | $ | 5,339,279   |                                  |  | $ | 10,722,012                          |  |  | $      | 13,612,160       
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Range                            |  |                                 | 3.9X-7X         |  |                                       |   | 1X          |                                  |  |   | 1X-4.0X                             |  |  |        | Not Applicable   
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Unobservable Input               |  |                                 | EBITDA Multiple |  |                                       |   | Asset Value |                                  |  |   | Revenue Multiple                    |  |  |        | Transaction Price
|                                 |  |                                 |                 |  |                                       |   |             |                                  |  |   |                                     |  |  |        |                  
|Weighted Average                 |  |                                 | 5.3X            |  |                                       |   | 1X          |                                  |  |   | 2.6X                                |  |  |        | Not Applicable   



82







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










The
following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at December 31, 2018:



|                   |  | Fair Value Measurements at Reported Date Using |           
|------------------ |  | ---------------------------------------------- | ----------
|Description        |  | December 31, 2018                              |           
|Loan investments   |  | $                                              | 4,935,777 
|Debt investments   |  |                                                | 9,397,979 
|Equity investments |  |                                                | 20,330,048
|Total              |  | $                                              | 34,666,804



The
following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
for the year ended December 31, 2018:



|                                                                                  |  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Venture Capital Investments |          
|--------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ---------
|Description                                                                       |  | Loan
                                                                                Investments    |          
|Ending Balance, December 31, 2017, of Level 3 Assets                              |  | $                                                                                                   | 3,550,000
|                                                                                  |  |                                                                                                     |          
|Realized loss included in net change in net assets from operations:               |  |                                                                                                     |          
|First Wave Products Group, LLC (First Wave)                                       |  |                                                                                                     | -        
|Intrinsiq Material, Inc. (Intrinsiq)                                              |  |                                                                                                     | -        
|Total Realized Losses                                                             |  |                                                                                                     | -        
|                                                                                  |  |                                                                                                     |          
|Unrealized Gains and Losses included in net change in net assets from operations: |  |                                                                                                     |          
|ACV Auctions, Inc. (ACV Auctions)                                                 |  |                                                                                                     | -        
|BeetNPath, LLC (Beetnpath)                                                        |  |                                                                                                     | -        
|Empire Genomics, LLC (Empire Genomics)                                            |  |                                                                                                     | -        
|First Wave                                                                        |  |                                                                                                     | -        
|Genicon, Inc. (Genicon)                                                           |  |                                                                                                     | -        
|GiveGab, Inc. (Givegab)                                                           |  |                                                                                                     | -        
|G-TEC Natural Gas Systems (G-tec)                                                 |  |                                                                                                     | -        
|Intrinsiq                                                                         |  |                                                                                                     | -        
|KnowledgeVision Systems, Inc. (Knowledgevision)                                   |  |                                                                                                     | -        
|Mercantile Adjustment Bureau, LLC (Mercantile)                                    |  |                                                                                                     | -        
|Microcision LLC (Microcision)                                                     |  |                                                                                                     | -        
|OnCore Golf Technology, Inc. (Oncore Golf)                                        |  |                                                                                                     | -        
|Rheonix, Inc. (Rheonix)                                                           |  |                                                                                                     | -        
|SOMS Technologies, LLC (SOMS)                                                     |  |                                                                                                     | -        
|Total Unrealized Gains and Losses                                                 |  |                                                                                                     | -        
|                                                                                  |  |                                                                                                     |          
|Purchases of Securities/Changes to Securities/Non-cash conversions:               |  |                                                                                                     |          
|BeetNPath, LLC (Beetnpath)                                                        |  |                                                                                                     | -        
|Centivo Corporation (Centivo)                                                     |  |                                                                                                     | -        
|Empire Genomics                                                                   |  |                                                                                                     | -        
|Genicon, Inc. (Genicon)                                                           |  |                                                                                                     | -        
|GoNoodle, Inc. (GoNoodle)                                                         |  |                                                                                                     | -        
|Knowledgevision                                                                   |  |                                                                                                     | 775,000  
|Microcision LLC (Microcision)                                                     |  |                                                                                                     | -        
|Oncore Golf                                                                       |  |                                                                                                     | -        
|SciAps, Inc. (Sciaps)                                                             |  |                                                                                                     | -        
|Tech 2000, Inc. (Tech 2000)                                                       |  |                                                                                                     | 610,777  
|Tilson Technology Management, Inc. (Tilson)                                       |  |                                                                                                     | -        
|Total Purchases of Securities/Changes to Securities/Non-cash conversions          |  |                                                                                                     | 1,385,777
|                                                                                  |  |                                                                                                     |          
|Repayments and Sale of Securities:                                                |  |                                                                                                     |          
|Empire Genomics                                                                   |  |                                                                                                     | -        
|Knoa Software, Inc. (Knoa)                                                        |  |                                                                                                     | -        
|Total Repayments and Sale of Securities                                           |  |                                                                                                     | -        
|                                                                                  |  |                                                                                                     |          
|Transfers within Level 3                                                          |  |                                                                                                     | -        
|Ending
Balance, December 31, 2018, of Level 3 Assets                              |  | $                                                                                                   | 4,935,777



|Change in unrealized depreciation on investments for the period included in changes in net assets |  | $ | 779,918  |  
|------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Net realized loss on investments for the period included in changes in net assets                 |  | $ | (994,295 | )



NOTE
3. - OTHER ASSETS



Other
assets was comprised of the following at December 31:



|                      |  | 2019 |         |  | 2018 |  
|--------------------- |  | ---- | ------- |  | ---- | -
|Dividend receivable   |  | $    | 256,542 |  |      | $
|Prepaid expenses      |  |      | 8,290   |  |      |  
|Operating receivables |  |      | 546     |  |      |  
|Equipment (net)       |  |      | -       |  |      |  
|Total other assets    |  | $    | 265,378 |  |      | $



83







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










NOTE
4. - INCOME TAXES



Deferred
tax assets and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and
liabilities using the tax rate expected to be in effect when the taxes are actually paid or recovered.



