##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2015



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

For the Transition Period from             to

Commission File Number: 814-00235

Rand Capital Corporation

(Exact name of registrant as specified in its charter)



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

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

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



|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of Each Class           |  | Name of Exchange on Which Registered
|Common Stock, $0.10 par value |  | NASDAQ Capital Market               

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

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

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  þ

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  þ        No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈        No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company.



|                           |  |                                               |  |                        |  |                             
|-------------------------- |  | --------------------------------------------- |  | ---------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈                          |  | Non-accelerated filerþ |  | Smaller reporting company   ̈
|                           |  | (Do not check if a smaller reporting company) |  |                       

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

The aggregate market value of the registrants outstanding common stock held by non-affiliates of the registrant as of June 30,
2015 was approximately $22,348,173 based upon the closing price as reported on the NASDAQ Capital Market on such date.

As of
March 4, 2016, there were 6,328,538 shares of the registrants common stock outstanding.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions of the Corporations definitive proxy statement for the 2016 Annual Meeting of Shareholders are
incorporated by reference into Part III of this report.



---

##### Table of Contents

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-K



|         |  |                                                                                                              |  |  |    | 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I   | 
|Item 1.  |  | Business                                                                                                     |  |  | 1  | 
|Item 1A. |  | Risk Factors                                                                                                 |  |  | 5  | 
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  |  | 7  | 
|Item 2.  |  | Properties                                                                                                   |  |  | 7  | 
|Item 3.  |  | Legal Proceedings                                                                                            |  |  | 7  | 
|Item 4.  |  | Mine Safety Disclosures                                                                                      |  |  | 7  | 
|PART II  | 
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |  | 8  | 
|Item 6.  |  | Selected Financial Data                                                                                      |  |  | 10 | 
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |  | 10 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  |  | 28 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  |  | 29 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  |  | 68 | 
|Item 9A. |  | Controls and Procedures                                                                                      |  |  | 68 | 
|Item 9B. |  | Other Information                                                                                            |  |  | 68 | 
|PART III | 
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  |  | 68 | 
|Item 11. |  | Executive Compensation                                                                                       |  |  | 69 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  |  | 69 | 
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  |  | 69 | 
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  |  | 69 | 
|PART IV  | 
|         |  |                                                                                                             
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  |  | 69 | 



---

##### Table of Contents

PART I

Item 1.Business

Overview of Our Business

Rand Capital Corporation (Rand, we, us and our) was incorporated under the laws of New
York in February 1969. Throughout our history, our principal business has been to make venture capital investments in early or expansion stage companies, typically in New York and its surrounding states. We are now seeking investments in a broader
geographic area, in accordance with our strategic growth plan. We look for companies with strong leadership that are bringing to market new or unique products, technologies or services and have a high potential for growth. We invest in a mixture of
debt and equity instruments, with a focus on equity investments to drive capital appreciation. The debt securities typically have an equity component in the form of warrants or options to acquire stock or the right to convert the debt securities
into stock. Our wholly-owned subsidiary, Rand Capital SBIC, Inc. (Rand SBIC) has been our primary investment vehicle since its formation and we expect to continue this practice.

Our Investment Objectives and Strategy

Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to
partially offset expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital
appreciation over the long-term and typically do not generate current income in the form of dividends or interest.

Typically,
our investment strategy is to partner with other investors and invest in small companies that either have a new product, service or technology they are trying to commercialize or are working to accelerate their rate of growth. We define small
companies as businesses that may not yet be generating revenue up to companies with $20 million in revenue.

We have
historically made initial investments of $500,000 to $1,000,000 directly in a company through equity or in debt or loan instruments and frequently provide follow-on investments during our investment tenure. We are now considering larger cumulative
investments to drive our growth, within the U.S. Small Business Administration (SBA) regulations that limit our total investment in one company to $3.0 million. The debt instruments generally have a maturity of not more than five years
and usually are convertible or have detachable equity warrants. Interest is either paid currently or deferred. We fund new investments and operating expenses through existing cash balances, proceeds from investment exits, and interest and principal
payments from our portfolio companies.

Our Investment Process

Our primary business is making subordinated debt and equity investments in small and medium-sized companies that meet some or all of the
following criteria:

1) a qualified and experienced management team;

2) a new or unique product or service; and

3) high potential for growth in revenue and cash flow;

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

In a typical private financing, our management team will review, analyze, and confirm, through due diligence, the business plan and
operations of the potential portfolio company. Additionally, we will familiarize



1



---

##### Table of Contents

ourselves with the portfolio companys industry and competition and may conduct reference checks with its customers and suppliers.

Following our initial investment, we may make follow-on investments in the portfolio company. Follow-on investments may be made to take
advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio company, or provide an additional investment 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 regulatory 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 an
outright sale or merger of the company. We anticipate our debt investments will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment.

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

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

Employees

As of December 31, 2015, we had four employees, unchanged from 2014.

Organization and History

We completed our initial public offering in 1971
as an internally managed, closed-end, diversified, management investment company. We elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC
we are required to comply with certain regulatory requirements. 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  Regulation, Regulation as a Business Development Company.

We make the majority of our
venture capital investments through Rand SBIC, which operates as a small business investment company (SBIC) and has been licensed by the SBA since 2002. Rand SBICs predecessor was organized as a Delaware limited partnership and was
converted into a New York corporation in 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. In 2012, the 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 or Rand SBIC.



2



---

##### Table of Contents

We operate as an internally managed investment company whereby our officers and employees
conduct our business under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.

In this Annual Report on Form 10-K, or Annual Report, unless the context otherwise requires, we, the Corporation,
us, and our refer to Rand Corporation and Rand Capital SBIC, Inc.

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

Regulation

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.

Regulation as a Business Development Company

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

(1) be a domestic company;

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

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

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

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

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the
acquisition is made, qualifying assets represent at least 70% of the companys total assets. The 1940 Act prohibits business development companies 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.



3



---

##### Table of Contents

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, 2015, we were in compliance with this rule.

Managerial Assistance to Portfolio Companies

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

Small Business Investment Company Regulations

SBA Lending Restrictions

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

(a) have a tangible net worth not in excess of $18 million and average net income after U.S. federal income taxes for the preceding two completed fiscal years not in excess of $6 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.



4



---

##### Table of Contents

We have complied with this requirement since the inception of Rand SBIC.

The Rand SBIC subsidiary is subject to regulation and oversight by the SBA. Receipt of an SBIC license does not assure that Rand SBIC will
receive future SBA guaranteed debenture funding, which is dependent upon it continuing to be in compliance with SBA regulations and policies. 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.

Rand SBIC may invest directly in the equity of portfolio companies, 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 $3.0 million.

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.

At December 31, 2015, we had $8,000,000 in outstanding SBA debenture instruments.

Item 1A.Risk Factors

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 to medium-sized companies in which we invest could be negatively affected by this instability and suffer deterioration in their financial results. This deterioration may have a negative effect on our financial
performance.

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

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

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

At December 31, 2015, 100% of our
investments are in private securities that are not publicly traded. There is typically no public market for securities of the small privately held companies in which we invest. Investments are valued in accordance with our established valuation
policy and are stated at fair value as determined in good faith by management and approved by our Board of Directors. In the absence of a readily ascertainable market value, the estimated value of our portfolio of securities 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
increase (decrease) in unrealized appreciation on investments.



5



---

##### Table of Contents

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

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

Investing in private companies involves a high degree of
risk

We typically invest a substantial portion of our assets in small and medium sized private companies. These
private businesses may be thinly capitalized, unproven companies with risky technologies, 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 venture capital investments will become worthless and that some will appear likely to become successful but will
never realize their potential. We have been risk seeking rather than risk averse in our approach to venture capital and other investments.

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

We typically are minority
shareholders in 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 are subject to risks created by our regulated environment

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

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

Our liabilities may include large amounts 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 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.

Competitive market for investment opportunities

We operate in a highly competitive market for investment opportunities. We face competition in our investing
activities from many entities including other SBICs, private venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign investors. The competition is not limited to entities that operate in the
same geographical area as we do. As a regulated BDC, we are required to disclose quarterly and annually the name and business description of our portfolio companies and the value of their portfolio securities. Most of our competitors are not subject
to this disclosure requirement. This obligation to disclose this information could hinder our ability to invest in some portfolio companies. Additionally, other



6



---

##### Table of Contents

regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a private venture capital fund.

We are dependent upon key management personnel for future success

We are dependent on the skill, diligence, and the network of business contacts of our two senior officers, Allen F. Grum and Daniel P.
Penberthy, for the selection, structuring, closing, monitoring and valuation of our investments. Our future success depends, to a significant extent, on the continued employment of these two officers and their departure could materially adversely
affect our ability to implement our business strategy. We do not maintain key man life insurance on these officers.

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 perform poorly or
go 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.

Fluctuations of Quarterly Results

Our quarterly operating results
could fluctuate significantly as a result of a number of factors. These factors include, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which portfolio companies encounter
competition in their markets, and general economic conditions. As a result of these factors, results for any quarter cannot be relied upon as being indicative of performance in future quarters or for a full year.

Item 1B.Unresolved Staff Comments

Not applicable.

Item 2.Properties

We currently lease office space in Buffalo, New
York for our corporate headquarters. We believe that these leased facilities are adequate to support our current staff and expected future needs.

Item 3.Legal Proceedings

None.

Item 4.Mine Safety
Disclosures

Not applicable.



7



---

##### Table of Contents

Part II



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

Our common stock (Common Stock) is traded on the NASDAQ Capital Market (NASDAQ) under the symbol RAND.
The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share as reported by NASDAQ:



|                    |  |      |      |  |     |   |      | 
|------------------- |  | ---- | ---- |  | --- | - | ---- | 
|2015 Quarter ended: |  | High |      |  | Low |  
|March 31            |  | $    | 4.20 |  |     | $ | 3.83 | 
|June 30             |  | $    | 4.01 |  |     | $ | 3.73 | 
|September 30        |  | $    | 4.15 |  |     | $ | 3.77 | 
|December 31         |  | $    | 4.03 |  |     | $ | 3.58 | 
|                    |  |     
|2014 Quarter ended: |  | High |      |  | Low |  
|March 31            |  | $    | 3.56 |  |     | $ | 3.00 | 
|June 30             |  | $    | 3.51 |  |     | $ | 3.11 | 
|September 30        |  | $    | 3.24 |  |     | $ | 2.99 | 
|December 31         |  | $    | 4.12 |  |     | $ | 3.04 | 

We have not paid any cash dividends in the two most recent fiscal years, and have no present intention of
paying cash dividends in the upcoming fiscal year.

Issuer Purchases of Equity Securities



|                  |  |                                   |   |  |                                |  |   |                                                                     |  |  |                                                                                   |  |  |  |         | 
|----------------- |  | --------------------------------- | - |  | ------------------------------ |  | - | ------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------- |  |  |  | ------- | 
|Period            |  | Total numberof sharespurchased(1) |   |  | Average price paidper share(2) |  |   | Total number of sharespurchased as part ofpubliclyannounced plan(3) |  |  | Maximum number ofshares that may yetbe purchased underthe share
repurchaseplan(3) | 
|10/1  10/31/2015 |  |                                   |  |  |                                |  |  |                                                                     |  |  |                                                                                  |  |  |  | 465,504 | 
|11/1  11/30/2015 |  |                                   |  |  |                                |  |  |                                                                     |  |  |                                                                                  |  |  |  | 465,504 | 
|12/1  12/31/2015 |  |                                   |  |  |                                |  |  |                                                                     |  |  |                                                                                  |  |  |  | 465,504 | 



|(1) | There were no shares repurchased during the fourth quarter of 2015.
|--- | -------------------------------------------------------------------



|(2) | The average price paid per share is calculated on a settlement basis and includes commission.
|--- | ---------------------------------------------------------------------------------------------



|(3) | On October 22, 2015, the Board of Directors authorized the repurchase of up to 1,000,000 shares of Common Stock on the open market at prices no greater than the
then current net asset value through October 22, 2016.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Shareholders of Record

On March 4, 2016 we had a total of 780 shareholders, which included 93 record holders of our Common Stock,
and an estimated 687 holders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks.



8



---

##### Table of Contents

Corporation Performance Graph

The following graph shows a five-year comparison of cumulative total shareholder returns for our Common Stock, the NASDAQ Market Index,
and our Peer Group, assuming a base index of $100 at the end of 2010. 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 investment, and (B) the difference between share prices at the end and at the beginning of the measurement period by (2) the share price at the beginning of the measurement period.

Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

December 2015



LOGO

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

FISCAL YEAR ENDED



|                         |  |      |        |  |      |   |       |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |        | 
|------------------------ |  | ---- | ------ |  | ---- | - | ----- | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|Company/Index/Market     |  | 2010 |        |  | 2011 |   |       | 2012 |  |   | 2013   |  |  | 2014 |        |  | 2015 |  
|Rand Capital Corporation |  | $    | 100.00 |  |      | $ | 95.98 |      |  | $ | 72.45  |  |  | $    | 95.05  |  |      | $ | 126.63 |  |  | $ | 116.72 | 
|NASDAQ Market
Index      |  | $    | 100.00 |  |      | $ | 99.17 |      |  | $ | 116.48 |  |  | $    | 163.21 |  |      | $ | 187.27 |  |  | $ | 200.31 | 
|Peer Group
Index         |  | $    | 100.00 |  |      | $ | 79.20 |      |  | $ | 97.14  |  |  | $    | 131.08 |  |      | $ | 130.23 |  |  | $ | 69.25  | 

The Peer Group was comprised of the following companies:

Capital Southwest Corporation (NasdaqGS: CSWC)

First Hand Technology Value Fund, Inc. (NasdaqGS:SVVC)

GSV Capital Corp.
(NasdaqCM:GSVC)

Harris & Harris Group, Inc. (NasdaqGM:TINY)

We selected the Peer Group because it is our belief that the four issuers in the group have investment objectives that are similar to
ours, and among the publicly traded companies, they are relatively similar in size to us.

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



9



---

##### Table of Contents

Item 6.Selected Financial
Data

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

Balance Sheet Data as of December 31:



|                                      |  |      |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|------------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ---- | ---------- |  |  | - | ---------- | 
|                                      |  | 2015 |            |  | 2014 |   |            | 2013 |  |   | 2012       |  |  | 2011 |           
|Total assets                          |  | $    | 44,761,687 |  |      | $ | 45,525,987 |      |  | $ | 39,750,370 |  |  | $    | 34,252,413 |  |  | $ | 31,331,957 | 
|Total liabilities                     |  | $    | 10,908,027 |  |      | $ | 13,172,546 |      |  | $ | 11,681,038 |  |  | $    | 8,470,113  |  |  | $ | 6,932,836  | 
|Net assets                            |  | $    | 33,853,660 |  |      | $ | 32,353,441 |      |  | $ | 28,069,332 |  |  | $    | 25,782,300 |  |  | $ | 24,399,121 | 
|Net asset value per outstanding share |  | $    | 5.35       |  |      | $ | 5.11       |      |  | $ | 4.38       |  |  | $    | 3.90       |  |  | $ | 3.58       | 
|Shares of common stock outstanding    |  |      | 6,328,538  |  |      |   | 6,328,538  |      |  |   | 6,411,918  |  |  |      | 6,610,236  |  |  |   | 6,818,934  | 
|                                      |  |      |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 

Operating Data for the years ended December 31:



|                                                                              |  |      |           |   |      |   |           |      |  |   |            |   |  |      |           |  |  |   |            |  
|----------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------- | - |  | ---- | --------- |  |  | - | ---------- | -
|                                                                              |  | 2015 |           |   | 2014 |   |           | 2013 |  |   | 2012       |   |  | 2011 |          
|Investment income                                                             |  | $    | 2,824,337 |   |      | $ | 2,584,475 |      |  | $ | 2,451,036  |   |  | $    | 2,604,621 |  |  | $ | 1,292,352  |  
|Total expenses                                                                |  | $    | 1,817,279 |   |      | $ | 2,499,297 |      |  | $ | 2,359,252  |   |  | $    | 1,795,600 |  |  | $ | 1,661,674  |  
|Net investment gain (loss), net of tax                                        |  | $    | 842,902   |   |      | $ | 21,835    |      |  | $ | 154,478    |   |  | $    | 686,061   |  |  | $ | (81,738    | )
|Net realized (loss) gain on sales and dispositions of investments, net of tax |  | ($   | 27,973    | ) |      | $ | 4,767,484 |      |  | $ | 4,374,354  |   |  | $    | 831,139   |  |  | $ | (1,515,885 | )
|Net increase (decrease) in unrealized appreciation on investments, net of tax |  | $    | 685,290   |   |      | $ | (247,838  | )    |  | $ | (1,655,475 | ) |  | $    | 422,567   |  |  | $ | 2,945,926  |  
|Net increase (decrease) in net assets from operations                         |  | $    | 1,500,219 |   |      | $ | 4,541,481 |      |  | $ | 2,873,357  |   |  | $    | 1,939,767 |  |  | $ | 1,348,303  |  

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

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

FORWARD LOOKING STATEMENTS

Statements included in this Managements
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report that do not relate to present or historical conditions are forward-looking statements within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking
statements may be included in documents that are filed with the Securities and Exchange Commission. 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,



10



---

##### Table of Contents

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 internally managed venture capital investment company that lends to and invests in small and medium-sized companies primarily in connection with loans or investments made concurrently by other
investors. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements.
We make 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. We anticipate that most, if not all, of our investments made in the next year will be originated through Rand SBIC.

Our investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments. Therefore, we
invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and
typically do not generate current income in the form of dividends or interest.

We look for certain criteria in the companies
in which we might invest. These criteria are:

1) a qualified and experienced management team;

2) a new or unique product or service; and

3) high potential for growth in revenue and cash flow;

We have historically made initial investments of $500,000 to $1,000,000 directly in a company through equity or in debt or loan
instruments and frequently provided follow-on investments during our investment tenure. We are now considering larger cumulative investments to drive our growth, keeping within the SBA regulations that limit our total investment in one company to
$3.0 million. The debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants. Interest may be paid currently or deferred, based on the investment structure negotiated.

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

In a typical private financing, our
management team will review, analyze, and evaluate, through due diligence, the business plan and operations of the potential portfolio company. Additionally, we will familiarize ourselves with the portfolio companys industry and competition
and may conduct reference checks with their customers and suppliers.



11



---

##### Table of Contents

Following an initial investment, we may make follow-on investments in the portfolio company.
Follow-on investments may be made to take advantage of warrants or other preferential rights granted to us to increase or maintain our position in a promising portfolio company, or provide an additional investment 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 regulatory restrictions. Pursuant to SBA
regulations, the maximum cash which may be invested in one portfolio company by Rand SBIC is currently $3.0 million.

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

2015 Portfolio and
Investment Activity

We believe the change in net asset value over time is the leading valuation metric for monitoring our
performance. Changes from quarter to quarter, and at any point in time, may vary because of specific activity related to an investment, but the overall growth trend demonstrates the effectiveness of our investment efforts.



| |  |  | Net asset value of our portfolio increased to a record $5.35 per share, or $33.9 million, at December 31, 2015, up $0.24 per share, or 5%, over
net asset value of $5.11 per share, or $32.4 million, at the end of the prior year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The value of Rands investments was $36.8 million, which reflected $9.4 million in net pre-tax unrealized appreciation.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | At year end, the estimated value of securities held in 31 businesses was $36.8 million.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Approximately 85% of the portfolio was equity investments with the remainder being debt and loan investments.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | The portfolio generated approximately $2.8 million in interest, fee, dividend and other income, a record level.
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | During 2015, we made $7.0 million in new investments in 16 businesses including follow-on investments in existing portfolio companies. We added four
new portfolio companies during the year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Subsequent to year end, we announced the pending sale of our largest portfolio company, Gemcor II, LLC (Gemcor). We expect to receive gross cash
proceeds of approximately $14 million upon completion of the sale, anticipated in the first quarter of 2016. The proceeds will be available for investment, as well as for general corporate purposes. Our investment in Gemcor generated approximately
$1.8 million in interest and dividend revenue during 2015. As a result of the anticipated closing of the Gemcor sale, interest and dividend revenue will decrease in 2016.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outlook

At the end of 2015, we had $5.8 million in cash for future
investments. We believe the combination of cash on hand, anticipated proceeds from the Gemcor sale, 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. Both short and long-term trends provide us confidence in our ability to grow Rand.



| |  |  | We expect that well run U.S. businesses will require capital to grow and should be able to compete effectively given the low cost of capital, strong
business and consumer spending, and eager reception of new technologies and service concepts.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



---

##### Table of Contents

| |  |  | We have sufficient cash to invest in new opportunities and to repurchase shares. At year end, we had authorization to repurchase an additional 465,504
shares of our Common Stock under the current program.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Given our increased scale we are able to invest larger amounts in companies, which will provide an opportunity to accelerate our rate of growth.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | We are actively involved with the governance and management of our portfolio companies which enables us to support their operating and marketing
efforts to facilitate their growth.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As our portfolio continues to expand, we are able to better leverage our infrastructure.
| | - |  | ----------------------------------------------------------------------------------------

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 closely monitor our
accounting policies and procedures. We have two critical accounting policies that require the use of significant judgment. The following summary of critical accounting policies is intended to enhance a readers ability to assess our financial
condition and results of operations and the potential volatility due to changes in estimates.

Valuation of Investments

Investments are valued at fair value as determined in good faith by management and submitted to the Board of Directors
for approval. We invest in loan instruments, debt instruments, 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 investment and 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
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.

We use 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 an investment or sufficient assets or liquidation
proceeds are expected to exist from a sale of a portfolio company at its estimated fair value.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The loan and
debt securities may also be valued at an amount other than the price the security would command in order to provide a yield to maturity equivalent to the current yield of similar debt securities. 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.



13



---

##### Table of Contents

| |  |  | Equity securities may be valued using the market approach or income approach. 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 increase (decrease) in unrealized appreciation on investments.

Under our valuation policy, we value unrestricted publicly traded companies at the average closing bid price for the last three trading
days of the quarter.

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



| |  |  | Financial information obtained from each portfolio company, including 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 fund-raising 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 occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Qualitative assessment of key management;
| | - |  | -----------------------------------------



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



| |  |  | Other factors deemed relevant by our management.
| | - |  | ------------------------------------------------

This information is used to determine the financial condition, performance, and valuation of the portfolio companies. The valuation may be reduced if a portfolio companys performance and/or
potential have deteriorated. If the factors which led to a reduction in valuation are overcome, the valuation may be readjusted.



14



---

##### Table of Contents

Equity Securities

Equity securities in which we invest 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 EBITDA and
revenue multiples, where applicable, the financial and operational performance of the business, and the senior equity preferences which may exist in a liquidation event. Standard industry multiples may be used when available; however, our portfolio
companies are typically small and in the early stages of development and these industry standards may have to 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.

Another key factor used in valuing equity investments is recent
arms-length equity transactions with a sophisticated unrelated new investor(s) in the portfolio company. The terms of these equity transactions may not be identical to the equity transactions between us and the portfolio company, 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, we use the Black-Scholes pricing model 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 increases or decreases in
any of these unobservable inputs would result in a significantly higher or lower fair value measurement.

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.

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, as well as the market acceptance of the portfolio companys products or services. These inputs will likely provide an indicator as to the probability of principal recovery of the investment. Our debt
investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent
investments, we generally rely on the cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified causing us to depart from this basis.

Revenue Recognition

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

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 the loan is in default more than 120 days. Management also
uses other qualitative and quantitative measures to determine the value of a portfolio investment and the collectability of any accrued interest.

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



15



---

##### Table of Contents

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,
and 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 equity is redeemed.

Financial Condition

Overview:



|                  |  |          |            |  |          |   |            |                    |  |    |                      |   |  |  |       |   
|----------------- |  | -------- | ---------- |  | -------- | - | ---------- | ------------------ |  | -- | -------------------- | - |  |  | ----- | --
|                  |  | 12/31/15 |            |  | 12/31/14 |   |            | (Decrease)Increase |  |    | % (Decrease)Increase |  
|Total assets      |  | $        | 44,761,687 |  |          | $ | 45,525,987 |                    |  | ($ | 764,300              | ) |  |  | (1.7  | %)
|Total liabilities |  |          | 10,908,027 |  |          |   | 13,172,546 |                    |  |    | (2,264,519           | ) |  |  | (17.2 | %)
|                  |  |          |            |  |          |   |            |                    |  |    |                      |   |  |  |       |   
|Net assets        |  | $        | 33,853,660 |  |          | $ | 32,353,441 |                    |  | $  | 1,500,219            |   |  |  | 4.6   | % 
|                  |  |          |            |  |          |   |            |                    |  |    |                      |   |  |  |       |   

Net asset value was $5.35 per share at December 31, 2015 versus $5.11 per share at December 31,
2014.

The outstanding SBA debentures at December 31, 2015 are $8,000,000, which will mature from 2022 through 2025.

Cash approximated 17% of net assets at December 31, 2015 compared to 41% at December 31, 2014.

Composition of the Investment Portfolio

Our financial condition is dependent on the success of our portfolio holdings. We have invested substantially all of our assets in small to medium-sized companies. The following summarizes our investment
portfolio at the year-ends indicated.



|                              |  |          |            |  |          |   |            |          |  |   |            |  |  |  |      |  
|----------------------------- |  | -------- | ---------- |  | -------- | - | ---------- | -------- |  | - | ---------- |  |  |  | ---- | -
|                              |  | 12/31/15 |            |  | 12/31/14 |   |            | Increase |  |   | % Increase | 
|Investments, at cost          |  | $        | 27,410,742 |  |          | $ | 22,213,476 |          |  | $ | 5,197,266  |  |  |  | 23.4 | %
|Unrealized appreciation, net  |  |          | 9,421,658  |  |          |   | 8,091,900  |          |  |   | 1,329,758  |  |  |  | 16.4 | %
|                              |  |          |            |  |          |   |            |          |  |   |            |  |  |  |      |  
|Investments, at fair value    |  | $        | 36,832,400 |  |          | $ | 30,305,376 |          |  | $ | 6,527,024  |  |  |  | 21.5 | %
|                              |  |          |            |  |          |   |            |          |  |   |            |  |  |  |      |  
|Number of Portfolio Companies |  |          | 31         |  |          |   | 29         |          |  |   |            |  |  |  |      |  

Our total investments at fair value, as estimated by management and approved by the Board of Directors,
approximated 109% of net assets at December 31, 2015 and 94% of net assets at December 31, 2014.



16



---

##### Table of Contents

The change in investments, at cost, during the year ended December 31, 2015, is
comprised of the following:



|                                                                                     |  |                          |            |  
|------------------------------------------------------------------------------------ |  | ------------------------ | ---------- | -
|                                                                                     |  | Cost 
Increase(Decrease) |           
|New investments:                                                                     |  |                          |            |  
|GoNoodle, Inc. (GoNoodle) (formerly HealthTeacher, Inc.)                             |  | $                        | 1,000,025  |  
|Genicon, Inc. (Genicon)                                                              |  |                          | 1,000,000  |  
|SciAps, Inc. (SciAps)                                                                |  |                          | 749,999    |  
|Rheonix, Inc. (Rheonix)                                                              |  |                          | 680,475    |  
|Tilson Technology Management, Inc. (Tilson)                                          |  |                          | 600,000    |  
|Outmatch (formerly Chequed Holdings LLC)                                             |  |                          | 500,000    |  
|City Dining Cards, Inc. (City Dining)                                                |  |                          | 500,000    |  
|SocialFlow, Inc. (Social Flow)                                                       |  |                          | 500,000    |  
|OnCore Golf Technology, Inc. (Oncore Golf)                                           |  |                          | 325,000    |  
|GiveGab, Inc. (Give Gab)                                                             |  |                          | 212,833    |  
|Knowledge Vision Systems Inc. (Knowledge Vision)                                     |  |                          | 200,001    |  
|BeetNPath, LLC (BeetNPath)                                                           |  |                          | 200,000    |  
|Mezmeriz, Inc. (Mezmeriz)                                                            |  |                          | 151,477    |  
|Statisfy, Inc. (Statisfy) (formerly CrashMob, Inc.)                                  |  |                          | 150,000    |  
|Teleservices Solutions Holdings, LLC (Teleservices)                                  |  |                          | 104,198    |  
|Intrinsiq Materials, Inc. (Intrinsiq)                                                |  |                          | 95,000     |  
|                                                                                     |  |                          |            |  
|Total of new investments                                                             |  |                          | 6,969,008  |  
|Other changes to investments:                                                        |  |                          |            |  
|Teleservices dividend conversion                                                     |  |                          | 131,200    |  
|First Wave Products Group, LLC (First Wave) interest conversion and OID amortization |  |                          | 31,353     |  
|Rheonix interest conversion                                                          |  |                          | 22,257     |  
|Outmatch interest conversion                                                         |  |                          | 12,274     |  
|Mercantile Adjustment Bureau, LLC (Mercantile) OID amortization                      |  |                          | 9,997      |  
|BeetNPath interest conversion                                                        |  |                          | 9,000      |  
|GoNoodle interest conversion                                                         |  |                          | 8,974      |  
|SciAps interest conversion                                                           |  |                          | 4,711      |  
|                                                                                     |  |                          |            |  
|Total of other changes to investments                                                |  |                          | 229,766    |  
|Investments repaid, sold or liquidated:                                              |  |                          |            |  
|Gemcor II, LLC (Gemcor) repayment                                                    |  |                          | (205,828   | )
|CrowdBouncer, Inc. (Crowdbouncer) realized loss                                      |  |                          | (300,000   | )
|Synacor, Inc. (Synacor) shares sold                                                  |  |                          | (385,680   | )
|Carolina Skiff LLC (Carolina Skiff) repayment                                        |  |                          | (1,110,000 | )
|                                                                                     |  |                          |            |  
|Total investments repaid, sold or liquidated                                         |  |                          | (2,001,508 | )
|                                                                                     |  |                          |            |  
|Net change in investments, at cost                                                   |  | $                        | 5,197,266  |  
|                                                                                     |  |                          |            |  



17



---

##### Table of Contents

Our top five portfolio companies represented 50% of total assets at December 31, 2015:



|                  |  |                                     |  |                                |            |  |                                      |  |    |  
|----------------- |  | ----------------------------------- |  | ------------------------------ | ---------- |  | ------------------------------------ |  | -- | -
|Company           |  | Industry                            |  | Fair Value
atDecember 31, 2015 |            |  | % of Total Assetsat
December 31,2015 | 
|Gemcor            |  | Manufacturing  Aerospace Machinery |  | $                              | 13,816,972 |  |                                      |  | 31 | %
|Rheonix           |  | Health Care  Testing Devices       |  | $                              | 2,938,731  |  |                                      |  | 7  | %
|Outmatch          |  | Software                            |  | $                              | 2,145,496  |  |                                      |  | 5  | %
|Social Flow, Inc. |  | Software                            |  | $                              | 2,071,300  |  |                                      |  | 4  | %
|Microcision       |  | Manufacturing  Medical Products    |  | $                              | 1,891,964  |  |                                      |  | 4  | %

Our top five portfolio companies represented 38% of total assets at December 31, 2014:



|                  |  |                                     |  |                                |           |  |                                      |  |    |  
|----------------- |  | ----------------------------------- |  | ------------------------------ | --------- |  | ------------------------------------ |  | -- | -
|Company           |  | Industry                            |  | Fair Value
atDecember 31, 2014 |           |  | % of Total Assetsat
December 31,2014 | 
|Gemcor            |  | Manufacturing  Aerospace Machinery |  | $                              | 9,922,800 |  |                                      |  | 22 | %
|Rheonix           |  | Health Care  Testing Devices       |  | $                              | 2,235,999 |  |                                      |  | 5  | %
|Microcision       |  | Manufacturing  Medical Products    |  | $                              | 1,891,965 |  |                                      |  | 4  | %
|Carolina Skiff    |  | Consumer Products  Boats           |  | $                              | 1,710,000 |  |                                      |  | 4  | %
|Chequed.com, Inc. |  | Software                            |  | $                              | 1,633,222 |  |                                      |  | 3  | %

Below is the geographic breakdown of our investments at fair value as of December 31, 2015 and 2014:



|                  |  |                                          |     |   |                                          |  |    |  
|----------------- |  | ---------------------------------------- | --- | - | ---------------------------------------- |  | -- | -
|Geographic Region |  | % of Net Asset 
Valueat December 31,2015 |     |   | % of Net Asset 
Valueat December 31,2014 | 
|USA  East        |  |                                          | 107 | % |                                          |  | 89 | %
|USA  South       |  |                                          | 2   | % |                                          |  | 5  | %
|                  |  |                                          |     |   |                                          |  |    |  
|                  |  |                                          | 109 | % |                                          |  | 94 | %
|                  |  |                                          |     |   |                                          |  |    |  

As of December 31, 2015 and 2014, the investment portfolio consisted of the following investments:



|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|-------------------------------------- |  | ---- | ---------- |  | ----------------------------- |  | --- | ---------- |  | - | ----------------------------- |  |  |  | --- | -
|                                       |  | Cost |            |  | Percentage ofTotal 
Portfolio |  |     | Fair Value |  |   | Percentage ofTotal 
Portfolio | 
|December 31, 2015:                     |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|Subordinated Debt and Promissory Notes |  | $    | 5,526,636  |  |                               |  | 20  | %          |  | $ | 4,648,604                     |  |  |  | 13  | %
|Convertible Debt                       |  |      | 845,000    |  |                               |  | 3   |            |  |   | 845,000                       |  |  |  | 2   |  
|Equity and Membership Interests        |  |      | 20,290,424 |  |                               |  | 74  |            |  |   | 30,709,739                    |  |  |  | 83  |  
|Equity Warrants                        |  |      | 748,682    |  |                               |  | 3   |            |  |   | 629,057                       |  |  |  | 2   |  
|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|Total                                  |  | $    | 27,410,742 |  |                               |  | 100 | %          |  | $ | 36,832,400                    |  |  |  | 100 | %
|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  



18



---

##### Table of Contents

|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|-------------------------------------- |  | ---- | ---------- |  | ----------------------------- |  | --- | ---------- |  | - | ----------------------------- |  |  |  | --- | -
|                                       |  | Cost |            |  | Percentage ofTotal 
Portfolio |  |     | Fair Value |  |   | Percentage ofTotal 
Portfolio | 
|December 31, 2014:                     |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|Subordinated Debt and Promissory Notes |  | $    | 4,807,140  |  |                               |  | 22  | %          |  | $ | 4,807,140                     |  |  |  | 16  | %
|Convertible Debt                       |  |      | 1,200,000  |  |                               |  | 6   |            |  |   | 1,200,000                     |  |  |  | 4   |  
|Equity and Membership Interests        |  |      | 16,086,711 |  |                               |  | 72  |            |  |   | 24,178,611                    |  |  |  | 80  |  
|Equity Warrants                        |  |      | 119,625    |  |                               |  |    |            |  |   | 119,625                       |  |  |  |    |  
|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  
|Total                                  |  | $    | 22,213,476 |  |                               |  | 100 | %          |  | $ | 30,305,376                    |  |  |  | 100 | %
|                                       |  |      |            |  |                               |  |     |            |  |   |                               |  |  |  |     |  

Results of Operations

Investment Income

Our investment objective is to achieve long-term capital
appreciation on our equity investments while investing in a mixture of loan, debenture and equity instruments, which may provide a current return on a portion of the investment portfolio. The equity features contained in our investment portfolio are
structured to realize capital appreciation over the long-term.

Comparison of the years ended December 31, 2015 and
2014

Investment income increased 9%, or $239,862, from $2,584,475 for the year ended December 31, 2014 to
$2,824,337 for the year ended December 31, 2015. The net increase was primarily attributable to an increase in dividend income.



|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |     |   
|------------------------------------ |  | ---------------- | --------- |  | ---------------- | - | --------- | ------------------ |  | -- | -------------------- | - |  |  | --- | --
|                                     |  | December 31,2015 |           |  | December 31,2014 |   |           | (Decrease)Increase |  |    | % (Decrease)Increase |  
|Interest from portfolio companies    |  | $                | 691,109   |  |                  | $ | 789,548   |                    |  | ($ | 98,439               | ) |  |  | (13 | %)
|Interest from other investments      |  |                  | 22,048    |  |                  |   | 14,288    |                    |  |    | 7,760                |   |  |  | 54  | % 
|Dividend and other investment income |  |                  | 2,081,847 |  |                  |   | 1,750,439 |                    |  |    | 331,408              |   |  |  | 19  | % 
|Fee income                           |  |                  | 29,333    |  |                  |   | 30,200    |                    |  |    | (867                 | ) |  |  | (3  | %)
|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |     |   
|Total investment income              |  | $                | 2,824,337 |  |                  | $ | 2,584,475 |                    |  | $  | 239,862              |   |  |  | 9   | % 
|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |     |   

Interest from portfolio companies  Our portfolio interest income decreased during
2015 due to the decrease in principal balances on loan and debt investments in Gemcor, II, LLC (Gemcor) and Carolina Skiff, LLC (Carolina Skiff), respectively.

After reviewing their performance and the circumstances surrounding our investments, we ceased accruing interest income on First Wave Products Group, LLC (First Wave), Intrinsiq Materials, Inc.
(Intrinsiq), and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance during 2015.

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, 2015 versus the year ended December 31, 2014.