The
tax effect of the major temporary differences and carryforwards that give rise to the Corporation’s net deferred tax asset
at December 31, 2019 and 2018 are approximately as follows:



|                               |  | 2019 |           |   | 2018 |  
|------------------------------ |  | ---- | --------- | - | ---- | -
|Operations                     |  | $    | (176,000  | ) |      | $
|Investments                    |  |      | 1,341,000 |   |      |  
|NOL & tax credit carryforwards |  |      | 113,000   |   |      |  
|Valuation allowance            |  |      | (74,000   | ) |      |  
|Deferred tax asset, net        |  | $    | 1,204,000 |   |      | $



The
major temporary differences cited above include differences in the book and tax bases of the Corporation’s portfolio company
investments, as well as unrealized gains and losses on corporate investments that will be taxed when realized in future years.
The Corporation assesses the recoverability of its deferred tax assets annually to determine if a valuation allowance is necessary.
In performing this assessment, it considers estimated future taxable income and ongoing tax planning strategies. Based on this
assessment, it was determined that a valuation allowance was necessary against the deferred tax asset relating to certain state
net operating loss carryforwards (NOL).



The
components of income tax expense (benefit) reported in the consolidated statements of operations are as follows for the years
ended December 31:



|          |  | 2019 |          |   | 2018 |   |          | 2017 | 
|--------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Current:  |  |      |          |   |      |   |          |      | 
|Federal   |  | $    | 55,677   |   |      | $ | (411,509 | )    | 
|State     |  |      | 11,402   |   |      |   | 8,400    |      | 
|          |  |      | 67,079   |   |      |   | (403,109 | )    | 
|Deferred: |  |      |          |   |      |   |          |      | 
|Federal   |  |      | (633,735 | ) |      |   | 110,426  |      | 
|State     |  |      | (45,265  | ) |      |   | (83,761  | )    | 
|          |  |      | (679,000 | ) |      |   | 26,665   |      | 
|Total     |  | $    | (611,921 | ) |      | $ | (376,444 | )    | 



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



|                                                                                         |  | 2019 |            |   | 2018 |   |          | 2017 | 
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | ---- | 
|Net investment (loss) gain, realized gain and unrealized (loss) gain before income taxes |  | $    | (2,901,591 | ) |      | $ | (770,942 | )    | 
|                                                                                         |  |      |            |   |      |   |          |      | 
|Expected tax benefit at statutory rate                                                   |  | $    | (609,334   | ) |      | $ | (161,898 | )    | 
|State - net of federal effect                                                            |  |      | (27,920    | ) |      |   | (57,110  | )    | 
|Pass-through expense (benefit) from portfolio investment                                 |  |      | 20,251     |   |      |   | 24,075   |      | 
|Dividend received deduction                                                              |  |      | (10,491    | ) |      |   | (13,946  | )    | 
|Federal Act Rate Change                                                                  |  |      | -          |   |      |   | (164,395 | )    | 
|Other                                                                                    |  |      | 15,573     |   |      |   | (3,170   | )    | 
|Total                                                                                    |  | $    | (611,921   | ) |      | $ | (376,444 | )    | 



84







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










At
December 31, 2019 and 2018, the Corporation had $0 and $755,514, respectively, of federal net operating loss carryforwards and
no capital loss carryforwards. For state tax purposes, there were various state net operating loss carryforwards totaling $995,747
and $1,501,811 at December 31, 2019 and 2018, respectively. The related deferred tax asset has a valuation allowance of $74,000
and $74,000 at December 31, 2019 and 2018, respectively, on the Pennsylvania net operating loss, which is not expected to be utilized.
For state tax purposes the Corporation has a Georgia Employer’s Jobs Tax Credit carryforward of $45,411 and $49,619 at December
31, 2019 and 2018, respectively and this credit expires in the next five to ten years.



Under
the provisions of Section 382 of the Internal Revenue Code (“IRC”), net operating loss and credit carryforwards and
other tax attributes may be subject to limitations if there has been a significant change in ownership in the Corporation, as
defined by the IRC. Prior to the completion of the transaction with East in November 2019, the Corporation was able to utilize
the remaining federal net operating losses. However, state net operating losses may be subject to similar limitations.



The
Corporation will elect to be treated as a RIC beginning with the 2020 tax year under Subchapter M of the Internal Revenue Code
of 1986, as amended (the “Code”) and will operate in a manner so as to qualify for the tax treatment applicable to
RICs. In order to qualify as a RIC, among other things, the Corporation will be required to meet certain source of income and
asset diversification requirements and timely distribute to its shareholders at least 90% of investment company taxable income,
as defined by the Code, for each tax year. The Corporation intends to make the requisite distributions to its shareholders, which
will generally relieve the Corporation from U.S. federal income taxes with respect to all income distributed to its shareholders.
In accordance with U.S.GAAP, a net deferred tax asset of $1,550,000 will be eliminated as of the RIC election date.



Certain
investments which generate non-qualifying income for a RIC have been placed in blocker corporations. These blocker corporations
will be subject to federal and state income taxes and the deferred liability related to these investments of $346,000 will be
recorded by the blocker corporations.



The
Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December
31, 2016 through 2019. In general, the Corporation’s state income tax returns are open to audit under the statute of limitations
for the years ended December 31, 2015 through 2019.