Dividend
and other investment income  Dividend income is comprised of 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



19



---

##### Table of Contents

income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions. The dividend distributions for the respective years were:



|                                                    |  |                  |           |  |                  |   |           | 
|--------------------------------------------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | 
|                                                    |  | December 31,2015 |           |  | December 31,2014 |  
|Gemcor, II, LLC (Gemcor)                            |  | $                | 1,735,934 |  |                  | $ | 1,508,822 | 
|Teleservices Solutions Holdings, LLC (Teleservices) |  |                  | 183,680   |  |                  |   | 98,952    | 
|Carolina Skiff LLC (Carolina Skiff)                 |  |                  | 116,052   |  |                  |   | 54,089    | 
|New Monarch Machine Tool, LLC (Monarch)             |  |                  | 27,409    |  |                  |   | 45,682    | 
|Tilson Technology Management, Inc. (Tilson)         |  |                  | 14,417    |  |                  |   |          | 
|SOMS Technologies, LLC (SOMS)                       |  |                  | 4,355     |  |                  |   |          | 
|Advantage 24/7 LLC (Advantage)                      |  |                  |          |  |                  |   | 37,695    | 
|NDT Acquisition LLC (NDT)                           |  |                  |          |  |                  |   | 2,668     | 
|Somerset Gas Transmission Company, LLC (Somerset)   |  |                  |          |  |                  |   | 2,531     | 
|                                                    |  |                  |           |  |                  |   |           | 
|Total dividend and other investment income          |  | $                | 2,081,847 |  |                  | $ | 1,750,439 | 
|                                                    |  |                  |           |  |                  |   |           | 

Fee income  Fee income consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of Rand SBIC financings and income from portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated with the
fees. The unamortized fees are carried on the balance sheet under the line item Deferred revenue.

The amortization
of financing fees was $18,333 and $16,200 for the years ended December 31, 2015 and 2014, respectively. The financing fee income based on the existing portfolio is expected to be approximately $10,000 in 2016, $8,000 in 2017 and $4,000 in each
of 2018 and 2019.

Fees paid for board service at the portfolio companies were $11,000 and $14,000 for the years ended
December 31, 2015 and 2014, respectively.

Comparison of the years ended December 31, 2014 and 2013

Investment income increased 5%, or $133,439, from $2,451,036 for the year ended December 31, 2013 to $2,584,475
for the year ended December 31, 2014. The net increase was primarily attributable to an increase in dividend income.



|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |    |  
|------------------------------------ |  | ---------------- | --------- |  | ---------------- | - | --------- | ------------------ |  | -- | -------------------- | - |  |  | -- | -
|                                     |  | December 31,2014 |           |  | December 31,2013 |   |           | (Decrease)Increase |  |    | % (Decrease)Increase |  
|Interest from portfolio companies    |  | $                | 789,548   |  |                  | $ | 793,071   |                    |  | ($ | 3,523                | ) |  |  | 0  | %
|Interest from other investments      |  |                  | 14,288    |  |                  |   | 10,932    |                    |  |    | 3,356                |   |  |  | 31 | %
|Dividend and other investment income |  |                  | 1,750,439 |  |                  |   | 1,623,633 |                    |  |    | 126,806              |   |  |  | 8  | %
|Fee income                           |  |                  | 30,200    |  |                  |   | 23,400    |                    |  |    | 6,800                |   |  |  | 29 | %
|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |    |  
|Total investment income              |  | $                | 2,584,475 |  |                  | $ | 2,451,036 |                    |  | $  | 133,439              |   |  |  | 5  | %
|                                     |  |                  |           |  |                  |   |           |                    |  |    |                      |   |  |  |    |  

Interest from portfolio companies  Our portfolio interest income decreased slightly
during 2014 due to the decrease in principal balances on loan and debt investments in Gemcor II, LLC and Carolina Skiff, LLC, respectively. This decrease was partially offset because we originated over $1.8 million in new debt instruments during the
previous 18 months with interest rates ranging from 6% to 13%. After reviewing the portfolio companys performance and the circumstances surrounding the investment, we ceased accruing interest income on Mezmeriz during 2014.

Interest from other investments  The minor increase in interest from other investments was primarily due to higher
average cash balances during the year ended December 31, 2014 versus the year ended December 31, 2013. The cash balances at December 31, 2014 and 2013 were $13,230,717 and $9,764,810, respectively.



20



---

##### Table of Contents

Dividend and other investment income  Dividend income is comprised of
distributions from limited liability companies (LLCs) in which we have invested. Our investment agreements with certain LLCs require the 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 distribute additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and the timing of the distributions. The dividend distributions for the
respective years were:



|                                                    |  |                  |           |  |                  |   |           | 
|--------------------------------------------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | 
|                                                    |  | December 31,2014 |           |  | December 31,2013 |  
|Gemcor, II, LLC (Gemcor)                            |  | $                | 1,508,822 |  |                  | $ | 1,481,675 | 
|Teleservices Solutions Holdings, LLC (Teleservices) |  |                  | 98,952    |  |                  |   |          | 
|Carolina Skiff LLC (Carolina Skiff)                 |  |                  | 54,089    |  |                  |   | 56,239    | 
|New Monarch Machine Tool, LLC (Monarch)             |  |                  | 45,682    |  |                  |   | 68,522    | 
|Advantage 24/7 LLC (Advantage)                      |  |                  | 37,695    |  |                  |   |          | 
|NDT Acquisition LLC (NDT)                           |  |                  | 2,668     |  |                  |   | 527       | 
|Somerset Gas Transmission Company, LLC (Somerset)   |  |                  | 2,531     |  |                  |   | 16,670    | 
|                                                    |  |                  |           |  |                  |   |           | 
|Total dividend and other investment income          |  | $                | 1,750,439 |  |                  | $ | 1,623,633 | 
|                                                    |  |                  |           |  |                  |   |           | 

Fee income  Fee income consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of Rand SBIC financings and income associated with portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated
with the fees. The unamortized fees are carried on the balance sheet under Deferred revenue.

The amortization of
financing fees was $16,200 and $7,400 for the years ended December 31, 2014 and 2013, respectively. The financing fee income based on the existing portfolio is expected to be approximately $14,000 in 2015, $6,000 in 2016 and $4,000 in 2017.

Fees paid for board service at the portfolio companies were $14,000 and $16,000 for the years ended December 31, 2014 and
2013, respectively.

Expenses

Comparison of the years ended December 31, 2015 and 2014



|               |  |                  |           |  |                  |   |           |          |  |    |            |   |  |  |     |   
|-------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | -------- |  | -- | ---------- | - |  |  | --- | --
|               |  | December 31,2015 |           |  | December 31,2014 |   |           | Decrease |  |    | % Decrease |  
|Total expenses |  | $                | 1,817,279 |  |                  | $ | 2,499,297 |          |  | ($ | 682,018    | ) |  |  | (27 | %)

Operating expenses predominately consist of compensation expense and related benefits, interest expense on
outstanding SBA borrowings, and general and administrative expenses including shareholder and office expenses and professional fees.

The 27%, or $682,018, decrease in operating expenses for the year ended December 31, 2015 as compared to the same period in 2014 is due, in part, to the fact that bonus and profit sharing expense
decreased approximately $814,000. During the year ended December 31, 2015 we accrued $122,500 in bonus expense. There was no profit sharing expense during the year ended December 31, 2015. During the year ended December 31, 2014, we
accrued $899,500 in profit sharing obligations and $91,490 in bonus expense. This decrease was partially offset by an increase in interest and shareholder expense. Interest expense on our SBA borrowings increased due to higher outstanding debt
balances during 2015 versus 2014. Shareholder expense increased because we have increased our strategic analysis and communication to shareholders and potential investors.



21



---

##### Table of Contents

Comparison of the years ended December 31, 2014 and 2013



|               |  |                  |           |  |                  |   |           |          |  |   |            |  |  |  |   |  
|-------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | -------- |  | - | ---------- |  |  |  | - | -
|               |  | December 31,2014 |           |  | December 31,2013 |   |           | Increase |  |   | % Increase | 
|Total expenses |  | $                | 2,499,297 |  |                  | $ | 2,359,252 |          |  | $ | 140,045    |  |  |  | 6 | %

Operating expenses predominately consist of compensation expense and related benefits, interest expense on
outstanding SBA borrowings, and general and administrative expenses including shareholder and office expenses and professional fees.

The 6%, or $140,045, increase in operating expenses for the year ended December 31, 2014 as compared to the same period in 2013 is due, in part, to the fact that the we had a bad debt recovery of
$64,654 during the year ended December 31, 2013, whereas we incurred a bad debt expense of $6,311 for the year ended December 31, 2014. In addition, the SBA borrowings increased from $7,000,000 at December 31, 2013 to $8,000,000 at
December 31, 2014, causing a 41%, or $77,868, increase in SBA interest expense for the year ended December 31, 2014 as compared to the year ended December 31, 2013. During the year ended December 31, 2014 we accrued $899,500 in
profit sharing obligations and $91,490 in bonus expense. For the year ended December 31, 2013 we accrued $887,244 in profit sharing obligations and $80,000 in bonus expense.

Net Realized Gains and Losses on Investments

Comparison of the years
ended December 31, 2015 and 2014



|                                                                        |  |                  |        |   |                  |   |           |          |  |    |            |   |  |  |      |   
|----------------------------------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | --------- | -------- |  | -- | ---------- | - |  |  | ---- | --
|                                                                        |  | December 31,2015 |        |   | December 31,2014 |   |           | Decrease |  |    | % Decrease |  
|Net realized (loss) gain on sales and dispositions, before income taxes |  | ($               | 42,469 | ) |                  | $ | 7,237,937 |          |  | ($ | 7,280,406  | ) |  |  | (101 | %)

During the year ended December 31, 2015, we recognized a net realized gain, before income taxes, of
$262,925 on the sale of 301,582 shares of Synacor, Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol SYNC. As of December 31, 2015, we do not own any shares of Synacor.

We recognized a realized loss of $5,394 on an adjustment to the BinOptics Corporation (Binoptics) escrow receivable. At December 31,
2015 the Binoptics escrow receivable is $1,504,854. The escrow holdback is recorded in Other Assets on the accompanying consolidated statement of financial position. The escrow is scheduled to be released during 2016, subject to
potential claims.

We realized a loss of $300,000 on our investment in CrowdBouncer, Inc. during the year ended
December 31, 2015 when the company ceased operations during the year.

For the year ended December 31, 2014, we
recognized a realized gain on Binoptics of $8,333,344 which included $1,510,248 that was held in escrow at December 31, 2014.

QuaDPharma, LLC (Quadpharma) was purchased by Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.) during 2014 and we received $923,634 in net proceeds for our debt and equity securities. The
realized gain from the sale of $160,634 included $14,737 that was held in escrow and received during 2014. As part of the sale, we also received 11,574 common shares of Athenex that had a fair value at the time of receipt of $254,628.

During the year ended December 31, 2014, we recognized a net realized loss of $9,792 on the sale of 127,061 shares of Synacor.
Synacor trades on the NASDAQ Global Market under the symbol SYNC. At December 31, 2014, we owned 301,582 shares of Synacor.

In addition, during the year ended December 31, 2014, we recognized a realized loss of $778,253 on Emerging Med. It was sold during January 2014 and we did not receive any proceeds from the sale.
This investment had been valued at $0 at December 31, 2013. We also recognized a realized loss of $472,664 on an adjustment to the Liazon Corporation escrow receivable and a gain of $4,668 on an adjustment to the Ultra-Scan escrow receivable.



22



---

##### Table of Contents

Comparison of the years ended December 31, 2014 and 2013



|                                                                 |  |                  |           |  |                  |   |           |          |  |   |            |  |  |  |   |  
|---------------------------------------------------------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | -------- |  | - | ---------- |  |  |  | - | -
|                                                                 |  | December 31,2014 |           |  | December 31,2013 |   |           | Increase |  |   | % Increase | 
|Net realized gain on sales and dispositions, before income taxes |  | $                | 7,237,937 |  |                  | $ | 7,034,180 |          |  | $ | 203,757    |  |  |  | 3 | %

Binoptics was sold to a strategic acquirer during the fourth quarter of 2014 and we received approximately
$10.1 million in net proceeds for our equity securities. The realized gain from the sale was $8,333,344 and included $1,510,248 that was held in escrow at December 31, 2014.

We sold our investment in QuaDPharma to Athenex during 2014 and received $923,634 in net cash proceeds for the debt and equity securities
and recognized a realized gain of $160,634. As part of the sale, we received 11,574 common shares of Athenex that had a fair value of $254,628 at December 31, 2014 and resulted in an unrealized gain of $111,343.

During the year ended December 31, 2014, we recognized a net realized loss of $9,792 on the sale of 127,061 shares of Synacor.
Synacor trades on the NASDAQ Global Market under the symbol SYNC. At December 31, 2014, we owned 301,582 shares of Synacor.

In addition, during the year ended December 31, 2014, we recognized a realized loss of $778,253 on Emerging Med. It was sold during January 2014 and we did not receive any proceeds from the sale.
This investment had been valued at $0 at December 31, 2013. We also recognized a realized loss of $472,664 on an adjustment to the Liazon Corporation escrow receivable and a gain of $4,668 on an adjustment to the Ultra-Scan escrow receivable.

During 2013 we sold our investment in Liazon Corporation and recognized a realized gain of $6,256,482. In addition, during the
year ended December 31, 2013, we recognized a net realized gain of $1,164,545 on the sale of 252,200 shares of Synacor, Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol SYNC. At December 31, 2013, we
owned 428,643 shares of Synacor.

We also recognized a realized gain of $669,939 on the sale of our shares in Ultra-Scan to a
strategic acquirer during the year ended December 31, 2013.

We realized a loss of $1,063,698 on our investment in
Mid-America Brick during the year ended December 31, 2013 when the company announced in February 2013 that it had filed for bankruptcy. Due to the subordinated nature of our investment security no recovery was received.

Net Increase in Unrealized Appreciation of Investments

Comparison of the years ended December 31, 2015 and 2014



|                                                                          |  |                  |           |  |                  |    |         |          |  |   |           | 
|------------------------------------------------------------------------- |  | ---------------- | --------- |  | ---------------- | -- | ------- | -------- |  | - | --------- | 
|                                                                          |  | December 31,2015 |           |  | December 31,2014 |    |         | Increase | 
|Change in net unrealized appreciation before income tax expense (benefit) |  | $                | 1,329,759 |  |                  | ($ | 361,844 | )        |  | $ | 1,691,603 | 



23



---

##### Table of Contents

The change in unrealized appreciation before income taxes for the year ended
December 31, 2015 was comprised of the following:



|                                                                                                                       |  |                             |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | -
|                                                                                                                       |  | ValuationChange 
during2015 |          
|Gemcor II, LLC (Gemcor)                                                                                                |  | $                           | 4,100,000 |  
|SocialFlow, Inc. (SocialFlow)                                                                                          |  |                             | 321,300   |  
|CrowdBouncer, Inc.(Crowdbouncer) reclass to a realized loss                                                            |  |                             | 300,000   |  
|Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)                                                         |  |                             | 92,592    |  
|OnCore Golf Technology, Inc. (Oncore)                                                                                  |  |                             | (187,500  | )
|GiveGab, Inc. (Givegab)                                                                                                |  |                             | (191,907  | )
|Synacor, Inc. (Synacor) reclass to a realized gain                                                                     |  |                             | (220,320  | )
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                                         |  |                             | (247,625  | )
|KnowledgeVision Systems, Inc. (Knowledge Vision)                                                                       |  |                             | (250,000  | )
|Teleservices Solutions Holdings, LLC (Teleservices)                                                                    |  |                             | (250,000  | )
|Somerset Gas Transmission Company, LLC (Somerset)                                                                      |  |                             | (286,748  | )
|SciAps, Inc. (Sciaps)                                                                                                  |  |                             | (500,000  | )
|Intrinsiq Materials, Inc. (Intrinsiq)                                                                                  |  |                             | (600,002  | )
|First Wave Products Group, LLC (First Wave)                                                                            |  |                             | (750,031  | )
|                                                                                                                       |  |                             |           |  
|Total change in net unrealized appreciation of investments before income taxes during the year ended December 31,
2015 |  | $                           | 1,329,759 |  
|                                                                                                                       |  |                             |           |  

On December 29, 2015 we entered into an asset purchase agreement under which we agreed to sell
Gemcor. The required percentage of Gemcor shareholders ratified and approved the sale in January 2016. The transaction is anticipated to close in the first quarter of 2016, and remains subject to customary approvals and closing conditions. Based on
our ownership of Gemcor, we expect to receive gross cash proceeds of approximately $14 million upon completion of the transaction. The final aggregate purchase price payable by the buyer remains subject to post-closing working capital
adjustments. Additionally, we will incur the related profit sharing expense in the first quarter of 2016. We have valued our investment in Gemcor at December 31, 2015 based on an EBITDA multiple which approximates our anticipated sales
proceeds.

In accordance with our valuation policy, we increased the value of our holdings in Athenex and Social Flow based on
significant equity financings for each made during 2015 by sophisticated new non-strategic outside investors at a higher valuation for each than their prior financing round valuation.

The Crowdbouncer investment was written off after the company ceased doing business during 2015.

We sold our remaining shares of Synacor during the year ended December 31, 2015.

The Oncore, Givegab, Mercantile and Knowledge Vision investments were revalued after we reviewed each of the portfolio companies
commercial progress against their business plans and their past financial performance. These reviews indicated a deterioration to their respective businesses had occurred. If the factors which led to these reductions in valuations are overcome, the
valuations may be restored.

The Somerset investment was revalued during 2015 after a review of the companys financial
performance and the overall weakness in the oil and gas sector.

The First Wave, Intrinsiq, and Teleservices investments were
revalued during 2015 after we reviewed each of the portfolio companies progress toward commercialization and broad based acceptance of their respective business technologies and services in their respective markets. We also considered in our
review the past financial performance of the companies, their forecasted cash needs, and their fundraising plans for 2016 in determining that reductions in values were appropriate. The three portfolio companies remain in operation, and are
developing new business strategies to achieve success in 2016. If the factors which led to the reductions in valuations are overcome, the valuations may be restored.



24



---

##### Table of Contents

The valuation of Sciaps was decreased during the year ended December 31, 2015 to
revalue our equity holdings based upon liquidation preferences of our securities and on the most recent equity round of financing.

The change in unrealized appreciation for the year ended December 31, 2014 was comprised of the following:



|                                                                                                        |  |                             |          |  
|------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | -
|                                                                                                        |  | ValuationChange 
during2014 |         
|EmergingMed.com, Inc. (Emerging Med) reclass to a realized loss                                         |  | $                           | 778,253  |  
|Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)                                          |  |                             | 111,343  |  
|NDT Acquisitions, LLC (NDT)                                                                             |  |                             | 5,336    |  
|Synacor, Inc. (Synacor)                                                                                 |  |                             | (208,503 | )
|CrowdBouncer, Inc.(Crowdbouncer)                                                                        |  |                             | (300,000 | )
|Knoa Software, Inc. (Knoa)                                                                              |  |                             | (356,900 | )
|Mezmeriz, Inc. (Mezmeriz)                                                                               |  |                             | (391,373 | )
|                                                                                                        |  |                             |          |  
|Total change in net unrealized appreciation before income taxes during the year ended December 31,
2014 |  | ($                          | 361,844  | )
|                                                                                                        |  |                             |          |  

The Emerging Med investment was written off during the year ended December 31, 2014, after the
company was sold and we did not receive proceeds.

The Athenex shares were received as part of the sale of our investment in
Quadpharma. The proceeds from this sale included cash and Athenex stock. The value of the stock was based on a 2014 equity financing by Athenex.

The NDT investment value was adjusted for royalties received.

Synacor, as a
publicly traded stock, is marked to market at the end of each quarter. We valued our 301,582 shares of Synacor at a three-day average bid price of $2.01 as of December 31, 2014.

The Crowdbouncer and Mezmeriz investments were revalued during 2014 after we reviewed the portfolio companies and their financials and
determined that both of the businesses had deteriorated since the time of our original funding. Both portfolio companies remained in operation at December 31, 2014 and were developing new business strategies.

The valuation of Knoa was decreased during the year ended December 31, 2014 to value our equity holdings at the most recent insider
round of financing.

Comparison of the years ended December 31, 2014 and 2013



|                                                          |  |                  |         |   |                  |    |           |          |  |   |           | 
|--------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | -- | --------- | -------- |  | - | --------- | 
|                                                          |  | December 31,2014 |         |   | December 31,2013 |    |           | Increase | 
|Change in net unrealized appreciation before income taxes |  | ($               | 361,844 | ) |                  | ($ | 2,833,984 | )        |  | $ | 2,472,140 | 



25



---

##### Table of Contents

The change in unrealized appreciation for the year ended December 31, 2014 was
comprised of the following:



|                                                                                                        |  |                             |          |  
|------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | -
|                                                                                                        |  | ValuationChange 
during2014 |         
|EmergingMed.com, Inc. (Emerging Med) reclass to a realized loss                                         |  | $                           | 778,253  |  
|Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)                                          |  |                             | 111,343  |  
|NDT Acquisitions, LLC (NDT)                                                                             |  |                             | 5,336    |  
|Synacor, Inc. (Synacor)                                                                                 |  |                             | (208,503 | )
|CrowdBouncer, Inc.(Crowdbouncer)                                                                        |  |                             | (300,000 | )
|Knoa Software, Inc. (Knoa)                                                                              |  |                             | (356,900 | )
|Mezmeriz, Inc. (Mezmeriz)                                                                               |  |                             | (391,373 | )
|                                                                                                        |  |                             |          |  
|Total change in net unrealized appreciation before income taxes during the year ended December 31,
2014 |  | ($                          | 361,844  | )
|                                                                                                        |  |                             |          |  

The Emerging Med investment was written off during the year ended December 31, 2014, after the
company was sold and we did not receive proceeds.

The Athenex shares were received as part of the sale of our investment in
Quadpharma. The proceeds from this sale included cash and Athenex stock. The value of the stock was based on a 2014 equity financing by Athenex.

The NDT investment value was adjusted for royalties received.

Synacor, as a
publicly traded stock, is marked to market at the end of each quarter. We valued our 301,582 shares of Synacor at a three-day average bid price of $2.01 as of December 31, 2014.

The Crowdbouncer and Mezmeriz investments were revalued during 2014 after we reviewed the portfolio companies and their financials and
determined that both of the businesses had deteriorated since the time of our original funding. Both portfolio companies remained in operation at December 31, 2014 and were developing new business strategies.

The valuation of Knoa was decreased during the year ended December 31, 2014 to value our equity holdings at the most recent insider
round of financing.

The change in unrealized appreciation for the year ended December 31, 2013 was comprised of the
following items:



|                                                                                                        |  |                            |            |  
|------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | -
|                                                                                                        |  | ValuationChange during2013 |           
|Mid America Brick & Structural Clay Products, LLC (Mid America Brick) reclass to a realized loss        |  | $                          | 1,063,698  |  
|Carolina Skiff LLC (Carolina Skiff)                                                                     |  |                            | 350,000    |  
|NDT                                                                                                     |  |                            | 19,178     |  
|Emerging Med                                                                                            |  |                            | (440,707   | )
|Ultra-Scan Corporation (Ultra-Scan) reclass to realized gain                                            |  |                            | (561,836   | )
|Liazon Corporation (Liazon) reclass to realized gain                                                    |  |                            | (975,133   | )
|Synacor                                                                                                 |  |                            | (2,289,184 | )
|                                                                                                        |  |                            |            |  
|Total change in net unrealized appreciation before income taxes during the year ended December 31,
2013 |  | ($                         | 2,833,984  | )
|                                                                                                        |  |                            |            |  



26



---

##### Table of Contents

The Mid America Brick investment was written off after the company filed for bankruptcy
protection in the first quarter of 2013.

Carolina Skiffs value was adjusted based on a financial analysis of the
portfolio company indicating continued improved performance.

The NDT investment value was adjusted for royalties received.

The Emerging Med investment was written down based on a financial analysis of the company and to reflect anticipated
liquidation proceeds.

During the year ended December 31, 2013, we recognized a realized gain in our investment in Liazon
Corporation of $6,256,482 and a realized gain of $669,939 on the sale of our shares in Ultra-Scan.

Synacor, as a publicly
traded stock, is marked to market at the end of each quarter. We valued our 428,643 shares of Synacor at a three-day average bid price of $2.46 at December 31, 2013.

All of these value adjustments resulted from a review by management using the guidance set forth by ASC 820 and our established valuation policy.

Net Increase in Net Assets from Operations

We account for our operations under GAAP for investment companies. The principal measure of our financial performance is net increase in net assets from operations on our consolidated
statements of operations. During the year ended December 31, 2015, the net increase in net assets from operations was $1,500,219 as compared with net increases of $4,541,481 in 2014 and $2,873,357 in 2013.

Liquidity and Capital Resources

Our principal objective is to achieve capital appreciation. Therefore, a significant portion of the investment portfolio is structured to maximize the potential for capital appreciation and may provide
little or no current yield in the form of dividends or interest payments.

As of December 31, 2015, our total liquidity
was $5,844,795 in cash.

Net cash used by operating activities has averaged approximately $1,413,300 over the last three years.
The cash flow may fluctuate based on dividend income, realized gains and the associated income taxes paid.

Our net cash flow
(used) provided by investing activities was ($5,007,343), $4,100,675 and $4,607,278 for fiscal years 2015, 2014 and 2013, respectively. We will generally use cash in investing activities as we build our portfolio utilizing our available cash and
proceeds from liquidations of portfolio investments. We anticipate that we will continue to exit investments. However, the timing of liquidation events within the portfolio is difficult to project with any certainty. As of December 31, 2015, we
did not have any outstanding commitments to borrow funds from the SBA. Starting in 2022 (See Footnote 5 in the Notes to the Consolidated Financial Statements) we will begin repaying our SBA debt which will require us to determine 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 December 31, 2015 and December 31, 2014:



|                           |  |          |           |  |          |   |           | 
|-------------------------- |  | -------- | --------- |  | -------- | - | --------- | 
|                           |  | 12/31/15 |           |  | 12/31/14 |  
|Outstanding SBA leverage   |  | $        | 8,000,000 |  |          | $ | 8,000,000 | 
|Outstanding SBA commitment |  |          |          |  |          |   |          | 

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, 2015. This table does not include any escrow receivable amounts. These payments represent scheduled principal and interest payments that are due



27



---

##### Table of Contents

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.



|                                                 |  |                           |           |  |      |   |           |      |  |   |         |  |  |                |         |  |  |   |        | 
|------------------------------------------------ |  | ------------------------- | --------- |  | ---- | - | --------- | ---- |  | - | ------- |  |  | -------------- | ------- |  |  | - | ------ | 
|                                                 |  | Cash Receipts due by year |          
|                                                 |  | 2016                      |           |  | 2017 |   |           | 2018 |  |   | 2019    |  |  | 2020 andbeyond |        
|Scheduled cash receipts from portfolio companies |  | $                         | 1,032,000 |  |      | $ | 4,565,000 |      |  | $ | 406,000 |  |  | $              | 373,000 |  |  | $ | 80,000 | 

The preceding table only includes debt instruments and does not include any equity investments which may
provide additional proceeds upon exit of the investment.

Subsequent to year end, we announced the pending sale of our largest
portfolio company, Gemcor II, LLC. We expect to receive gross cash proceeds of approximately $14 million upon completion of the sale, anticipated in the first quarter of 2016. The proceeds will be available for investment, as well as for general
corporate purposes.

We believe that the cash at December 31, 2015, anticipated proceeds from the Gemcor sale, and the
scheduled interest payments on our portfolio investments, will be sufficient to meet our cash needs throughout 2016. We are also evaluating potential exits from portfolio companies to increase the amount of liquidity available for new investments,
operating activities and future SBA debenture obligations.

Contractual Obligations

The following table shows our specified contractual obligations at December 31, 2015. We do not have any capital lease obligations or
other long-term liabilities reflected on our statement of financial position.



|                                                   |  |                        |            |  |                  |   |         |           |  |   |           |  |  |                 |         |  |  |   |           | 
|-------------------------------------------------- |  | ---------------------- | ---------- |  | ---------------- | - | ------- | --------- |  | - | --------- |  |  | --------------- | ------- |  |  | - | --------- | 
|                                                   |  | Payments due by period |           
|                                                   |  | Total                  |            |  | Less than1 
year |   |         | 1-3 years |  |   | 3-5 years |  |  | More than5 
yrs |        
|SBA debentures                                     |  | $                      | 8,000,000  |  |                  | $ | 0       |           |  | $ | 0         |  |  | $               | 0       |  |  | $ | 8,000,000 | 
|SBA interest expense                               |  | $                      | 2,230,000  |  |                  | $ | 284,000 |           |  | $ | 846,000   |  |  | $               | 564,000 |  |  | $ | 536,000   | 
|Operating lease obligations (Rent of office space) |  | $                      | 95,700     |  |                  | $ | 18,540  |           |  | $ | 57,420    |  |  | $               | 19,740  |  |  | $ | 0         | 
|                                                   |  |                        |            |  |                  |   |         |           |  |   |           |  |  |                 |         |  |  |   |           | 
|Total                                              |  | $                      | 10,325,700 |  |                  | $ | 302,540 |           |  | $ | 903,420   |  |  | $               | 583,740 |  |  | $ | 8,536,000 | 
|                                                   |  |                        |            |  |                  |   |         |           |  |   |           |  |  |                 |         |  |  |   |           | 

Item 7A.Quantitative and Qualitative Disclosures
about Market Risk

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

At times, a portion of our portfolio may
include marketable securities traded in the over-the-counter market. 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, 2015, we did not have any off-balance sheet
arrangements or hedging or similar derivative financial instrument investments.



28



---

##### Table of Contents

Item 8.Financial Statements and
Supplementary Data

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



|                                                                                                                             |  |  |    | 
|---------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Statements of Financial Position as of December 31, 2015 and 2014                                                            |  |  | 30 | 
|Statements of Operations for the three years in the period ended December 31, 2015                                           |  |  | 31 | 
|Statements of Changes in Net Assets for the three years in the period ended December 31,
2015                                |  |  | 32 | 
|Statements of Cash Flows for the three years in the period ended December 31, 2015                                           |  |  | 33 | 
|Schedule of Portfolio Investments as of December 31, 2015                                                                    |  |  | 34 | 
|Schedule of Portfolio Investments as of December 31, 2014                                                                    |  |  | 42 | 
|Financial Highlights Schedule for the five years in the period ended December 31,
2015                                       |  |  | 49 | 
|Notes to the Consolidated Financial Statements                                                                               |  |  | 50 | 
|Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Loss for the year ended December 31,
 2015 |  |  | 66 | 
|Report of Independent Registered Public Accounting Firm                                                                      |  |  | 67 | 



29



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31,



|                                                                                                                                           |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                           |  | 2015 |            |   | 2014 |  
|ASSETS                                                                                                                                     |  |      |            |   |      |   |            |  
|Investments at fair value:                                                                                                                 |  |      |            |   |      |   |            |  
|Control investments (cost of $1,141,472 and $1,347,300, respectively)                                                                      |  | $    | 13,916,472 |   |      | $ | 10,022,300 |  
|Affiliate investments (cost of $17,663,217 and $15,188,935, respectively)                                                                  |  |      | 14,662,219 |   |      |   | 14,617,378 |  
|Non-affiliate investments (cost of $8,606,053 and $5,677,241, respectively)                                                                |  |      | 8,253,709  |   |      |   | 5,665,698  |  
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Total investments, at fair value (cost of $27,410,742 and $22,213,476, respectively)                                                       |  |      | 36,832,400 |   |      |   | 30,305,376 |  
|Cash                                                                                                                                       |  |      | 5,844,795  |   |      |   | 13,230,717 |  
|Interest receivable (net of allowance: 2015: $122,000 and 2014  $128,311)                                                                 |  |      | 215,224    |   |      |   | 165,094    |  
|Prepaid income taxes                                                                                                                       |  |      | 65,228     |   |      |   |           |  
|Other assets                                                                                                                               |  |      | 1,804,040  |   |      |   | 1,824,800  |  
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Total assets                                                                                                                               |  | $    | 44,761,687 |   |      | $ | 45,525,987 |  
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Liabilities:                                                                                                                               | 
|Debentures guaranteed by the SBA                                                                                                           |  | $    | 8,000,000  |   |      | $ | 8,000,000  |  
|Income tax payable                                                                                                                         |  |      |           |   |      |   | 2,065,795  |  
|Deferred tax liability                                                                                                                     |  |      | 2,361,186  |   |      |   | 1,838,351  |  
|Profit sharing and bonus payable                                                                                                           |  |      | 282,000    |   |      |   | 953,490    |  
|Accounts payable and accrued expenses                                                                                                      |  |      | 238,911    |   |      |   | 290,646    |  
|Deferred revenue                                                                                                                           |  |      | 25,930     |   |      |   | 24,264     |  
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Total liabilities                                                                                                                          |  |      | 10,908,027 |   |      |   | 13,172,546 |  
|Commitments and contingencies (See Note 9)                                                                                                 |  |      |            |   |      |   |            |  
|Stockholders equity (net assets):                                                                                                         |  |      |            |   |      |   |            |  
|Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,328,538 as of 12/31/15 and
12/31/14 |  |      | 686,304    |   |      |   | 686,304    |  
|Capital in excess of par value                                                                                                             |  |      | 10,581,789 |   |      |   | 10,581,789 |  
|Accumulated net investment (loss)                                                                                                          |  |      | (24,580    | ) |      |   | (867,482   | )
|Undistributed net realized gain on investments                                                                                             |  |      | 18,262,401 |   |      |   | 18,290,374 |  
|Net unrealized appreciation on investments                                                                                                 |  |      | 5,795,237  |   |      |   | 5,109,947  |  
|Treasury stock, at cost; 534,496 shares as of 12/31/15 and 12/31/14                                                                        |  |      | (1,447,491 | ) |      |   | (1,447,491 | )
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Total stockholders equity (net assets) (per share 2015:$5.35, 2014: $5.11)                                                                |  |      | 33,853,660 |   |      |   | 32,353,441 |  
|                                                                                                                                           |  |      |            |   |      |   |            |  
|Total liabilities and stockholders equity                                                                                                 |  | $    | 44,761,687 |   |      | $ | 45,525,987 |  
|                                                                                                                                           |  |      |            |   |      |   |            |  

See accompanying notes



30



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Years Ended December 31, 2015, 2014 and 2013



|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                                                                                        |  | 2015 |            |   | 2014 |   |           | 2013 | 
|Investment income:                                                                      |  |      |            |   |      |   |           |      |  |   |            |  
|Interest from portfolio companies:                                                      |  |      |            |   |      |   |           |      |  |   |            |  
|Control investments                                                                     |  | $    | 77,077     |   |      | $ | 112,218   |      |  | $ | 154,695    |  
|Affiliate investments                                                                   |  |      | 388,135    |   |      |   | 481,649   |      |  |   | 491,339    |  
|Non-Control/Non-Affiliate investments                                                   |  |      | 225,897    |   |      |   | 195,681   |      |  |   | 147,037    |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total interest from portfolio companies                                                 |  |      | 691,109    |   |      |   | 789,548   |      |  |   | 793,071    |  
|Interest from other investments:                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Non-Control/Non-Affiliate investments                                                   |  |      | 22,048     |   |      |   | 14,288    |      |  |   | 10,932     |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total interest from other investments                                                   |  |      | 22,048     |   |      |   | 14,288    |      |  |   | 10,932     |  
|Dividend and other investment income:                                                   |  |      |            |   |      |   |           |      |  |   |            |  
|Control investments                                                                     |  |      | 1,735,934  |   |      |   | 1,549,185 |      |  |   | 1,482,202  |  
|Affiliate investments                                                                   |  |      | 345,913    |   |      |   | 198,723   |      |  |   | 124,761    |  
|Non-Control/Non-Affiliate investments                                                   |  |      |           |   |      |   | 2,531     |      |  |   | 16,670     |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total dividend and other investment income                                              |  |      | 2,081,847  |   |      |   | 1,750,439 |      |  |   | 1,623,633  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Fee income:                                                                             |  |      |            |   |      |   |           |      |  |   |            |  
|Control investments                                                                     |  |      | 8,000      |   |      |   | 12,000    |      |  |   | 14,000     |  
|Affiliate investments                                                                   |  |      | 4,666      |   |      |   | 8,866     |      |  |   | 4,400      |  
|Non-Control/Non-Affiliate investments                                                   |  |      | 16,667     |   |      |   | 9,334     |      |  |   | 5,000      |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total fee income                                                                        |  |      | 29,333     |   |      |   | 30,200    |      |  |   | 23,400     |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total investment income                                                                 |  |      | 2,824,337  |   |      |   | 2,584,475 |      |  |   | 2,451,036  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Operating expenses:                                                                     |  |      |            |   |      |   |           |      |  |   |            |  
|Salaries                                                                                |  |      | 598,220    |   |      |   | 590,675   |      |  |   | 541,500    |  
|Bonus and profit sharing                                                                |  |      | 122,500    |   |      |   | 936,344   |      |  |   | 967,244    |  
|Employee benefits                                                                       |  |      | 117,937    |   |      |   | 169,808   |      |  |   | 233,967    |  
|Directors fees                                                                         |  |      | 129,000    |   |      |   | 112,500   |      |  |   | 101,250    |  
|Professional fees                                                                       |  |      | 202,194    |   |      |   | 164,740   |      |  |   | 126,612    |  
|Shareholders and office operating                                                       |  |      | 222,431    |   |      |   | 133,505   |      |  |   | 135,483    |  
|Insurance                                                                               |  |      | 32,086     |   |      |   | 35,709    |      |  |   | 34,304     |  
|Corporate development                                                                   |  |      | 62,553     |   |      |   | 64,490    |      |  |   | 80,338     |  
|Other operating                                                                         |  |      | 23,330     |   |      |   | 19,116    |      |  |   | 14,977     |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|                                                                                        |  |      | 1,510,251  |   |      |   | 2,226,887 |      |  |   | 2,235,675  |  
|Interest on SBA obligations                                                             |  |      | 307,028    |   |      |   | 266,099   |      |  |   | 188,231    |  
|Bad debt expense (recovery)                                                             |  |      |           |   |      |   | 6,311     |      |  |   | (64,654    | )
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Total expenses                                                                          |  |      | 1,817,279  |   |      |   | 2,499,297 |      |  |   | 2,359,252  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Investment gain before income taxes                                                     |  |      | 1,007,058  |   |      |   | 85,178    |      |  |   | 91,784     |  
|Income tax expense (benefit)                                                            |  |      | 164,156    |   |      |   | 63,343    |      |  |   | (62,694    | )
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net investment gain                                                                     |  |      | 842,902    |   |      |   | 21,835    |      |  |   | 154,478    |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net realized (loss) gain on sales and dispositions of investments:                      |  |      |            |   |      |   |           |      |  |   |            |  
|Affiliate investments                                                                   |  |      | (300,000   | ) |      |   | (617,619  | )    |  |   | (1,063,698 | )
|Non-Control/Non-Affiliate investments                                                   |  |      | 257,531    |   |      |   | 7,855,556 |      |  |   | 8,097,878  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net realized (loss) gain on sales and dispositions, before income tax (benefit) expense |  |      | (42,469    | ) |      |   | 7,237,937 |      |  |   | 7,034,180  |  
|Income tax (benefit) expense                                                            |  |      | (14,496    | ) |      |   | 2,470,453 |      |  |   | 2,659,826  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net realized (loss) gain on sales and disposition of investments                        |  |      | (27,973    | ) |      |   | 4,767,484 |      |  |   | 4,374,354  |  
|Net increase (decrease) in unrealized appreciation on investments:                      |  |      |            |   |      |   |           |      |  |   |            |  
|Control investments                                                                     |  |      | 4,100,000  |   |      |   | 5,336     |      |  |   | 19,178     |  
|Affiliate investments                                                                   |  |      | (2,429,440 | ) |      |   | (270,020  | )    |  |   | 972,991    |  
|Non-Control/Non-Affiliate investments                                                   |  |      | (340,801   | ) |      |   | (97,160   | )    |  |   | (3,826,153 | )
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Change in unrealized appreciation before income tax expense (benefit)                   |  |      | 1,329,759  |   |      |   | (361,844  | )    |  |   | (2,833,984 | )
|Deferred income tax expense (benefit)                                                   |  |      | 644,469    |   |      |   | (114,006  | )    |  |   | (1,178,509 | )
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net increase (decrease) in unrealized appreciation on investments                       |  |      | 685,290    |   |      |   | (247,838  | )    |  |   | (1,655,475 | )
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net realized and unrealized gain on investments                                         |  |      | 657,317    |   |      |   | 4,519,646 |      |  |   | 2,718,879  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Net increase in net assets from operations                                              |  | $    | 1,500,219  |   |      | $ | 4,541,481 |      |  | $ | 2,873,357  |  
|                                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Weighted average shares outstanding                                                     |  |      | 6,328,538  |   |      |   | 6,391,175 |      |  |   | 6,513,385  |  
|Basic and diluted net increase in net assets from operations per share                  |  | $    | 0.24       |   |      | $ | 0.71      |      |  | $ | 0.44       |  