It
is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax expense on
the Statement of Operations. In addition, the Corporation records uncertain tax positions in accordance with ASC 740, “Income
Taxes”, (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured,
presented, and disclosed in the financial statements. The uncertain tax benefits for the years ended December 31, 2019, 2018 and
2017 were de minimus and no amounts were recorded for interest and penalties related to unrecognized tax positions for the years
ended December 31, 2019, 2018, and 2017.



85







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










NOTE
5. - SBA DEBENTURE OBLIGATIONS



At
December 31, 2019 and 2018, Rand SBIC had debentures payable to and guaranteed by the SBA totaling $11,000,000 and $8,750,000,
respectively. The weighted average interest rate, including the SBA annual fee, at December 31, 2019 was 3.45%.



The
debenture terms require semiannual payments of interest at annual interest rates ranging from 2.245% to 3.644%, plus an annual
charge ranging from 0.804% to 0.94%. The debentures have fixed interest rates and a 10 year maturity date. As of December 31,
2019, the Corporation had $3,000,000 in additional leverage available from the SBA.



The
debentures outstanding at December 31, 2019 will mature as follows:



|Maturity Date     |  | Leverage |           
|----------------- |  | -------- | ----------
|2022              |  | $        | 3,000,000 
|2023              |  |          | 2,500,000 
|2024              |  |          | 1,500,000 
|2025              |  |          | 1,000,000 
|2029              |  |          | 3,000,000 
|Total Outstanding |  | $        | 11,000,000



The
Corporation is required to pre-pay a SBA commitment fee equal to 1% of the face amount of the SBA leverage reserved as a partial
prepayment of the SBA’s nonrefundable 3% leverage draw fees. The Corporation paid a commitment fee of $60,000 to the SBA
during the year ended December 31, 2018 to secure $6,000,000 in SBA leverage through September 30, 2023. The Corporation paid
$54,562 in leverage fees to the SBA during the year ended December 31, 2019 related to the drawdown of $2,250,000 in SBA leverage.
The Corporation paid $18,188 in leverage fees to the SBA during the year ended December 31, 2018 in conjunction with the drawdown
of $750,000 in SBA leverage.



Rand
SBIC has consented to the exercise by the SBA of all rights of the SBA under 13 C.F.R. 107.1810(i) “SBA remedies for automatic
events of default” and has agreed to take all actions that the SBA may so require, which may include an automatic consent
to the appointment of SBA or its designee as receiver under section 311(c) of the Act.



Pursuant
to Accounting Standard Update (ASU) 2015-03, the debt origination costs directly associated with the SBA debt obligations are
presented as a direct deduction from the related debt liability.



|                                      |  | December 31, 2019 |            |   | December 31, 2018 |  
|------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|Debentures guaranteed by the SBA      |  | $                 | 11,000,000 |   |                   | $
|Less unamortized issue costs          |  |                   | (213,087   | ) |                   |  
|Debentures guaranteed by the SBA, net |  | $                 | 10,786,913 |   |                   | $



86







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










NOTE
6. - STOCKHOLDERS’ EQUITY (NET ASSETS)



At
December 31, 2019 and 2018, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued.



On
October 24, 2019, the Board of Directors approved the repurchase authorization for up to 1,541,046 shares of the Corporation’s
outstanding common stock on the open market through October 25, 2020 at prices that are no greater than the then current net asset
value. No shares were repurchased during the years ended December 31, 2019 or 2018. At December 31, 2019 and 2018 the total treasury
shares held was 541,046 shares with a total cost of $1,469,105.



Summary
of changes in equity accounts:



|                                                           |  | Common Stock |           |  | Capital in excess of
par value |   |            | Accumulated Net Investment Loss |  |   | Undistributed Net Realized Gain on Investments |   |  | Net Unrealized Depreciation on Investments |            |   | Treasury Stock, at cost |   |            | Total Stockholders’ Equity (Net Assets) | 
|---------------------------------------------------------- |  | ------------ | --------- |  | ------------------------------ | - | ---------- | ------------------------------- |  | - | ---------------------------------------------- | - |  | ------------------------------------------ | ---------- | - | ----------------------- | - | ---------- | --------------------------------------- | 
|January 1, 2018                                            |  | $            | 686,304   |  |                                | $ | 10,581,789 |                                 |  | $ | (1,597,146                                     | ) |  | $                                          | 27,215,738 |   |                         | $ | (3,498,895 | )                                       | 
|                                                           |  |              |           |  |                                |   |            |                                 |  |   |                                                |   |  |                                            |            |   |                         |   |            |                                         | 
|Net investment loss                                        |  |              | -         |  |                                |   | -          |                                 |  |   | (68,406                                        | ) |  |                                            | -          |   |                         |   | -          |                                         | 
|Net realized loss on sales and dispositions of investments |  |              | -         |  |                                |   | -          |                                 |  |   | -                                              |   |  |                                            | (994,295   | ) |                         |   | -          |                                         | 
|Net change in unrealized depreciation on investments       |  |              | -         |  |                                |   | -          |                                 |  |   | -                                              |   |  |                                            | -          |   |                         |   | 668,203    |                                         | 
|December 31, 2018                                          |  | $            | 686,304   |  |                                | $ | 10,581,789 |                                 |  | $ | (1,665,552                                     | ) |  | $                                          | 26,221,443 |   |                         | $ | (2,830,692 | )                                       | 
|Net investment loss                                        |  |              | -         |  |                                |   | -          |                                 |  |   | (85,697                                        | ) |  |                                            | -          |   |                         |   | -          |                                         | 
|Net realized gain on sales and dispositions of investments |  |              | -         |  |                                |   | -          |                                 |  |   | -                                              |   |  |                                            | 861,838    |   |                         |   | -          |                                         | 
|Net change in unrealized depreciation on investments       |  |              | -         |  |                                |   | -          |                                 |  |   | -                                              |   |  |                                            | -          |   |                         |   | (3,065,811 | )                                       | 
|Issuance of common stock, net                              |  |              | 833,333   |  |                                |   | 23,560,666 |                                 |  |   | -                                              |   |  |                                            | -          |   |                         |   | -          |                                         | 
|December 31, 2019                                          |  | $            | 1,519,637 |  |                                | $ | 34,142,455 |                                 |  | $ | (1,751,249                                     | ) |  | $                                          | 27,083,281 |   |                         | $ | (5,896,503 | )                                       | 