See accompanying notes



31



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

For The Years Ended December 31, 2015, 2014 and 2013



|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  
|----------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -- | ---------- | ---- |  | -- | ---------- | -
|                                                                  |  | 2015 |            |   | 2014 |    |            | 2013 | 
|Net assets at beginning of period                                 |  | $    | 32,353,441 |   |      | $  | 28,069,332 |      |  | $  | 25,782,300 |  
|Net investment gain                                               |  |      | 842,902    |   |      |    | 21,835     |      |  |    | 154,478    |  
|Net realized (loss) gain on sales and dispositions of investments |  |      | (27,973    | ) |      |    | 4,767,484  |      |  |    | 4,374,354  |  
|Net increase (decrease) in unrealized appreciation on investments |  |      | 685,290    |   |      |    | (247,838   | )    |  |    | (1,655,475 | )
|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  
|Net increase in net assets from operations                        |  |      | 1,500,219  |   |      |    | 4,541,481  |      |  |    | 2,873,357  |  
|Purchase of treasury stock                                        |  |      |           |   |      |    | (257,372   | )    |  |    | (586,325   | )
|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  
|Total increase in net assets                                      |  |      | 1,500,219  |   |      |    | 4,284,109  |      |  |    | 2,287,032  |  
|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  
|Net assets at end of period                                       |  | $    | 33,853,660 |   |      | $  | 32,353,441 |      |  | $  | 28,069,332 |  
|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  
|Accumulated net investment (loss)                                 |  | ($   | 24,580     | ) |      | ($ | 867,482    | )    |  | ($ | 889,317    | )
|                                                                  |  |      |            |   |      |    |            |      |  |    |            |  

See accompanying notes.



32



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 2015, 2014 and 2013



|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                |  | 2015 |            |   | 2014 |   |            | 2013 | 
|Cash flows from operating activities:                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets from operations                                                      |  | $    | 1,500,219  |   |      | $ | 4,541,481  |      |  | $ | 2,873,357  |  
|Adjustments to reconcile net increase in net assets to net cash (used in) operating activities: |  |      |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                                                   |  |      | 33,051     |   |      |   | 28,175     |      |  |   | 38,758     |  
|Original issue discount accretion                                                               |  |      | (17,339    | ) |      |   | (15,492    | )    |  |   | (15,492    | )
|Change in interest receivable allowance                                                         |  |      | (6,311     | ) |      |   | 6,311      |      |  |   | (74,795    | )
|(Increase) decrease in unrealized appreciation on investments                                   |  |      | (1,329,759 | ) |      |   | 361,844    |      |  |   | 2,833,984  |  
|Deferred tax expense (benefit)                                                                  |  |      | 522,835    |   |      |   | (368,457   | )    |  |   | (739,806   | )
|Net realized loss (gain) on portfolio investments                                               |  |      | 42,469     |   |      |   | (7,237,937 | )    |  |   | (7,034,180 | )
|Non-cash conversion of debenture interest                                                       |  |      | (212,426   | ) |      |   | (211,127   | )    |  |   | (310,322   | )
|Changes in operating assets and liabilities:                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|(Increase) decrease in interest receivable                                                      |  |      | (43,819    | ) |      |   | (113,312   | )    |  |   | 49,727     |  
|(Increase) decrease in other assets                                                             |  |      | (14,917    | ) |      |   | 795,404    |      |  |   | 19,882     |  
|Increase in prepaid income taxes                                                                |  |      | (65,228    | ) |      |   |           |      |  |   |           |  
|(Decrease) increase in income taxes payable                                                     |  |      | (2,065,795 | ) |      |   | 842,368    |      |  |   | 1,195,732  |  
|(Decrease) increase in profit sharing and bonus payable                                         |  |      | (671,490   | ) |      |   | 66,246     |      |  |   | 537,244    |  
|(Decrease) increase in accounts payable and accrued liabilities                                 |  |      | (51,735    | ) |      |   | (46,450    | )    |  |   | 125,155    |  
|Increase (decrease) in deferred revenue                                                         |  |      | 1,666      |   |      |   | (2,200     | )    |  |   | (7,400     | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Total adjustments                                                                               |  |      | (3,878,798 | ) |      |   | (5,894,627 | )    |  |   | (3,381,513 | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash (used in) operating activities                                                         |  |      | (2,378,579 | ) |      |   | (1,353,146 | )    |  |   | (508,156   | )
|Cash flows from investing activities:                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Investments originated                                                                          |  |      | (6,969,008 | ) |      |   | (6,091,152 | )    |  |   | (4,866,273 | )
|Proceeds from sale of portfolio investments                                                     |  |      | 648,605    |   |      |   | 9,234,323  |      |  |   | 9,023,539  |  
|Proceeds from loan repayments                                                                   |  |      | 1,315,829  |   |      |   | 968,803    |      |  |   | 457,559    |  
|Capital expenditures                                                                            |  |      | (2,769     | ) |      |   | (11,299    | )    |  |   | (7,547     | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash (used in) provided by investing activities                                             |  |      | (5,007,343 | ) |      |   | 4,100,675  |      |  |   | 4,607,278  |  
|Cash flows from financing activities:                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Repayment of SBA debentures                                                                     |  |      |           |   |      |   |           |      |  |   | (900,000   | )
|Proceeds from SBA debentures                                                                    |  |      |           |   |      |   | 1,000,000  |      |  |   | 3,000,000  |  
|Origination costs to SBA                                                                        |  |      |           |   |      |   | (24,250    | )    |  |   | (72,750    | )
|Purchase of treasury shares                                                                     |  |      |           |   |      |   | (257,372   | )    |  |   | (586,325   | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                                                       |  |      |           |   |      |   | 718,378    |      |  |   | 1,440,925  |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Net (decrease) increase in cash                                                                 |  |      | (7,385,922 | ) |      |   | 3,465,907  |      |  |   | 5,540,047  |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Cash:                                                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Beginning of year                                                                               |  |      | 13,230,717 |   |      |   | 9,764,810  |      |  |   | 4,224,763  |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|End of year                                                                                     |  | $    | 5,844,795  |   |      | $ | 13,230,717 |      |  | $ | 9,764,810  |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  

See accompanying notes



33



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015



|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | ------------------------- |  |  | ------------------- | ---------------------- |  |  |  | --- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                            |  | Type of Investment                                                                                                                                                                                                                                                          |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue           |  |  | Percentof NetAssets |                       
|Non-Control/Non-Affiliate Investments   24.4% of net assets:(j)                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|Athenex, Inc.(e)(g) (Formerly Kinex Pharmaceuticals, Inc.) Buffalo,
NY. Specialty pharmaceutical and drug development. (Health Care)
www.athenex.com                                                                     |  | 46,296 common shares.                                                                                                                                                                                                                                                       |  |                 | 9/8/14   |  |           |  | <1 | %    |  | $ | 143,285                   |  |  | $                   | 347,220                |  |  |  | 1.0 | %
|City Dining Cards, Inc. (Loupe)(e)(g)
Buffalo, NY. Customer loyalty technology company that helps businesses attract and retain customers. (Software)
www.citydiningcards.com                                            |  | 9,525.25 Series B preferred shares.                                                                                                                                                                                                                                         |  |                 | 9/1/15   |  |           |  | 4  | %    |  |   | 500,000                   |  |  |                     | 500,000                |  |  |  | 1.5 | %
|Empire Genomics, LLC(e)(g) Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)
www.empiregenomics.com |  | $600,000 senior secured convertible term note at 10% due April 1, 2017. (i) Interest receivable $92,833.                                                                                                                                                                    |  |                 | 6/13/14  |  |           |  |   |      |  |   | 600,000                   |  |  |                     | 600,000                |  |  |  | 1.8 | %
|GoNoodle, Inc.(g) (Formerly HealthTeacher, Inc.) Nashville, TN.
Student engagement education software providing core aligned
physical activity breaks. (Software)
www.gonoodle.com                                       |  | $1,000,000 secured note at 12% due January 31, 2020, (1% Payment in Kind (PIK)). Warrant for 47,324 Series C Preferred shares.                                                                                                                                              |  |                 | 2/6/15   |  |           |  | <1 | %    |  |   | 1,008,974  25             |  |  |                     | 1,008,974  25          |  |  |  | 3.0 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|                                                                                                                                                                                                                         |  | Total GoNoodle                                                                                                                                                                                                                                                              |  |                 |          |  |           |  |    |      |  |   | 1,008,999                 |  |  |                     | 1,008,999              |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|Mercantile Adjustment Bureau, LLC(g)
Williamsville, NY. Full service accounts receivable management and collections company.
(Contact Center) www.mercantilesolutions.com                                                |  | $1,099,039 subordinated secured note at 13% (3% for the calendar year 2015) due October 30, 2017.
(e)$150,000 subordinated debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests. Option for 1.5% membership interests. (i)Interest
receivable $93,455. |  |                 | 10/22/12 |  |           |  | 4  | %    |  |   | 1,080,694
150,000 
97,625 |  |  |                     | 1,080,694
0 
0         |  |  |  | 3.2 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|                                                                                                                                                                                                                         |  | Total Mercantile                                                                                                                                                                                                                                                            |  |                 |          |  |           |  |    |      |  |   | 1,328,319                 |  |  |                     | 1,080,694              |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|Outmatch(e)(g) (Formerly Chequed Holdings, LLC) Saratoga Springs, NY. Web based predictive
employee selection and reference checking.
(Software) www.outmatch.com                                                        |  | 2,264,995 Class P1 Units.
109,788 Class C1 Units.                                                                                                                                                                                                                           |  |                 | 11/18/10 |  |           |  | 4  | %    |  |   | 2,140,0075,489            |  |  |                     | 2,140,0075,489         |  |  |  | 6.3 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|                                                                                                                                                                                                                         |  | Total Outmatch                                                                                                                                                                                                                                                              |  |                 |          |  |           |  |    |      |  |   | 2,145,496                 |  |  |                     | 2,145,496              |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|SocialFlow, Inc.(e)(g) New York, NY. Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)
www.socialflow.com               |  | 1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares. 717,772 Series C preferred                                                                                                                                                                      |  |                 | 4/5/13   |  |           |  | 4  | %    |  |   | 500,000750,000
500,000    |  |  |                     | 731,431839,648
500,221 |  |  |  | 6.1 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|                                                                                                                                                                                                                         |  | 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                |  |  |  | 1.5 | %
|Other Non-Control/Non-Affiliate Investments:                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|DataView, LLC(Software) (e)                                                                                                                                                                                              |  | Membership Interest                                                                                                                                                                                                                                                         |  |                 |         |  |           |  |   |      |  |   | 310,357                   |  |  |                     |                       |  |  |  | 0.0 | %
|UStec/Wi3 (Manufacturing) (e)                                                                                                                                                                                            |  | Common Stock.                                                                                                                                                                                                                                                               |  |                 |         |  |           |  |   |      |  |   | 100,500                   |  |  |                     |                       |  |  |  | 0.0 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  | $ | 8,606,053                 |  |  | $                   | 8,253,709              |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   |                           |  |  |                     |                        |  |  |  |     |  



34



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | --------- | ----------------------------- |  |  | ------------------- | ----------------------- |  |  |  | --- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                        |                  | Type of Investment                                                                                                                                       |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |           | (d)(f)FairValue               |  |  | Percentof NetAssets |                        
|Affiliate Investments  43.3% of net assets(k)                                                                                                                                                                       |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|BeetNPath, LLC(e)(g) Ithaca, NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com                                |                  | 1,119,024 Series A-2 Preferred Membership Units.                                                                                                         |  |                 | 10/20/14 |  |           |  | 9  | %    |  | $         | 359,000                       |  |  | $                   | 359,000                 |  |  |  | 1.0 | %
|Carolina Skiff LLC(g) Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com                                                                             |                  | 6.0825% Class A common membership interest.                                                                                                              |  |                 | 1/30/04  |  |           |  | 7  | %    |  |           | 15,000                        |  |  |                     | 600,000                 |  |  |  | 1.8 | %
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|First Wave Products Group, LLC(e)(g)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health
Care) www.firstwaveproducts.com |                  | $500,000 senior term notes at 10% due December 31, 2016. $280,000 junior term notes at 10% due December 31, 2016. Warrant for 41,619 capital
securities. |  |                 | 4/19/12  |  |           |  | 7  | %    |  |           | 661,563 316,469  22,000       |  |  |                     | 250,000 0 
0            |  |  |  | 0.7 | %
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |    
|                                                                                                                                                                                                                     | Total First Wave |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  | 1,000,032 |                               |  |  | 250,000             |                         |  |  |  |    
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |    
|Genicon, Inc.(e)(g) Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care) www.geniconendo.com                                                                          |                  | 1,586,902 Series B preferred shares.                                                                                                                     |  |                 | 4/10/15  |  |           |  | 6  | %    |  |           | 1,000,000                     |  |  |                     | 1,000,000               |  |  |  | 3.0 | %
|GiveGab, Inc.(e)(g) Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)
www.givegab.com                                                             |                  | 5,084,329 Series Seed preferred shares.                                                                                                                  |  |                 | 3/13/13  |  |           |  | 9  | %    |  |           | 616,221                       |  |  |                     | 424,314                 |  |  |  | 1.2 | %
|G-TEC Natural Gas Systems(e) Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)
www.gas-tec.com                                    |                  | 17.845% Class A membership interest. 8% cumulative dividend.                                                                                             |  |                 | 8/31/99  |  |           |  | 18 | %    |  |           | 400,000                       |  |  |                     | 100,000                 |  |  |  | 0.3 | %
|Intrinsiq Materials, Inc.(e)(g) Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)                                |                  | 599,055 Series 2 preferred shares. $95,000 convertible promissory note at 8% due March 31, 2016.                                                         |  |                 | 9/19/13  |  |           |  | 7  | %    |  |           | 600,00295,000                 |  |  |                     | 095,000                 |  |  |  | 0.3 | %
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|www.intrinsiqmaterials.com                                                                                                                                                                                           |                  | Total Intrinsiq                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           | 695,002                       |  |  |                     | 95,000                  |  |  |  |     |  
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|Knoa Software, Inc.(e)(g) New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise
applications. (Software) www.knoa.com                                                    |                  | 973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares.                                                                    |  |                 | 11/20/12 |  |           |  | 7  | %    |  |           | 750,000 479,155               |  |  |                     | 381,503 490,752         |  |  |  | 2.6 | %
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           | 1,229,155                     |  |  |                     | 872,255                 |  |  |  |     |  
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|KnowledgeVision Systems, Inc.(e)(g)
Lincoln, MA. Online presentation and training software. (Software)
www.knowledgevision.com                                                                                       |                  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares. 129,033 Series A-3 preferred shares. Warrant for 46,743 Series A-3 shares.     |  |                 | 11/13/13 |  |           |  | 7  | %    |  |           | 250,000300,000
165,001
35,000 |  |  |                     | 0300,000
165,001
35,000 |  |  |  | 1.5 | %
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                     |                  | Total KnowledgeVision                                                                                                                                    |  |                 |          |  |           |  |    |      |  |           | 750,001                       |  |  |                     | 500,001                 |  |  |  |     |  
|                                                                                                                                                                                                                     |                  |                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |           |                               |  |  |                     |                         |  |  |  |     |  
|Mezmeriz, Inc.(e)(g) Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)
www.mezmeriz.com          |                  | 1,554,565 Series Seed preferred shares.                                                                                                                  |  |                 | 1/9/08   |  |           |  | 15 | %    |  |           | 742,850                       |  |  |                     | 351,477                 |  |  |  | 1.0 | %



35



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | -------------------------------- |  |  | ------------------- | ------------------------------ |  |  |  | --- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                      |  | Type of Investment                                                                                                                                                                                 |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue                  |  |  | Percentof NetAssets |                               
|Microcision LLC(g) Philadelphia, PA. Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing)
www.microcision.com                                           |  | $1,500,000 subordinated promissory note at 11% due January 31, 2017. 15% Class A common membership interest.                                                                                       |  |                 | 9/24/09  |  |           |  | 15 | %    |  |   | 1,891,964                       |  |  |                     | 1,891,964                     |  |  |  | 5.6 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|                                                                                                                                                                                                   |  | Total Microcision                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   | 1,891,964                        |  |  |                     | 1,891,964                      |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|New Monarch Machine Tool, Inc.(g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com                                                 |  | 22.84 common shares.                                                                                                                                                                               |  |                 | 9/24/03  |  |           |  | 15 | %    |  |   | 22,841                           |  |  |                     | 22,841                         |  |  |  | 0.1 | %
|OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product)
www.oncoregolf.com                                                              |  | 150,000 Series AA preferred shares. $150,000 subordinated convertible promissory note at 6% due January 24, 2017.                                                                                  |  |                 | 12/31/14 |  |           |  | 7  | %    |  |   | 375,000  150,000                 |  |  |                     | 187,500  150,000               |  |  |  | 1.0 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|                                                                                                                                                                                                   |  | Total OnCore                                                                                                                                                                                       |  |                 |          |  |           |  |    |      |  |   | 525,000                          |  |  |                     | 337,500                        |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|Rheonix, Inc.(e) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care)
www.rheonix.com                                         |  | 9,676 common shares. (g)1,839,422 Series A preferred shares. (g) 50,593 common shares. (g) 589,420 Series B preferred shares.                                                                      |  |                 | 10/29/09 |  |           |  | 5  | %    |  |   | 2,099,999

702,732             |  |  |                     | 11,0002,165,999
59,000
702,732 |  |  |  | 8.7 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|                                                                                                                                                                                                   |  | Total Rheonix                                                                                                                                                                                      |  |                 |          |  |           |  |    |      |  |   | 2,802,731                        |  |  |                     | 2,938,731                      |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|SciAps, Inc.(e)(g) Woburn, MA. Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing) |  | 187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371 Series B preferred
shares.                                                                 |  |                 | 7/12/13  |  |           |  | 9  | %    |  |   | 1,500,000504,710
250,000         |  |  |                     | 1,000,000504,710
250,000       |  |  |  | 5.2 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|www.sciaps.com                                                                                                                                                                                     |  | Total SciAps                                                                                                                                                                                       |  |                 |          |  |           |  |    |      |  |   | 2,254,710                        |  |  |                     | 1,754,710                      |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|SOMS Technologies, LLC(e)(g) Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com                                       |  | 5,959,490 Series B membership interests.                                                                                                                                                           |  |                 | 12/2/08  |  |           |  | 9  | %    |  |   | 472,632                          |  |  |                     | 528,348                        |  |  |  | 1.5 | %
|Statisfy, Inc.(e)(g) Boston, MA. Mobile marketing platform for engagement, advertising and surveys. (Software)                                                                                     |  | 65,000 Series seed preferred shares. Warrant for 1,950,000 Series seed preferred shares.                                                                                                           |  |                 | 8/18/14  |  |           |  | 10 | %    |  |   | 20,968629,032                    |  |  |                     | 20,968629,032                  |  |  |  | 1.9 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|www.statisfy.co                                                                                                                                                                                    |  | Total Statisfy                                                                                                                                                                                     |  |                 |          |  |           |  |    |      |  |   | 650,000                          |  |  |                     | 650,000                        |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|Teleservices Solutions Holdings, LLC(g)(n)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)                      |  | 250,000 Class B preferred units. 1,000,000 Class C preferred units. 80,000 Class D preferred units. 104,198 Class E preferred units. PIK dividend for Series C and D at 12% and
14%, respectively. |  |                 | 5/30/14  |  |           |  | 6  | %    |  |   | 250,0001,190,680
91,200 
104,198 |  |  |                     | 01,190,680
91,200 
104,198     |  |  |  | 4.1 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|www.ipacesetters.com                                                                                                                                                                               |  | Total Teleservices                                                                                                                                                                                 |  |                 |          |  |           |  |    |      |  |   | 1,636,078                        |  |  |                     | 1,386,078                      |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|Tilson Technology Management, Inc.(g)
Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com               |  | 12 Series B preferred shares.                                                                                                                                                                      |  |                 | 1/20/15  |  |           |  | 8  | %    |  |   | 600,000                          |  |  |                     | 600,000                        |  |  |  | 1.8 | %
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  
|Subtotal Affiliate Investments                                                                                                                                                                     |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  | $ | 17,663,217                       |  |  | $                   | 14,662,219                     |  |  |  |     |  
|                                                                                                                                                                                                   |  |                                                                                                                                                                                                    |  |                 |          |  |           |  |    |      |  |   |                                  |  |  |                     |                                |  |  |  |     |  



36



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | ---------------- |  |  | ------------------- | ------------------- | - |  |  | ---- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                            |  | Type of Investment                                                                            |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue  |  |  | Percentof NetAssets |                    
|Control Investments  41.1% of net assets(l)                                                                                             |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|Advantage 24/7 LLC(e)(g) Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com    |  | 53% Membership interest.                                                                      |  |                 | 12/30/10 |  |           |  | 53 | %    |  | $ | 99,500           |  |  | $                   | 99,500              |   |  |  | 0.3  | %
|Gemcor II, LLC(g)(h)(m) West Seneca, NY. Designs and sells automatic riveting machines used in the assembly of aircraft. (Manufacturing) |  | $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units. |  |                 | 6/28/04  |  |           |  | 31 | %    |  |   | 416,972  625,000 |  |  |                     | 416,972  13,400,000 |   |  |  | 40.8 | %
|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|www.gemcor.com                                                                                                                           |  | Total Gemcor                                                                                  |  |                 |          |  |           |  |    |      |  |   | 1,041,972        |  |  |                     | 13,816,972          |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          | 
|Subtotal Control Investments                                                                                                             |  |                                                                                               |  |                 |          |  |           |  |    |      |  | $ | 1,141,472        |  |  | $                   | 13,916,472          |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          | 
|TOTAL INVESTMENTS  108.8%                                                                                                               |  |                                                                                               |  |                 |          |  |           |  |    |      |  | $ | 27,410,742       |  |  | $                   | 36,832,400          |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          | 
|LIABILITIES IN EXCESS OF OTHER ASSETS  (8.8%)                                                                                           |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     | (2,978,740          | ) |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          | 
|NET ASSETS  100%                                                                                                                        |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  | $                   | 33,853,660          |   |  |  |      |  
|                                                                                                                                         |  |                                                                                               |  |                 |          |  |           |  |    |      |  |   |                  |  |  |                     |                     |   |  |  |      |  

Notes to the Consolidated Schedule of Portfolio Investments



|(a) | At December 31, 2015, 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. Freed Maxick CPAs P.C. has not audited the business descriptions of the portfolio companies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a predecessor company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



|(c) | 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, 2015, 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 month. 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).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|(e) | These investments are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or
dividends including LLC tax-related distributions within the last twelve months, or are not expected to do so going forward.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | As of December 31, 2015, the total cost of investment securities was approximately $27.5 million. Net unrealized appreciation was approximately $9.4 million, which
was comprised of $14.1 million of unrealized appreciation of investment securities and ($4.7) million related to unrealized depreciation of investment securities. At December 31, 2015, 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 ($4.4) million. The net unrealized gain for federal income tax purposes was $5.8 million based on a tax cost of $31.0 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 net of reserves) from investment included as interest receivable on the Corporations Statement 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) | Gemcor II, LLC is an unconsolidated significant subsidiary as defined in SECs Regulation S-X.
|--- | ------------------------------------------------------------------------------------------------



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

Investments in and Advances to Affiliates



|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------------------- |  | ----------------- | - | ---------- | ------------------ |  | -- | -------------------------- | --- |  | ---------------------------------------- | ----------------- |  |  | - | --------------------- | 
|Company                |  | Type of Investment                                                                                                                                |  | December 
31,2014Fair Value |                         |  | GrossAdditions(1) |   |            | GrossReductions(2) |  |    | December 31,2015 FairValue |     |  | Amount 
ofInterest/Dividend/FeeIncome(3) |                  
|                       |  |                                                                                                                                                   |  |                             |                         | 
|Control Investments:   |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|                       |  |                                                                                                                                                   |  |                             |                         | 
|Advantage 24/7 LLC     |  | 53% Membership interest.                                                                                                                          |  | $                           | 99,500                  |  |                   | $ |           |                    |  | $  |                           |     |  | $                                        | 99,500            |  |  | $ |                      | 
|                       |  |                                                                                                                                                   |  |                             |                         | 
|Gemcor II, LLC         |  | $1,000,000 subordinated promissory note at 15%. 31.25 membership units.                                                                           |  |                             | 622,8009,300,000        |  |                   |   | 4,100,000 |                    |  |    | (205,828                  | )   |  |                                          | 416,97213,400,000 |  |  |   | 77,0771,743,934       | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|                       |  | Total Gemcor                                                                                                                                      |  |                             | 9,922,800               |  |                   |   | 4,100,000  |                    |  |    | (205,828                   | )   |  |                                          | 13,816,972        |  |  |   | 1,821,011             | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|                       |  | Total Control Investments                                                                                                                         |  | $                           | 10,022,300              |  |                   | $ | 4,100,000  |                    |  | ($ | 205,828                    | )   |  | $                                        | 13,916,472        |  |  | $ | 1,821,011             | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|Affiliate
Investments: |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|BeetNPath, LLC         |  | 1,119,024 Series A-2 Preferred Membership Units.                                                                                                  |  |                             |                        |  |                   | $ | 359,000    |                    |  |    |                           |     |  | $                                        | 359,000           |  |  |   | 7,250                 | 
|Carolina Skiff LLC     |  | $985,000 Class A preferred membership interest at 9.8%. $250,000 subordinated promissory note at 14%. 6.0825% Class A common membership
interest. |  |                             | 985,000 125,000 600,000 |  |                   |   |         |                    |  |    | (985,000 (125,000         | )
) |  |                                          |   600,000       |  |  |   | 81,782 14,778 116,052 | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|                       |  | Total Carolina Skiff                                                                                                                              |  |                             | 1,710,000               |  |                   |   |           |                    |  |    | (1,110,000                 | )   |  |                                          | 600,000           |  |  |   | 212,612               | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|Chequed.com, Inc.      |  | 408,476 Series A preferred shares. $250,000 convertible promissory note at 8%.                                                                    |  |                             | 1,383,222250,000        |  |                   |   |          |                    |  |    | (1,383,222(250,000         | ))  |  |                                          |                 |  |  |   | 11,507               | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 
|                       |  | Total Chequed                                                                                                                                     |  |                             | 1,633,222               |  |                   |   |           |                    |  |    | (1,633,222                 | )   |  |                                          |                  |  |  |   | 11,507                | 
|                       |  |                                                                                                                                                   |  |                             |                         |  |                   |   |            |                    |  |    |                            |     |  |                                          |                   |  |  |   |                       | 



38



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------------------------- |  | ----------------- |  | -------------------- | ------------------ |  |  | -------------------------- | ---- |  | ---------------------------------------- | -------------------------------- |  |  |  | ------------- | 
|Company                        |  | Type of Investment                                                                                                                                              |  | December 
31,2014Fair Value |                            |  | GrossAdditions(1) |  |                      | GrossReductions(2) |  |  | December 31,2015 FairValue |      |  | Amount 
ofInterest/Dividend/FeeIncome(3) |                                 
|CrowdBouncer, Inc.             |  | 300,000 Series A preferred shares.                                                                                                                              |  |                             |                           |  |                   |  |                     |                    |  |  |                           |      |  |                                          |                                 |  |  |  |              | 
|First Wave Products
Group, LLC |  | $500,000 senior term notes at 10%. $280,000 junior term notes at 10%. Warrant for 41,619 capital securities.                                                    |  |                             | 637,992308,687
22,000      |  |                   |  | 23,5717,782
        |                    |  |  | (411,563(316,469
(22,000   | ))
) |  |                                          | 250,000
                       |  |  |  | 24,5718,447
 | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total First Wave                                                                                                                                                |  |                             | 968,679                    |  |                   |  | 31,353               |                    |  |  | (750,032                   | )    |  |                                          | 250,000                          |  |  |  | 33,018        | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|Genicon, Inc.                  |  | 1,586,902 Series B preferred shares.                                                                                                                            |  |                             |                           |  |                   |  | 1,000,000            |                    |  |  |                           |      |  |                                          | 1,000,000                        |  |  |  |              | 
|GiveGab, Inc.                  |  | 5,084,329 Series Seed preferred shares.                                                                                                                         |  |                             | 403,388                    |  |                   |  | 212,833              |                    |  |  | (191,907                   | )    |  |                                          | 424,314                          |  |  |  |              | 
|G-TEC Natural Gas
Systems      |  | 17.8% Class A membership interest. 8% cumulative dividend.                                                                                                      |  |                             | 100,000                    |  |                   |  |                     |                    |  |  |                           |      |  |                                          | 100,000                          |  |  |  |              | 
|Intrinsiq Materials,
Inc.      |  | 599,055 Series 2 preferred shares. $95,000 convertible promissory note at 8%.                                                                                   |  |                             | 600,002                   |  |                   |  | 95,000              |                    |  |  | (600,002                  | )    |  |                                          | 95,000                          |  |  |  | 2,436        | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Intrinsiq                                                                                                                                                 |  |                             | 600,002                    |  |                   |  | 95,000               |                    |  |  | (600,002                   | )    |  |                                          | 95,000                           |  |  |  | 2,436         | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|Knoa Software, Inc.            |  | 973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares.                                                                           |  |                             | 381,503490,752             |  |                   |  |                    |                    |  |  |                          |      |  |                                          | 381,503490,752                   |  |  |  |             | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  |                                                                                                                                                                 |  |                             | 872,255                    |  |                   |  |                     |                    |  |  |                           |      |  |                                          | 872,255                          |  |  |  |              | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|KnowledgeVision
Systems, Inc.  |  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares. 129,033 Series A-3 preferred shares.
Warrant for 46,743 Series A-3 shares.            |  |                             | 250,000300,000

         |  |                   |  | 
165,001
35,000    |                    |  |  | (250,000

              | )    |  |                                          | 300,000
165,001
35,000          |  |  |  | 

        | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Knowledge Vision                                                                                                                                          |  |                             | 550,000                    |  |                   |  | 200,001              |                    |  |  | (250,000                   | )    |  |                                          | 500,001                          |  |  |  |              | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|Mezmeriz, Inc.                 |  | 1,554,565 Series seed preferred shares. $200,000 convertible notes at 8%.                                                                                       |  |                             | 200,000                   |  |                   |  | 351,477             |                    |  |  | (200,000                  | )    |  |                                          | 351,477                         |  |  |  |             | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Mezmeriz                                                                                                                                                  |  |                             | 200,000                    |  |                   |  | 351,477              |                    |  |  | (200,000                   | )    |  |                                          | 351,477                          |  |  |  |              | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|Microcision LLC                |  | $1,500,000 subordinated promissory note at 11%. 15% Class A common membership interest.                                                                         |  |                             | 1,891,964                 |  |                   |  |                    |                    |  |  |                          |      |  |                                          | 1,891,964                       |  |  |  | 208,116      | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Microcision                                                                                                                                               |  |                             | 1,891,964                  |  |                   |  |                     |                    |  |  |                           |      |  |                                          | 1,891,964                        |  |  |  | 208,116       | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|New Monarch
Machine Tool, Inc. |  | 22.84 common shares.                                                                                                                                            |  |                             | 22,841                     |  |                   |  |                     |                    |  |  |                           |      |  |                                          | 22,841                           |  |  |  | 30,409        | 
|OnCore Golf
Technology, Inc.   |  | 150,000 Series AA preferred shares. $150,000 subordinated convertible promissory note at 6%.                                                                    |  |                             |                          |  |                   |  | 375,000150,000       |                    |  |  | (187,500                  | )    |  |                                          | 187,500150,000                   |  |  |  | 3,945        | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total OnCore                                                                                                                                                    |  |                             |                           |  |                   |  | 525,000              |                    |  |  | (187,500                   | )    |  |                                          | 337,500                          |  |  |  | 3,945         | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|Rheonix, Inc.                  |  | 9,676 common shares. 1,839,422
Series A preferred shares. 50,593 common shares. 589,420 Series B preferred shares. $680,475 convertible promissory notes at 8%. |  |                             | 11,0002,165,999
59,000

 |  |                   |  | 

702,732
702,732 |                    |  |  | 


(702,732            | )    |  |                                          | 11,0002,165,999
59,000
702,732
 |  |  |  | 


22,258 | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Rheonix                                                                                                                                                   |  |                             | 2,235,999                  |  |                   |  | 1,405,464            |                    |  |  | (702,732                   | )    |  |                                          | 2,938,731                        |  |  |  | 22,258        | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|SciAps, Inc.                   |  | 187,500 Series A convertible preferred shares. 274,299 Series A-1 convertible preferred shares. 117,371 Series B preferred
shares.                              |  |                             | 1,500,000
               |  |                   |  | 504,710
250,000     |                    |  |  | (500,000
                | )    |  |                                          | 1,000,000504,710
250,000         |  |  |  | 4,711
      | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total SciAps                                                                                                                                                    |  |                             | 1,500,000                  |  |                   |  | 754,710              |                    |  |  | (500,000                   | )    |  |                                          | 1,754,710                        |  |  |  | 4,711         | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|SOMS Technologies,
LLC         |  | 5,959,490 Series B membership interests.                                                                                                                        |  |                             | 528,348                    |  |                   |  |                     |                    |  |  |                           |      |  |                                          | 528,348                          |  |  |  | 4,355         | 
|Statisfy, Inc.                 |  | 65,000 Series seed preferred shares. Warrant for 1,950,000 Series seed preferred shares.                                                                        |  |                             |                          |  |                   |  | 20,968629,032        |                    |  |  |                          |      |  |                                          | 20,968629,032                    |  |  |  |             | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 
|                               |  | Total Statisfy                                                                                                                                                  |  |                             |                           |  |                   |  | 650,000              |                    |  |  |                           |      |  |                                          | 650,000                          |  |  |  |              | 
|                               |  |                                                                                                                                                                 |  |                             |                            |  |                   |  |                      |                    |  |  |                            |      |  |                                          |                                  |  |  |  |               | 



39



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------------------------- |  | ----------------- | - | ----------------------- | ------------------ |  | -- | -------------------------- | - |  | ---------------------------------------- | ------------------------- |  |  | - | ----------------- | 
|Company                              |  | Type of Investment                                                                                                 |  | December 
31,2014Fair Value |                           |  | GrossAdditions(1) |   |                         | GrossReductions(2) |  |    | December 31,2015 FairValue |   |  | Amount 
ofInterest/Dividend/FeeIncome(3) |                          
|Teleservices
Solutions Holdings,
LLC |  | 250,000 Class B shares.
1,000,000 Class C shares. 80,000 Class D
preferred units. 104,198 Class E preferred units. |  |                             | 250,0001,070,680
80,000
 |  |                   |   | 120,000
11,200
104,198 |                    |  |    | (250,000

              | ) |  |                                          | 1,190,680
91,200
104,198 |  |  |   | 168,000
15,680
 | 
|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 
|                                     |  | Total Teleservices                                                                                                 |  |                             | 1,400,680                 |  |                   |   | 235,398                 |                    |  |    | (250,000                   | ) |  |                                          | 1,386,078                 |  |  |   | 183,680           | 
|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 
|Tilson Technology
Management, Inc.   |  | 12 Series B preferred shares.                                                                                      |  |                             |                          |  |                   |   | 600,000                 |                    |  |    |                           |   |  |                                          | 600,000                   |  |  |   | 14,417            | 
|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 
|                                     |  | Total Affiliate Investments                                                                                        |  | $                           | 14,617,378                |  |                   | $ | 6,420,236               |                    |  | ($ | 6,375,395                  | ) |  | $                                        | 14,662,219                |  |  | $ | 738,714           | 
|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 
|                                     |  | Total Control and Affiliate Investments                                                                            |  | $                           | 24,639,678                |  |                   | $ | 10,520,236              |                    |  | ($ | 6,581,223                  | ) |  | $                                        | 28,578,691                |  |  | $ | 2,559,725         | 
|                                     |  |                                                                                                                    |  |                             |                           |  |                   |   |                         |                    |  |    |                            |   |  |                                          |                           |  |  |   |                   | 