NOTE
7. - EMPLOYEE BENEFIT PLANS



The
Corporation had a defined contribution 401(k) Plan (the “401K Plan”). The 401K Plan provided a base contribution of
1% for eligible employees and also provided up to 5% matching contributions. The Corporation’s contributions to the 401K
Plan amounted to $45,077, $45,990 and $29,199 for the years ended December 31, 2019, 2018 and 2017, respectively. Effective November
8, 2019, the Corporation entered into the Investment Management Agreement and the Administration Agreement with Rand Capital Management,
LLC (“RCM”) and, all employees transferred to RCM as of this date, and RCM assumed the obligations for the 401K plan
expenses on a going forward basis as all employees are now employees of RCM.



87







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










In
2002, the Corporation established a Profit Sharing Plan (the “Plan”) for its executive officers in accordance with
Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments
equal to 12% of the net realized gains on investments of its SBIC subsidiary, net of all realized losses and unrealized depreciation
on the investments of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporation’s
interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the Corporation’s net income, as defined
in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporation’s
net investment (loss) gain and its net realized gain (loss) on sales and dispositions of investments, prior to inclusion of the
estimated profit sharing obligation. The profit sharing payments are split equally between the Corporation’s two executive
officers, each of whom is fully vested in the Plan.



The
Corporation did not record any expense under the Plan for the years ended December 31, 2019, 2018 or 2017.



NOTE
8. - COMMITMENTS AND CONTINGENCIES



The
Corporation has a lease for office space which expires in December 2020. Rent expense under this operating lease for the years
ended December 31, 2019, 2018 and 2017 was $18,700, $20,100 and $19,800, respectively. Effective November 8, 2019, the Corporation’s
external investment advisor, RCM, assumed the expense for the office lease.



In
addition, the Corporation analyzed the new Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
842 standard, Leases, and deemed the effect on the Corporation’s consolidated financial statements to be immaterial.



NOTE
9. - QUARTERLY OPERATIONS AND EARNINGS DATA – UNAUDITED



|                                                                                                           |  | 4th Quarter |           |  | 3rd Quarter |   |            | 2nd Quarter |  |   | 1st Quarter |  
|---------------------------------------------------------------------------------------------------------- |  | ----------- | --------- |  | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|2019                                                                                                       |  |             |           |  |             |   |            |             |  |   |             |  
|Investment income                                                                                          |  | $           | 984,925   |  |             | $ | 437,355    |             |  | $ | 583,046     |  
|Net increase (decrease) in net assets from operations                                                      |  | $           | 1,481,352 |  |             | $ | (2,878,888 | )           |  | $ | (1,347,549  | )
|Basic and diluted net increase (decrease) in net assets from operations
    per weighted share outstanding |  | $           | 0.13      |  |             | $ | (0.46      | )           |  | $ | (0.21       | )
|                                                                                                           |  |             |           |  |             |   |            |             |  |   |             |  
|2018                                                                                                       |  |             |           |  |             |   |            |             |  |   |             |  
|Investment income                                                                                          |  | $           | 668,325   |  |             | $ | 662,302    |             |  | $ | 413,518     |  
|Net increase (decrease) in net assets from operations                                                      |  | $           | 936,511   |  |             | $ | (179,302   | )           |  | $ | (631,294    | )
|Basic and diluted net increase (decrease) in net assets from operations
    per weighted share outstanding |  | $           | 0.15      |  |             | $ | (0.03      | )           |  | $ | (0.10       | )



88







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










NOTE
10. – ALLOWANCE FOR DOUBTFUL ACCOUNTS



The
Corporation maintains an allowance for doubtful accounts for estimated uncollectible interest payments due from portfolio investments.
The allowance for doubtful accounts is based on a review of the overall condition of the receivable balances and a review of past
due amounts. Changes in the allowance for doubtful accounts consist of the following:



|                             |  | 2019 |          |   | 2018 |   |          | 2017 | 
|---------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Balance at beginning of year |  | $    | (161,000 | ) |      | $ | (161,000 | )    | 
|Provision for losses         |  |      | (5,413   | ) |      |   | -        |      | 
|Balance at end of year       |  | $    | (166,413 | ) |      | $ | (161,000 | )    | 



NOTE
11. – RELATED PARTY TRANSACTIONS



Investment
Management Agreement



Effective
with the completion of the Stock Purchase with East in November 2019, Rand Capital Management, LLC (“RCM”), a registered
investment adviser, has been retained by the Corporation as its external investment adviser and administrator. Under the Investment
Management Agreement, the Corporation will pay RCM, as compensation for the investment advisory and management services, fees
consisting of two components: (i) the Base Management Fee and (ii) the Incentive Fee.



The
“Base Management Fee” is calculated at an annual rate of 1.50% of the Corporation’s total assets (other than
cash or cash equivalents but including assets purchased with borrowed funds). For the year ended December 31, 2019, $85,483 in
Base Management Fees was earned by RCM. As of December 31, 2019, the Corporation had $49,359 payable for the Base Management Fees
on its Consolidated Statement of Financial Position. In addition, the Corporation had $1,205 payable to RCM for the expenses associated
with the Administration Agreement.