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 investment, 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 a 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)





|                        |  |                                                                       |      |  
|----------------------- |  | --------------------------------------------------------------------- | ---- | -
|Industry Classification |  | Percentage of TotalInvestments (at fair value)as of December 31,
2015 |     
|Manufacturing           |  |                                                                       | 49.6 | %
|Software                |  |                                                                       | 22.2 | %
|Healthcare              |  |                                                                       | 13.9 | %
|Contact Center          |  |                                                                       | 6.7  | %
|Consumer Product        |  |                                                                       | 3.3  | %
|Professional Services   |  |                                                                       | 1.6  | %
|Oil and Gas             |  |                                                                       | 1.4  | %
|Electronics             |  |                                                                       | 1.0  | %
|Marketing               |  |                                                                       | 0.3  | %
|                        |  |                                                                       |      |  
|Total Investments       |  |                                                                       | 100  | %
|                        |  |                                                                       |      |  



41



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014



|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | ------------------------ |  |  | ------------------- | ------------------------ |  |  |  | --- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                            |  | Type of Investment                                                                                                                                                                                                                       |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue          |  |  | Percentof NetAssets |                         
|Non-Control/Non-Affiliate Investments  17.5% (j)                                                                                                                                                                        |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  
|BeetNPath, LLC(e)(g) Ithaca, NY. Frozen entrées made from 100% whole grain steel cut oats.(Consumer Product) www.grainful.com                                                                                            |  | $150,000 convertible promissorynote at 6% due October 20, 2016.                                                                                                                                                                          |  |                 | 10/20/14 |  |           |  |   |      |  | $ | 150,000                  |  |  | $                   | 150,000                  |  |  |  | 0.5 | %
|Crashmob, Inc.(e)(g) Boston, MA. Mobile marketing platform for engagement, advertising and surveys. (Software) www.statisfy.co                                                                                           |  | 500,000 Series seed preferredshares.                                                                                                                                                                                                     |  |                 | 8/18/14  |  |           |  | 4  | %    |  |   | 500,000                  |  |  |                     | 500,000                  |  |  |  | 1.5 | %
|Empire Genomics, LLC(e)(g) Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)
www.empiregenomics.com |  | $600,000 senior secured convertible term note at 10% due December 1, 2015.                                                                                                                                                               |  |                 | 6/13/14  |  |           |  |   |      |  |   | 600,000                  |  |  |                     | 600,000                  |  |  |  | 1.9 | %
|Kinex Pharmaceuticals, Inc.(e)(g)
Buffalo, NY. Specialty pharmaceutical and drug development. (Health Care)
www.kinexpharma.com                                                                                          |  | 11,574 common shares.                                                                                                                                                                                                                    |  |                 | 9/8/14   |  |           |  | <1 | %    |  |   | 143,285                  |  |  |                     | 254,628                  |  |  |  | 0.8 | %
|Mercantile Adjustment Bureau, LLC(e)(g)
Williamsville, NY. Full service accounts receivable management and collections company. (Contact Center)
www.mercantilesolutions.com                                             |  | $1,099,039 subordinated secured note at 13% due October 30, 2017. $150,000 subordinated debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests.
Option for 1.5% membership interests. (i)Interest receivable $79,025. |  |                 | 10/22/12 |  |           |  | 4  | %    |  |   | 1,070,697 150,000 97,625 |  |  |                     | 1,070,697 150,000 97,625 |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  
|                                                                                                                                                                                                                         |  | Total Mercantile                                                                                                                                                                                                                         |  |                 |          |  |           |  |    |      |  |   | 1,318,322                |  |  |                     | 1,318,322                |  |  |  | 4.1 | %
|OnCore Golf Technology, Inc.(e)(g)
Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product)
www.oncoregolf.com                                                                                    |  | 80,000 Series AA preferred shares.                                                                                                                                                                                                       |  |                 | 12/31/14 |  |           |  | 4  | %    |  |   | 200,000                  |  |  |                     | 200,000                  |  |  |  | 0.6 | %
|SocialFlow, Inc.(e)(g) New York, NY. Provides instant analysis of social networks using proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)
www.socialflow.com                 |  | 1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares.                                                                                                                                                              |  |                 | 4/5/13   |  |           |  | 4  | %    |  |   | 1,250,000                |  |  |                     | 1,250,000                |  |  |  | 3.9 | %
|Somerset Gas Transmission Company, LLC
Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com                                                                                                       |  | 26.5337 units.                                                                                                                                                                                                                           |  |                 | 7/10/02  |  |           |  | 3  | %    |  |   | 719,097                  |  |  |                     | 786,748                  |  |  |  | 2.4 | %
|Synacor, Inc. NASDAQ: SYNC(e)(g)(n)(o)
Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software)
www.synacor.com                     |  | 301,582 unrestricted common shares valued at $2.01 per share.                                                                                                                                                                            |  |                 | 11/18/02 |  |           |  | 1  | %    |  |   | 385,680                  |  |  |                     | 606,000                  |  |  |  | 1.9 | %
|Other Non-Control/Non-Affiliate Investments:                                                                                                                                                                             |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  
|DataView, LLC(Software)(e)                                                                                                                                                                                               |  | Membership Interest                                                                                                                                                                                                                      |  |                 |         |  |           |  |   |      |  |   | 310,357                  |  |  |                     | 0                        |  |  |  | 0.0 | %
|UStec/Wi3(Software)(e)                                                                                                                                                                                                   |  | Common Stock                                                                                                                                                                                                                             |  |                 |         |  |           |  |   |      |  |   | 100,500                  |  |  |                     | 0                        |  |  |  | 0.0 | %
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                           |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  | $ | 5,677,241                |  |  | $                   | 5,665,698                |  |  |  |     |  
|                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                          |  |                 |          |  |           |  |    |      |  |   |                          |  |  |                     |                          |  |  |  |     |  



42



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | ---------------------- |  |  | ------------------- | ----------------------- |  |  |  | --- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                             |  | Type of Investment                                                                                                                                                                                                               |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue        |  |  | Percentof NetAssets |                        
|Affiliate Investments  45.2% of net assets (k)                                                                                                                                                                           |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|Carolina Skiff LLC(g) Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats. (Consumer Product) www.carolinaskiff.com                                                                               |  | $985,000 Class A preferredmembership interest at 9.8%.$250,000 subordinated promissory note at 14% due December 31, 2016. 6.0825% Class A common membership
interest.                                                            |  |                 | 1/30/04  |  |           |  | 7  | %    |  | $ | 985,000 125,000 15,000 |  |  | $                   | 985,000 125,000 600,000 |  |  |  |     |  
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                          |  | Total Carolina Skiff                                                                                                                                                                                                             |  |                 |          |  |           |  |    |      |  |   | 1,125,000              |  |  |                     | 1,710,000               |  |  |  | 5.3 | %
|Chequed.com, Inc.(e)(g) Saratoga Springs, NY. Web based predictive employee selection and reference checking.
(Software) www.chequed.com                                                                                  |  | 408,476 Series A preferred shares. $250,000 convertible promissory note at 8% due December 31, 2015.                                                                                                                             |  |                 | 11/18/10 |  |           |  | 16 | %    |  |   | 1,383,222250,000       |  |  |                     | 1,383,222250,000        |  |  |  | 5.0 | %
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                          |  | Total Chequed.com                                                                                                                                                                                                                |  |                 |          |  |           |  |    |      |  |   | 1,633,222              |  |  |                     | 1,633,222               |  |  |  |     |  
|CrowdBouncer, Inc.(e)(g) Buffalo, NY. JOBS Act compliance for broker-dealers and crowdfunding portals. (Software) www.crowdbouncer.com                                                                                    |  | 300,000 Series A preferred shares.                                                                                                                                                                                               |  |                 | 1/22/14  |  |           |  | 15 | %    |  |   | 300,000                |  |  |                     | 0                       |  |  |  | 0.0 | %
|First Wave Products Group, LLC(e)(g)(p)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions.
(Manufacturing) www.firstwaveproducts.com |  | $500,000 senior term notes at 10% (Payment in Kind (PIK) through May 31, 2015) due December 31, 2016.
$280,000 junior term notes at 10% (PIK through May 31, 2015) due December 31, 2016. Warrant for 41,619 capital securities. |  |                 | 4/19/12  |  |           |  | 7  | %    |  |   | 637,992 308,687 22,000 |  |  |                     | 637,992 308,687 22,000  |  |  |  | 3.0 | %
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|                                                                                                                                                                                                                          |  | Total First Wave                                                                                                                                                                                                                 |  |                 |          |  |           |  |    |      |  |   | 968,679                |  |  |                     | 968,679                 |  |  |  |     |  
|GiveGab, Inc.(e)(g) Ithaca, NY. Social network program that connects volunteers with nonprofit organizations. (Software) www.givegab.com                                                                                  |  | 2,254,822 Series A preferred shares.                                                                                                                                                                                             |  |                 | 3/13/13  |  |           |  | 7  | %    |  |   | 403,388                |  |  |                     | 403,388                 |  |  |  | 1.2 | %
|G-TEC Natural Gas Systems(e) Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)
www.gas-tec.com                                         |  | 18.545% Class A membership interest. 8% cumulative dividend.                                                                                                                                                                     |  |                 | 8/31/99  |  |           |  | 19 | %    |  |   | 400,000                |  |  |                     | 100,000                 |  |  |  | 0.3 | %
|Intrinsiq Materials, Inc.(e)(g) Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)
www.intrinsiqmaterials.com          |  | 599,055 Series 2 Preferred shares.                                                                                                                                                                                               |  |                 | 9/19/13  |  |           |  | 7  | %    |  |   | 600,002                |  |  |                     | 600,002                 |  |  |  | 1.9 | %
|Knoa Software, Inc.(e)(g) New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software)
www.knoa.com                                                         |  | 973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares. (Fully diluted common share equivalent of 3,336,010).                                                                                      |  |                 | 11/20/12 |  |           |  | 7  | %    |  |   | 1,229,155              |  |  |                     | 872,255                 |  |  |  | 2.7 | %
|KnowledgeVision Systems, Inc.(e)(g)
Lincoln, MA. Online presentation and training software. (Software)
www.knowledgevision.com                                                                                            |  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares.                                                                                                                                                        |  |                 | 11/13/13 |  |           |  | 5  | %    |  |   | 550,000                |  |  |                     | 550,000                 |  |  |  | 1.7 | %
|Mezmeriz, Inc.(e)(g) Ithaca, NY. Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)                                |  | 360,526 Series A preferred shares. $200,000 convertible notes at 8% due December 31, 2014.                                                                                                                                       |  |                 | 1/9/08   |  |           |  | 8  | %    |  |   | 391,373200,000         |  |  |                     | 0200,000                |  |  |  | 0.6 | %
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                  |  |                 |          |  |           |  |    |      |  |   |                        |  |  |                     |                         |  |  |  |     |  
|www.mezmeriz.com                                                                                                                                                                                                          |  | Total Mezmeriz                                                                                                                                                                                                                   |  |                 |          |  |           |  |    |      |  |   | 591,373                |  |  |                     | 200,000                 |  |  |  |     |  



43



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------------- | -------- |  | --------- |  | -- | ---- |  | - | ----------------------- |  |  | ------------------- | ----------------------- |  |  |  | ---- | -
|(a) Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                              |  | Type of Investment                                                                                           |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue         |  |  | Percentof NetAssets |                        
|Microcision LLC(g) Philadelphia, PA. Custom manufacturer of medical and dental implants. (Manufacturing).                                                                                                                  |  | $1,500,000 subordinated promissory note at 11% due January 31, 2017. 15% Class A common membership interest. |  |                 | 9/24/09  |  |           |  | 15 | %    |  |   | 1,891,964 0             |  |  |                     | 1,891,964 0             |  |  |  | 5.8  | %
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|www.microcision.com                                                                                                                                                                                                        |  | Total Microcision                                                                                            |  |                 |          |  |           |  |    |      |  |   | 1,891,964               |  |  |                     | 1,891,964               |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|New Monarch Machine Tool, Inc. (g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com                                                                        |  | 22.84 common shares.                                                                                         |  |                 | 9/24/03  |  |           |  | 15 | %    |  |   | 22,841                  |  |  |                     | 22,841                  |  |  |  | 0.1  | %
|Rheonix, Inc.(e)(g) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing. (Health Care)                                                                                      |  | 9,676 common shares. (g)1,839,422 Series A preferred shares. (g) 50,593 common shares.                       |  |                 | 10/29/09 |  |           |  | 5  | %    |  |   | 02,099,999
0            |  |  |                     | 11,0002,165,999
59,000  |  |  |  | 6.9  | %
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|www.rheonix.com                                                                                                                                                                                                            |  | Total Rheonix                                                                                                |  |                 |          |  |           |  |    |      |  |   | 2,099,999               |  |  |                     | 2,235,999               |  |  |  |      |  
|SciAps, Inc.(e)(g) Woburn, MA. Instrumentation company specializing in portable analytical instruments utilizing LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com |  | 187,500 Series A preferred shares.                                                                           |  |                 | 7/12/13  |  |           |  | 9  | %    |  |   | 1,500,000               |  |  |                     | 1,500,000               |  |  |  | 4.6  | %
|SOMS Technologies, LLC(e)(g) Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com                                                               |  | 5,959,490 Series B membership interests.                                                                     |  |                 | 12/2/08  |  |           |  | 9  | %    |  |   | 472,632                 |  |  |                     | 528,348                 |  |  |  | 1.6  | %
|Teleservices Solutions Holdings, LLC(g)
Montvale, NJ. Customer contact center specializing in customer acquisition and                                                                                                     |  | 250,000 Class B preferred units. 1,000,000 Class C preferred units. 80,000 Class D preferred units.          |  |                 | 5/30/14  |  |           |  | 9  | %    |  |   | 250,0001,070,680
80,000 |  |  |                     | 250,0001,070,680
80,000 |  |  |  | 4.3  | %
|retention for selected industries.
(Contact Center)
www.ipacesetters.com                                                                                                                                                   |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|                                                                                                                                                                                                                           |  | Total Teleservices                                                                                           |  |                 |          |  |           |  |    |      |  |   | 1,400,680               |  |  |                     | 1,400,680               |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|Subtotal Affiliate Investments                                                                                                                                                                                             |  |                                                                                                              |  |                 |          |  |           |  |    |      |  | $ | 15,188,935              |  |  | $                   | 14,617,378              |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|Control Investments  31.0%(l)                                                                                                                                                                                             |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|Advantage 24/7 LLC (g) Williamsville, NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com                                                                                        |  | 53% Membership interest.                                                                                     |  |                 | 12/30/10 |  |           |  | 53 | %    |  | $ | 99,500                  |  |  | $                   | 99,500                  |  |  |  | 0.3  | %
|Gemcor II, LLC (g)(h)(m) West Seneca, NY. Designs and sells automatic riveting machines used in the assembly of aircraft. (Manufacturing)                                                                                  |  | $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units.                |  |                 | 6/28/04  |  |           |  | 31 | %    |  |   | 622,800625,000          |  |  |                     | 622,8009,300,000        |  |  |  | 30.7 | %
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|www.gemcor.com                                                                                                                                                                                                             |  | Total Gemcor                                                                                                 |  |                 |          |  |           |  |    |      |  |   | 1,247,800               |  |  |                     | 9,922,800               |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|Subtotal Control Investments                                                                                                                                                                                               |  |                                                                                                              |  |                 |          |  |           |  |    |      |  | $ | 1,347,300               |  |  | $                   | 10,022,300              |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|TOTAL INVESTMENTS  93.7%                                                                                                                                                                                                  |  |                                                                                                              |  |                 |          |  |           |  |    |      |  | $ | 22,213,476              |  |  | $                   | 30,305,376              |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|OTHER ASSETS IN EXCESS OF LIABILITIES  6.3%                                                                                                                                                                               |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     | 2,048,065               |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  
|NET ASSETS  100%                                                                                                                                                                                                          |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  | $                   | 32,353,441              |  |  |  |      |  
|                                                                                                                                                                                                                           |  |                                                                                                              |  |                 |          |  |           |  |    |      |  |   |                         |  |  |                     |                         |  |  |  |      |  



44



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



Notes to the Consolidated Schedule of Portfolio Investments



|(a) | At December 31, 2014, restricted securities represented approximately 98% of the fair value of the investment portfolio. Restricted securities are subject to one
or more restrictions on resale and are not freely marketable. Freed Maxick CPAs, P.C. has not audited the business descriptions of the portfolio companies.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a predecessor company. Freed Maxick CPAs, P.C. has
not audited the date acquired of the portfolio companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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. Freed Maxick CPAs, P.C. has not
audited the equity percentages of the portfolio companies. 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 which
defines fair value and establishes guidelines for measuring fair value. At December 31, 2014, ASC 820 designates 2% of the Corporations investments as Level 1 and 98% 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 month. 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 which the Corporation may reasonably expect to receive for portfolio securities when sold
on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these favorable or unfavorable
differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the investment. Also
considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 2 Investments to the Consolidated Financial
Statements).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | These investments are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or
dividends including LLC tax-related distributions within the last twelve months, or are not expected to do so going forward.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | As of December 31, 2014, the total cost of investment securities approximated $22.2 million. Net unrealized appreciation was approximately $8.1 million, which was
comprised of $9.9 million of unrealized appreciation of investment securities and ($1.8) million related to unrealized depreciation of investment securities. At December 31, 2014 the aggregate gross unrealized gain for federal income tax
purposes was $6.1 million and the aggregate gross unrealized loss for federal income tax purposes was ($1.5) million. The net unrealized gain was $4.6 million based on a tax cost of $25.8 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 net of reserves) from investment included as interest receivable on the Corporations Statement of Financial
Position.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



45



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(m) | Gemcor II, LLC is an unconsolidated significant subsidiary as defined in SECs Regulation S-X.
|--- | ------------------------------------------------------------------------------------------------



|(n) | Publicly owned company.
|--- | -----------------------



|(o) | On December 31, 2014, the Corporations shares of Synacor were valued at $2.01 per share in accordance with the Corporations valuation policy for
unrestricted publicly held securities (Level 1). See Synacors publicly disclosed financial reports at sec.gov for additional information on Synacors industry, financial results and business operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(p) | Payment in kind represents earned interest that is added to the cost basis of the investment.
|--- | ---------------------------------------------------------------------------------------------