The
“Incentive Fee” is comprised of two parts: (1) the “Income Based Fee” and (2) the “Capital Gains
Fee”. The Income Based Fee is calculated and payable quarterly in arrears based on the “Pre-Incentive Fee Net Investment
Income” (as defined in the agreement) for the immediately preceding calendar quarter, subject to a hurdle rate of 1.75%
per quarter (7% annualized) and is payable promptly following the filing of the Corporation’s financial statements for such
quarter.



The
Corporation pays RCM an Incentive Fee with respect to their Pre-Incentive Fee Net Investment Income in each calendar quarter as
follows:



| | (i) | no
    Income Based Fee in any quarter in which the Pre-Incentive Fee Net Investment Income for such quarter does not exceed the
    hurdle rate of 1.75% (7.00% annualized);
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



89







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










| | (ii)  | 100%
    of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the Pre-Incentive
    Fee Net Investment Income for such calendar quarter, if any, that exceeds the hurdle rate of 1.75% (7.00% annualized) but
    is less than 2.1875% (8.75% annualized); and
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | 20%
    of the amount of the Pre-Incentive Fee Net Investment Income for any calendar quarter with respect to that portion of the
    Pre-Incentive Fee Net Investment Income for such calendar quarter, if any, that exceeds 2.1875% (8.75% annualized).                                                        



The
Income Based Fee paid to RCM for any calendar quarter that begins more than two years and three months after the effective date
of the Investment Management Agreement shall not be in excess of the Incentive Fee Cap. The “Incentive Fee Cap” for
any quarter is an amount equal to (1) 20.0% of the Cumulative Net Return (as defined below) during the relevant Income Based Fee
Calculation Period (as defined below) minus (2) the aggregate Income Based Fee that was paid in respect of the calendar quarters
included in the relevant Income Based Fee Calculation Period.



For
purposes of the calculation of the Income Based Fee, “Income Based Fee Calculation Period” is defined as, with reference
to a calendar quarter, the period of time consisting of such calendar quarter and the additional quarters that comprise the lesser
of (1) the number of quarters immediately preceding such calendar quarter that began more than two years after the effective date
of the Investment Management Agreement or (2) the eleven calendar quarters immediately preceding such calendar quarter.



For
purposes of the calculation of the Income Based Fee, “Cumulative Net Return” is defined as (1) the aggregate net investment
income in respect of the relevant Income Based Fee Calculation Period minus (2) any Net Capital Loss, if any, in respect of the
relevant Income Based Fee Calculation Period. If, in any quarter, the Incentive Fee Cap is zero or a negative value, we will pay
no Income Based Fee to RCM for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but
is less than the Income Based Fee that is payable to RCM for such quarter (before giving effect to the Incentive Fee Cap) calculated
as described above, we will pay an Income Based Fee to RCM equal to the Incentive Fee Cap for such quarter. If, in any quarter,
the Incentive Fee Cap for such quarter is equal to or greater than the Income Based Fee that is payable to RCM for such quarter
(before giving effect to the Incentive Fee Cap) calculated as described above, we will pay an Income Based Fee to the Adviser
equal to the Income Based Fee calculated as described above for such quarter without regard to the Incentive Fee Cap.



For
purposes of the calculation of the Income Based Fee, “Net Capital Loss,” in respect of a particular period, means
the difference, if positive, between (1) aggregate capital losses, whether realized or unrealized, in such period and (2) aggregate
capital gains, whether realized or unrealized, in such period.



Any
Income Based Fee otherwise payable under the Investment Management Agreement with respect to Accrued Unpaid Income (such fees
being the “Accrued Unpaid Income Based Fees”) shall be deferred, on a security by security basis, and shall become
payable to the Adviser only if, as, when and to the extent cash is received by us in respect of any Accrued Unpaid Income. Any
Accrued Unpaid Income that is subsequently reversed by us in connection with a write-down, write-off, impairment or similar treatment
of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (1) reduce Pre-Incentive
Fee Net Investment Income and (2) reduce the amount of Accrued Unpaid Income Based Fees. Subsequent payments of Accrued Unpaid
Income Based Fees deferred pursuant to this paragraph shall not reduce the amounts otherwise payable for any quarter as an Income
Based Fee.



90







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










For
the year ended December 31, 2019 there were no Incentive Fees earned under the Investment Management Agreement.



The
second part of the Incentive Fee is the “Capital Gains Fee”. This fee will be determined and payable in arrears as
of the end of each calendar year, commencing with the calendar year ended on December 31, 2019. Under the terms of the Investment
Management Agreement, the Capital Gains Fee is calculated at the end of each applicable year by subtracting (1) the sum of the
cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (2) the cumulative aggregate realized
capital gains, in each case calculated from the effective date of the Investment Management Agreement. If this amount is positive
at the end of any calendar year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the cumulative
aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee
payable for that calendar year. If the Investment Management Agreement is terminated as of a date that is not a calendar year
end, the termination date shall be treated as though it were a calendar year end for purposes of calculating and paying the Capital
Gains Fee.



For
purposes of the Capital Gains Fee:



| | ● | The
    cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net
    sales price of each investment in the Corporations portfolio when sold and (b) the accreted or amortized cost basis of such
    investment.                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                           
| | ● | The
    cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of
    each investment in the portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.                                                
| |   |                                                                                                                                                                                                                                                                                                           
| | ● | The
    aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation
    of each investment in the portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized
    cost basis of such investment.



As
of December 31, 2019, there were no Capital Gains Fees earned or payable to RCM under the Investment Management Agreement.



91







RAND
CAPITAL CORPORATION AND SUBSIDIARIES



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS










Administration
Agreement



In
connection with the Closing, the Corporation entered into an Administration Agreement with the RCM. Under the terms of the Administration
Agreement, RCM agreed to perform (or oversee, or arrange for, the performance of) the administrative services necessary for the
Corporation’s operations, including, but not limited to, office facilities, equipment, clerical, bookkeeping, finance, accounting,
compliance and record keeping services at such office facilities and such other services as RCM, subject to review by the Corporation’s
Board of Directors, will from time to time determine to be necessary or useful to perform its obligations under the Administration
Agreement. RCM shall also, arrange for the services of, and oversee, custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable.



RCM
is responsible for our financial and other records that are required to be maintained and prepares all reports and other materials
required to be filed with the SEC or any other regulatory authority, including reports to shareholders. In addition, RCM assists
us in determining and publishing the Corporation’s net asset value (NAV), overseeing the preparation and filing of our tax
returns, and the printing and dissemination of reports to shareholders, and generally overseeing the payment of our expenses and
the performance of administrative and professional services rendered by others. RCM provides, on the Corporation’s behalf,
managerial assistance to those portfolio companies that have accepted its offer to provide such assistance.



As
of December 31, 2019 and 2018, the Corporation recorded $1,205 and $0, respectively, in accrued expenses and other liabilities
on its Consolidated Statement of Financial Position for reimbursement of expenses owed to RCM under the Administration Agreement.



NOTE
12. – SUBSEQUENT EVENT



On
March 3, 2020, the Board of Directors of the Corporation declared a special dividend of $1.62 per share of Common Stock, in connection
with its plans to elect to become a RIC. The special dividend will be paid in a combination of cash and shares of Common Stock
to shareholders of record at the close of business on April 2, 2020. The total amount of cash to be distributed to all shareholders
will be limited to 20% of the total dividend to be paid, excluding any cash paid for fractional shares. The remaining 80% of the
dividend will be paid in shares of Common Stock. The exact distribution of cash and stock to any given shareholder will depend
on their election as well as elections of other shareholders, subject to the pro-rata limitation. The Corporation expects to complete
the distribution of the special dividend on or about May 11, 2020.



92







RAND
CAPITAL CORPORATION AND SUBSIDIARY



SCHEDULE
OF CONSOLIDATED CHANGES IN INVESTMENTS AT

COST
AND REALIZED GAIN

For
the Year Ended December 31, 2019














|New
    and contributed investments:                                  |  | Cost
Increase
(Decrease) |            |   | Realized
Gain |  
|--------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ------------- | -
|AIKG
    LLC (Andretti)                                               |  | $                        | 4,398,125  |   |               | $
|Filterworks Acquisition
    USA, LLC (Filterworks)                    |  |                          | 2,865,152  |   |               |  
|GoNoodle, Inc. (GoNoodle)                                             |  |                          | 1,500,037  |   |               |  
|HDI Acquisition
    LLC (Hilton Displays)                             |  |                          | 1,249,539  |   |               |  
|Mattison Avenue
    Holdings LLC(Mattison)                            |  |                          | 1,036,678  |   |               |  
|Tilson Technology
    Management, Inc. (Tilson)                       |  |                          | 500,012    |   |               |  
|Genicon Inc. (Genicon)                                                |  |                          | 250,000    |   |               |  
|Tech 2000, Inc.
    (Tech 2000)                                       |  |                          | 250,000    |   |               |  
|Open Exchange, Inc.
    (formerly KnowledgeVision) (Open Exchange)    |  |                          | 150,000    |   |               |  
|Advantage
    24/7 LLC (Advantage 24/7)                               |  |                          | 140,000    |   |               |  
|Total of new and
    contributed investments                          |  |                          | 12,339,543 |   |               |  
|                                                                      |  |                          |            |   |               |  
|Other changes to
    investments:                                     |  |                          |            |   |               |  
|Genicon interest
    conversion and OID amortization                  |  |                          | 354,172    |   |               |  
|Open Exchange interest
    conversion                                 |  |                          | 126,939    |   |               |  
|Empire Genomics
    interest conversion                               |  |                          | 75,481     |   |               |  
|PostProcess Technologies,
    Inc. (Post Process) interest conversion |  |                          | 48,875     |   |               |  
|Microcision LLC
    (Microcision) interest conversion                 |  |                          | 19,406     |   |               |  
|GoNoodle
    interest conversion                                      |  |                          | 11,177     |   |               |  
|Total of other changes
    to investments                             |  |                          | 636,050    |   |               |  
|                                                                      |  |                          |            |   |               |  
|Investments repaid,
    sold or liquidated:                           |  |                          |            |   |               |  
|eHealth Global Technologies,
    Inc. (eHealth) repayment             |  |                          | (3,500,000 | ) |               |  
|GoNoodle repayment                                                    |  |                          | (1,048,382 | ) |               |  
|Tilson repayment                                                      |  |                          | (1,000,000 | ) |               |  
|SOMS Technologies,
    LLC (SOMS) realized loss                       |  |                          | (472,632   | ) |               |  
|Microcision repayment                                                 |  |                          | (452,760   | ) |               |  
|Advantage 24/7 repayment
    and realized gain                        |  |                          | (174,500   | ) |               |  
|Gemcor
    II LLC (Gemcor) distribution                               |  |                          | -          |   |               |  
|Total
    of investments repaid, sold or liquidated                   |  |                          | (6,648,274 | ) |               |  
|                                                                      |  |                          |            |   |               |  
|Net
    change in investments, at cost                                |  | $                        | 6,327,319  |   |               | $



93







Report
of Independent Registered Public Accounting Firm



To
the Stockholders and the Board of Directors of Rand Capital Corporation and Subsidiaries



Opinion
on the Financial Statements



We
have audited the accompanying consolidated statements of financial position, including the consolidated schedules of portfolio
investments, of Rand Capital Corporation and Subsidiaries (the Corporation) as of December 31, 2019 and 2018, and the related
consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December
31, 2019, and the related notes to the consolidated financial statements, and the financial highlights schedule for each of the
five years in the period ended December 31, 2019 (collectively, the financial statements). In our opinion, the financial statements
and financial highlights schedule present fairly, in all material respects, the financial position of Rand Capital Corporation
and Subsidiaries as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, and the financial highlights for each of the five years in the period ended December
31, 2019 in conformity with accounting principles generally accepted in the United States of America.



Basis
for Opinion



These
financial statements and the financial highlights schedule are the responsibility of the Corporation’s management. Our responsibility
is to express an opinion on the Corporation’s financial statements and financial highlights schedule based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Corporation in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.



We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and financial highlights schedule are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over
financial reporting. Accordingly, we express no such opinion.



Our
audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights
schedule, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights schedule.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements and financial highlights schedule. Our procedures included confirmation of
investments as of December 31, 2019 and 2018, by correspondence with portfolio companies and custodian(s); or by other appropriate
audit procedures when replies were not received. We believe that our audits provide a reasonable basis for our opinion.



The
supplemental schedule of consolidated changes in investments at cost and realized gain for the year ended December 31, 2019 has
been subjected to audit procedures performed in conjunction with the audit of the Corporation’s financial statements. The
supplemental schedule is the responsibility of the Corporation’s management. Our audit procedures included determining whether
the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable
and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In
forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content,
is presented in conformity with accounting principles generally accepted in the United States of America. In our opinion, the
supplemental schedule of consolidated changes in investments at cost and realized gain for the year ended December 31, 2019 is
fairly stated, in all material respects, in relation to the financial statements as a whole.



/s/
FREED MAXICK CPAs, P.C.



We
have served as the Corporation’s auditor since 2003.



Buffalo,
New York

March
9, 2020



94







Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None



Item
9A. Controls and Procedures



Disclosure
Controls and Procedures.The Corporation maintains disclosure controls and procedures that are designed to ensure that information
required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that this information
is accumulated and communicated to our Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. Our Chief Executive Officer and the Chief Financial Officer carried out an evaluation
of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of December
31, 2019. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial
Officer concluded that the Corporation’s controls and procedures were effective as of December 31, 2019.



Management
Report on Internal Control Over Financial Reporting.The executive officers of the Corporation are responsible for establishing
and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is a process
designed to provide reasonable assurance to the Corporation’s executive officers and Board of Directors regarding the preparation
and fair presentation of published financial statements.



Our
Chief Executive Officer and the Chief Financial Officer assessed the effectiveness of the Corporation’s internal control
over financial reporting as of December 31, 2019. In making this assessment, our Chief Executive Officer and the Chief Financial
Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (2013). Based on its assessment, our Chief Executive Officer and the Chief Financial Officer believes that, as of December
31, 2019, the Corporation’s internal control over financial reporting is effective.



This
annual report does not include an attestation report of the Corporation’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s
independent registered public accounting firm pursuant to rules of the SEC that permit the Corporation to provide only management’s
report in this Annual Report.



Changes
in Internal Control over Financial Reporting.On November 8, 2019, we entered into the Investment Management Agreement and
became an externally-managed BDC managed by RCM, our Adviser. In connection with becoming an externally-managed BDC, each member
of Rand’s management and staff became employees of RCM, and began operating under operational policies and procedures established
by RCM. We historically relied on our internal employees for all of our business functions, including investment origination,
monitoring, portfolio servicing, accounting and management functions, all of which are now performed by RCM, including services
related to our internal control over financial reporting. We consider the changes described above to be material changes in our
internal control over financial reporting.



Other
than as described above, there have been no changes in our internal control over financial reporting during the Corporation’s
most recent year that have materially affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.



Item
9B. Other Information



None



95







Part
III



Item
10. Directors, Executive Officers and Corporate Governance



Information
in response to this Item is incorporated herein by reference to the information under the headings “ PROPOSAL 1—ELECTION
OF DIRECTORS”, “COMMITTEES AND MEETING DATA,” provided in the Corporation’s definitive Proxy Statement
for its 2020 Annual Meeting of Shareholders, to be filed under Regulation 14A (the “2020 Proxy Statement”).



Item
11. Executive Compensation



Information
in response to this Item is incorporated herein by reference to the information provided in the Corporation’s 2020 Proxy
Statement under the headings “COMPENSATION DISCUSSION AND ANALYSIS” and “DIRECTOR COMPENSATION.”



Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



Information
in response to this Item is incorporated herein by reference to the information provided in the Corporation’s 2020 Proxy
Statement under the heading “BENEFICIAL OWNERSHIP OF SHARES.”



Item
13. Certain Relationships and Related Transactions, and Director Independence



Information
in response to this Item is incorporated herein by reference to the information in the Corporation’s 2020 Proxy Statement
under the heading “DIRECTOR INDEPENDENCE” and “RELATED PERSON TRANSACTIONS”.



Item
14. Principal Accountant Fees and Services



Information
concerning the Corporation’s independent auditors, the audit committee’s pre-approval policy for audit services and
our principal accountant fees and services is contained in the Corporation’s 2020 Proxy Statement under the heading “INDEPENDENT
REGISTERED PUBLIC ACCOUNTANT FEES”.



96







Part
IV



Item
15. Exhibits and Financial Statement Schedules



| | (a) | The
    following documents are filed as part of this report and included in Item 8:
| | --- | ------------------------------------------------------------------------------------



| | (1) | CONSOLIDATED
    FINANCIAL STATEMENTS                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                
| |     | Consolidated Statements of Financial Position as of December 31, 2019 and 2018                                                                                                                                 
| |     |                                                                                                                                                                                                                
| |     | Consolidated Statements of Operations for the three years in the period ended December 31, 2019                                                                                                                
| |     |                                                                                                                                                                                                                
| |     | Consolidated Statements of Changes in Net Assets for the three years in the period ended December 31, 2019                                                                                                     
| |     |                                                                                                                                                                                                                
| |     | Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2019                                                                                                                
| |     |                                                                                                                                                                                                                
| |     | Consolidated Schedule of Portfolio Investments as of December 31, 2019                                                                                                                                         
| |     |                                                                                                                                                                                                                
| |     | Consolidated Schedule of Portfolio Investments as of December 31, 2018                                                                                                                                         
| |     |                                                                                                                                                                                                                
| |     | Financial Highlights Schedule for the five years in the period ended December 31, 2019                                                                                                                         
| |     |                                                                                                                                                                                                                
| |     | Notes to the Consolidated Financial Statements                                                                                                                                                                 
| |     |                                                                                                                                                                                                                
| |     | Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31, 2019                                                                                    
| |     |                                                                                                                                                                                                                
| |     | Report of Independent Registered Public Accounting Firm                                                                                                                                                        
| |     |                                                                                                                                                                                                                
| | (2) | FINANCIAL
    STATEMENT SCHEDULES                                                                                                                                                                              
| |     |                                                                                                                                                                                                                
| |     | The
    required financial statement Schedule II – Valuation and Qualifying Accounts has been omitted because the information
    required is included in the Note 11 to the consolidated financial statements.



97







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



| | (3.1)(i)   | Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of Form N-2 filed with the SEC on April 22, 1997. (File No. 333-25617).                                                                                                                                                                                                          
| | ---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (3.1)(ii)  | Certificate of Amendment to the Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.                                                                                                                                                                   
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (3.1)(iii) | By-laws of the Corporation, incorporated by reference to Exhibit 3(ii) to the Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2016 filed with the SEC on November 2, 2016. (File No. 814-00235).                                                                                                                                               
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (3.2)(i)   | Certificate of Incorporation of Rand Merger Corporation as filed with the New York Department of State on December 18, 2008, incorporated by reference to Exhibit 1(a) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File No. 811-22276).                                                           
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (3.2)(ii)  | By-laws of Rand Capital SBIC, Inc., incorporated by reference to Exhibit 2 to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File No. 811-22276).                                                                                                                                                       
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (4.1)      | Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) of Form N-2 filed with the SEC on April 22, 1997. (File No. 333-25617).                                                                                                                                                                                                            
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (4.2)#     | Description of Securities of Rand Capital Corporation registered under Section 12 of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                         
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (10.1)     | Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital Management, LLC into Rand Merger Corporation, as filed with the New York Department of State on December 18, 2008, incorporated by reference to Exhibit 1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File No. 811-22276).   
| |            |                                                                                                                                                                                                                                                                                                                                                                               
| | (10.2)     | Stock Purchase Agreement, dated as of January 24, 2019, by and among East Asset Management LLC, Rand Capital Corporation and, solely for purposes of being bound by Sections 7.10 and 10.9(a) and (b) thereof, Rand Capital Management, LLC, incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed with the SEC on January 25, 2019.





98







| | (10.3)                                          | Investment Advisory and Management Agreement, dated as of November 8, 2019, by and between Rand Capital Corporation and Rand Capital Management, LLC, incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.
| | ----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (10.4)                                          | Administration Agreement, dated as of November 8, 2019, by and between Rand Capital Corporation and Rand Capital Management, LLC, incorporated by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.                    
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (10.5)                                          | Shareholder Agreement, dated as of November 8, 2019, by and between Rand Capital Corporation and East Asset Management, LLC, incorporated by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.                         
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (10.6)*                                         | Cancellation Agreement, dated as of November 8, 2019, by and between Rand Capital Corporation and Allen F. Grum, incorporated by reference to Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.                                     
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (10.7)*                                         | Cancellation Agreement, dated as of November 8, 2019, by and between Rand Capital Corporation and Daniel P. Penberthy, incorporated by reference to Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed with the SEC on November 12, 2019.                               
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (21.1)#                                         | Subsidiaries of Rand Capital Corporation.                                                                                                                                                                                                                                               
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (31.1)#                                         | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                                                                                                               
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (31.2)#                                         | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                                                                                                               
| |                                                 |                                                                                                                                                                                                                                                                                         
| | (32.1)#                                         | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital Corporation.                                                                                                                                                                                     
| |                                                 |                                                                                                                                                                                                                                                                                         
| | #
    Filed herewith.                          
| | *
    Management contract or compensatory plan.



Item
16. Form 10-K Summary



None



99







Signatures



Pursuant
to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has duly caused this Report on Form
10-K to be signed on its behalf by the undersigned thereunto duly authorized.





|Date:
    March 9, 2020 | RAND
    CAPITAL CORPORATION
|----------------------- | ----------------------------
|                        |                             
|                        | By:                         
|                        |                             



Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Corporation in the capacities and on the dates indicated.





|Signature/Title                                   
|--------------------------------------------------
|(i)
    Principal Executive Officer:              
|                                                  
|/s/
    Allen F. Grum                             
|Allen
    F. Grum / President                     
|                                                  
|(ii)
    Principal Accounting & Financial Officer:
|                                                  
|/s/
    Daniel P. Penberthy                       
|Daniel
    P. Penberthy / Treasurer               
|                                                  
|(iii)
    Directors:                              
|                                                  
|/s/
    Benjamin E. Godley                        
|Benjamin
    E. Godley/ Director                  
|                                                  
|/s/
    Allen F. Grum                             
|Allen
    F. Grum / Director                      
|                                                  
|/s/
    Adam S. Gusky                             
|Adam
    S. Gusky / Director                      
|                                                  
|/s/
    Erland E. Kailbourne                      
|Erland
    E. Kailbourne / Director               
|                                                  
|/s/
    Robert M. Zak                             
|Robert
    M. Zak / Director                      



100