Investments in and Advances to Affiliates



|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------------------------ |  | ----------------- | - | --------------- | ------------------ |  | - | -------------------------- | -- |  | ---------------------------------------- | ---------------------- |  |  | - | ---------------------- | 
|Company                        |  | Type of Investment                                                                                                                                |  | December 31,2013
FairValue |                          |  | GrossAdditions(1) |   |                 | GrossReductions(2) |  |   | December 31,2014
FairValue |    |  | Amount ofInterest/Dividend/Fee Income(3) |                       
|Control Investments:           |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|Advantage 24/7 LLC             |  | 53% Membership interest.                                                                                                                          |  | $                          | 99,500                   |  |                   | $ |                |                    |  | $ |                           |    |  | $                                        | 99,500                 |  |  | $ | 41,695                 | 
|Gemcor II, LLC                 |  | $500,000 subordinated promissory note at 15%. $1,000,000 subordinated promissory note at 15% 31.25 membership units.                              |  |                            | 110,194800,125
9,300,000 |  |                   |   | 
            |                    |  |   | (110,194(177,325
         | )) |  |                                          | 0622,800
9,300,000     |  |  |   | 6,279105,939
1,516,822 | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|                               |  | Total Gemcor                                                                                                                                      |  |                            | 10,210,319               |  |                   |   |                |                    |  |   | (287,519                   | )  |  |                                          | 9,922,800              |  |  |   | 1,629,040              | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|NDT Acquisitions               |  | Common Stock.                                                                                                                                     |  |                            |                         |  |                   |   | 5,336           |                    |  |   | (5,336                     | )  |  |                                          |                       |  |  |   | 2,668                  | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|                               |  | Total Control Investments                                                                                                                         |  | $                          | 10,309,819               |  |                   | $ | 5,336           |                    |  | $ | (292,855                   | )  |  | $                                        | 10,022,300             |  |  | $ | 1,673,403              | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|Affiliate Investments:         |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|Carolina Skiff LLC             |  | $985,000 Class A preferred membership interest at 9.8%. $250,000 subordinated promissory note at 14%. 6.0825% Class A common membership
interest. |  | $                          | 985,000250,000
600,000   |  |                   | $ | 
            |                    |  | $ | (125,000
                | )  |  | $                                        | 985,000125,000
600,000 |  |  | $ | 96,53029,701
54,089    | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|                               |  | Total Carolina Skiff                                                                                                                              |  |                            | 1,835,000                |  |                   |   |                |                    |  |   | (125,000                   | )  |  |                                          | 1,710,000              |  |  |   | 180,320                | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|Chequed.com, Inc.              |  | 408,476 Series A preferred shares. $250,000 convertible promissory note at 8%                                                                     |  |                            | 1,033,222               |  |                   |   | 350,000250,000  |                    |  |   |                          |    |  |                                          | 1,383,222250,000       |  |  |   | 767                   | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|                               |  | Total Chequed                                                                                                                                     |  |                            | 1,033,222                |  |                   |   | 600,000         |                    |  |   |                           |    |  |                                          | 1,633,222              |  |  |   | 767                    | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|CrowdBouncer, Inc.             |  | 270,000 Series A preferred shares.                                                                                                                |  |                            |                         |  |                   |   | 300,000         |                    |  |   | (300,000                   | )  |  |                                          | 0                      |  |  |   |                       | 
|First Wave Products Group, LLC |  | $500,000 senior term notes at 10%. $280,000 junior term notes at 10%. Warrant for 41,619 capital securities.                                      |  |                            | 571,301204,533
22,000    |  |                   |   | 66,691104,154
 |                    |  |   | 
                       |    |  |                                          | 637,992308,687
22,000  |  |  |   | 68,52424,154
         | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|                               |  | Total First Wave                                                                                                                                  |  |                            | 797,834                  |  |                   |   | 170,845         |                    |  |   |                           |    |  |                                          | 968,679                |  |  |   | 92,678                 | 
|                               |  |                                                                                                                                                   |  |                            |                          |  |                   |   |                 |                    |  |   |                            |    |  |                                          |                        |  |  |   |                        | 
|GiveGab, Inc.                  |  | 2,254,822 Series A preferred shares.                                                                                                              |  |                            | 250,000                  |  |                   |   | 153,388         |                    |  |   |                           |    |  |                                          | 403,388                |  |  |   |                       | 
|G-TEC Natural Gas Systems      |  | 18.545% Class A membership interest. 8% cumulative dividend.                                                                                      |  |                            | 100,000                  |  |                   |   |                |                    |  |   |                           |    |  |                                          | 100,000                |  |  |   |                       | 
|Intrinsiq Materials, Inc.      |  | 599,055 Series 2 Preferred shares.                                                                                                                |  |                            | 600,002                  |  |                   |   |                |                    |  |   |                           |    |  |                                          | 600,002                |  |  |   |                       | 



46



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | -------------------------- | ---------------------- | - | ----------------- | - | ----------------------- | ------------------ | --------- | -- | -------------------------- | -- | ---------- | ---------------------------------------- | ----------------------- | - | --------- | - | --------- | 
|Company                                 |  | Type of Investment                                                                                                                          |            | December 31,2013
FairValue |                        |   | GrossAdditions(1) |   |                         | GrossReductions(2) |           |    | December 31,2014
FairValue |    |            | Amount ofInterest/Dividend/Fee Income(3) |                        
|Knoa Software, Inc.                     |  | 973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares. (Fully diluted common share equivalent of 3,336,010). |            |                            | 750,000                |   |                   |   | 479,155                 |                    |           |    | (356,900                   | )  |            |                                          | 872,255                 |   |           |   | 1,391     | 
|KnowledgeVision Systems, Inc.           |  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares.                                                                   |            |                            | 250,000               |   |                   |   | 300,000                |                    |           |    |                          |    |            |                                          | 250,000300,000          |   |           |   |         | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|                                        |  | Total Knowledge Vision                                                                                                                      |            |                            | 250,000                |   |                   |   | 300,000                 |                    |           |    |                           |    |            |                                          | 550,000                 |   |           |   |          | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|Mezmeriz, Inc.                          |  | 360,526 Series A preferred shares. Convertible notes at 8% due December 31, 2014.                                                           |            |                            | 391,373200,000         |   |                   |   |                       |                    |           |    | (391,373                  | )  |            |                                          | 0200,000                |   |           |   |         | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|                                        |  | Total Mezmeriz                                                                                                                              |            |                            | 591,373                |   |                   |   |                        |                    |           |    | (391,373                   | )  |            |                                          | 200,000                 |   |           |   |          | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|Microcision LLC                         |  | $1,500,000 subordinated promissory note at 11% due January 31, 2017. Class A common membership interest.                                    |            |                            | 1,891,965             |   |                   |   |                       |                    |           |    | (1                        | )  |            |                                          | 1,891,964              |   |           |   | 208,116  | 
|New Monarch Machine Tool, Inc.          |  | 22.84 common shares.                                                                                                                        |            |                            | 22,841                 |   |                   |   |                        |                    |           |    |                           |    |            |                                          | 22,841                  |   |           |   | 47,682    | 
|QuaDPharma, LLC                         |  | $556,285.22 second note allonge at 10%. 141.75 Class A units of membership interest.                                                        |            |                            | 556,285350,000         |   |                   |   |                       |                    |           |    | (556,285(350,000           | )) |            |                                          |                       |   |           |   | 59,332   | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|                                        |  | Total QuaDPharma                                                                                                                            |            |                            | 906,285                |   |                   |   |                        |                    |           |    | (906,285                   | )  |            |                                          |                        |   |           |   |          | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|Rheonix, Inc.                           |  | 9,676 common shares.
1,839,422 Series A preferred shares. 50,593
common shares.                                                             |            |                            | 11,0002,165,999
59,000 |   |                   |   | 
                    |                    |           |    | 
                       |    |            |                                          | 11,0002,165,999
59,000  |   |           |   | 
      | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|                                        |  | Total Rheonix                                                                                                                               |            |                            | 2,235,999              |   |                   |   |                        |                    |           |    |                           |    |            |                                          | 2,235,999               |   |           |   |          | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|SciAps, Inc.                            |  | 187,500 Series A preferred shares.                                                                                                          |            |                            | 1,000,000              |   |                   |   | 500,000                 |                    |           |    |                           |    |            |                                          | 1,500,000               |   |           |   |          | 
|SOMS Technologies, LLC                  |  | 5,959,490 Series B membership interests.                                                                                                    |            |                            | 528,348                |   |                   |   |                        |                    |           |    |                           |    |            |                                          | 528,348                 |   |           |   |          | 
|Teleservices Solutions Holdings, LLC    |  | 250,000 Class B shares.
1,000,000 Class C shares. 80,000 Class D
preferred units.                                                           |            |                            | 
                   |   |                   |   | 250,0001,070,680
80,000 |                    |           |    | 
                       |    |            |                                          | 250,0001,070,680
80,000 |   |           |   | 98,952
 | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|                                        |  | Total Teleservices                                                                                                                          |            |                            |                       |   |                   |   | 1,400,680               |                    |           |    |                           |    |            |                                          | 1,400,680               |   |           |   | 98,952    | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|Total Affiliate Investments             |  |                                                                                                                                             |            | $                          | 12,792,869             |   |                   | $ | 3,904,068               |                    |           | ($ | 2,079,559                  | )  |            | $                                        | 14,617,378              |   |           | $ | 689,238   | 
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 
|Total Control and Affiliate Investments |  | $                                                                                                                                           | 23,102,688 |                            |                        | $ | 3,909,404         |   |                         | ($                 | 2,372,414 | )  |                            | $  | 24,639,678 |                                          |                         | $ | 2,362,641 |  
|                                        |  |                                                                                                                                             |            |                            |                        |   |                   |   |                         |                    |           |    |                            |    |            |                                          |                         |   |           |   |           | 

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 investment, 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, net increases in unrealized depreciation and net
decreases in unrealized appreciation.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2014 (Continued)



|                        |  |                                                                        |      |  
|----------------------- |  | ---------------------------------------------------------------------- | ---- | -
|Industry Classification |  | Percentage of 
TotalInvestments (at fair value)as of December 31, 2014 |     
|Manufacturing           |  |                                                                        | 49.5 | %
|Software                |  |                                                                        | 19.2 | %
|Healthcare              |  |                                                                        | 10.2 | %
|Contact Center          |  |                                                                        | 9.0  | %
|Consumer Product        |  |                                                                        | 8.5  | %
|Oil and Gas             |  |                                                                        | 2.6  | %
|Electronics             |  |                                                                        | 0.7  | %
|Marketing               |  |                                                                        | 0.3  | %
|                        |  |                                                                        |      |  
|Total Investments       |  |                                                                        | 100  | %
|                        |  |                                                                        |      |  



48



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

FINANCIAL HIGHLIGHTS SCHEDULE

For the Five Years Ended December 31, 2015, 2014, 2013, 2012 and 2011

The following is a schedule of financial highlights for the years ended December 31, 2015, 2014, 2013, 2012 and 2011:



|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|-------------------------------------------------------------------- |  | ---- | ---------- | -- | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | -- |  | - | ---------- | --
|                                                                     |  | 2015 |            |    | 2014 |   |            | 2013 |  |   | 2012       |   |  | 2011 |           
|Per Share Data:                                                      |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Income from investment operations(1):                                |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Investment income                                                    |  | $    | 0.45       |    |      | $ | 0.40       |      |  | $ | 0.38       |   |  | $    | 0.39       |    |  | $ | 0.19       |   
|Expenses                                                             |  |      | 0.29       |    |      |   | 0.39       |      |  |   | 0.37       |   |  |      | 0.27       |    |  |   | 0.24       |   
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Investment gain (loss) before income taxes                           |  |      | 0.16       |    |      |   | 0.01       |      |  |   | 0.01       |   |  |      | 0.12       |    |  |   | (0.05      | ) 
|Income tax expense (benefit)                                         |  |      | 0.02       |    |      |   | 0.01       |      |  |   | (0.01      | ) |  |      | 0.02       |    |  |   | (0.04      | ) 
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Net investment gain (loss)                                           |  |      | 0.14       |    |      |   | 0.00       |      |  |   | 0.02       |   |  |      | 0.10       |    |  |   | (0.01      | ) 
|Issuance of common stock                                             |  |      | 0.00       |    |      |   | 0.00       |      |  |   | 0.00       |   |  |      | 0.00       |    |  |   | 0.00       |   
|Purchase of treasury stock(2)                                        |  |      | 0.00       |    |      |   | 0.02       |      |  |   | 0.04       |   |  |      | 0.04       |    |  |   | 0.00       |   
|Net realized and unrealized gain on investments                      |  |      | 0.10       |    |      |   | 0.71       |      |  |   | 0.42       |   |  |      | 0.18       |    |  |   | 0.21       |   
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Increase in net asset value                                          |  |      | 0.24       |    |      |   | 0.73       |      |  |   | 0.48       |   |  |      | 0.32       |    |  |   | 0.20       |   
|Net asset value, beginning of year, based on weighted average shares |  |      | 5.11       |    |      |   | 4.38       |      |  |   | 3.90       |   |  |      | 3.58       |    |  |   | 3.38       |   
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Net asset value, end of year, based on weighted average shares       |  | $    | 5.35       |    |      | $ | 5.11       |      |  | $ | 4.38       |   |  | $    | 3.90       |    |  | $ | 3.58       |   
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Per share market value, end of year                                  |  | $    | 3.77       |    |      | $ | 4.09       |      |  | $ | 3.07       |   |  | $    | 2.34       |    |  | $ | 3.10       |   
|                                                                     |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Total return based on market value                                   |  |      | (7.82      | %) |      |   | 33.2       | %    |  |   | 31.2       | % |  |      | (24.5      | )% |  |   | (4.02      | )%
|Total return based on net asset value                                |  |      | 4.64       | %  |      |   | 15.26      | %    |  |   | 8.87       | % |  |      | 5.67       | %  |  |   | 5.85       | % 
|Supplemental Data:                                                   |  |      |            |    |      |   |            |      |  |   |            |   |  |      |            |    |  |   |            |   
|Ratio of expenses before income taxes to average net assets          |  |      | 5.49       | %  |      |   | 8.27       | %    |  |   | 8.76       | % |  |      | 7.16       | %  |  |   | 7.00       | % 
|Ratio of expenses including taxes to average net assets              |  |      | 7.89       | %  |      |   | 16.28      | %    |  |   | 14.03      | % |  |      | 11.01      | %  |  |   | 10.41      | % 
|Ratio of net investment gain (loss) to average net assets            |  |      | 2.55       | %  |      |   | 0.07       | %    |  |   | 0.57       | % |  |      | 2.73       | %  |  |   | (0.34      | )%
|Portfolio turnover                                                   |  |      | 21.4       | %  |      |   | 21.5       | %    |  |   | 17.9       | % |  |      | 22.6       | %  |  |   | 11.7       | % 
|Net assets end of year                                               |  | $    | 33,853,660 |    |      | $ | 32,353,441 |      |  | $ | 28,069,332 |   |  | $    | 25,782,300 |    |  | $ | 24,399,121 |   
|Weighted average shares outstanding, end of year                     |  |      | 6,328,538  |    |      |   | 6,391,175  |      |  |   | 6,513,385  |   |  |      | 6,770,389  |    |  |   | 6,818,934  |   



|(1) | Per share data are based on shares outstanding and results are rounded.
|--- | -----------------------------------------------------------------------



|(2) | Net increase is due to purchase of common stock at prices less than beginning of period net asset value per share.
|--- | ------------------------------------------------------------------------------------------------------------------



49



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Fair Value of SBA DebenturesIn September 2015, the SBA completed a pooling of SBA debenture
borrowings with a coupon rate of 2.829% excluding a mandatory SBA annual charge estimated to be 0.804%. The total estimated rate for this pooling is 3.633%. Once pooled, the coupon rate becomes fixed for a 10-year period. The carrying value of
SBA debentures is a reasonable estimate of fair value because stated interest rates approximate current interest rates that are available for debt with similar terms.

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

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

Qualifying Assets  All of the Corporations investments were 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.



50



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

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.

After
reviewing each of our portfolio companies performance and the circumstances surrounding each investment, the Corporation ceased accruing interest income on First Wave Products Group, LLC (First Wave), Intrinsiq Materials Inc. (Intrinsiq) and a
portion of the Mercantile Adjustment Bureau, LLC (Mercantile) in 2015 and G-TEC Natural Gas Systems in 2004.

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 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 holds preferred equity securities that contain cumulative dividend provisions. Cumulative dividends are recorded as
dividend income, and 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 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 Rand SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of financing fees was
$18,333, $16,200 and $7,400 for the years ended December 31, 2015, 2014 and 2013, respectively and is estimated to be $9,800 in 2016, $8,100 in 2017, and $4,000 in each of 2018 and 2019. The board fees were $11,000, $14,000 and $16,000 for the
years ended December 31, 2015, 2014 and 2013, respectively.

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. 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 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 note or debt instrument 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 $17,339, $15,492 and $15,492 in OID income for the years ended December 31, 2015, 2014 and 2013, respectively. OID income is estimated to be approximately $10,000 and $8,000 for 2016 and 2017, respectively.



51



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Deferred Debenture Costs  SBA debenture origination and
commitment costs, which are included in other assets, will be amortized ratably over the terms of the SBA debentures. Amortization expense during the years ended December 31, 2015, 2014 and 2013 was $27,400, $24,686 and $37,958, respectively.
Amortization expense for the next five years is estimated to average $27,000 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.

Supplemental Cash Flow Information  Income taxes paid during the years ended December 31, 2015, 2014 and 2013 amounted to $2,402,317, $1,945,879 and $962,697,
respectively. Interest paid during the years ended December 31, 2015, 2014 and 2013 was $269,066, $220,667 and $128,083, respectively. During 2015, 2014 and 2013, the Corporation converted $212,426, $211,127 and $310,322, respectively, of
interest receivable and payment-in-kind interest (PIK) into debt investments. During the year ended December 31, 2014, the Corporation exchanged membership interests in QuaDPharma, LLC in the amount of $143,285 for common shares of Kinex
Pharmaceuticals, Inc. During the year ended December 31, 2014, the Corporation recorded one escrow receivable for $1,510,248 from the sale of BinOptics Corporation. During 2014 the Corporation collected escrows of $680,612 from Liazon
Corporation and $160,847 from Ultra-Scan Corporation. During 2015, the Corporation collected $32,962 in escrow receivable from Ultra-Scan Corporation.

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 insurable limits. Management does not anticipate non-performance by the banks.

As of
December 31, 2015, 62% of the Corporations total investment value was held in notes and equity securities in five portfolio companies. As of December 31, 2014, 57% of the Corporations total investment value was held in notes
and equity securities in five portfolio companies.

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.

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

SBA
DebentureThe Corporation had $8,000,000 in outstanding SBA debentures at December 31, 2015 and December 31, 2014 with a weighted average interest rate of 3.54% as of December 31, 2015. The
$8,000,000 in outstanding SBA leverage matures from 2022 through 2025.

The Corporation 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 the Corporations automatic consent to the
appointment of SBA or its designee as receiver under Section 311(c) of the Small Business Investment Act of 1958.

Reclassification Certain balances in prior years were reclassified to conform to
presentations adopted in 2015.

Recent Accounting PronouncementIn April 2015, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which changes the presentation of debt issuance
costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than



52



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



as an asset. It is effective for annual reporting periods beginning after December 15, 2015. The adoption of ASU 2015-03 is not anticipated to have a material impact on the
Corporations consolidated financial statements.

NOTE 2.  INVESTMENTS

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

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

The loan and
debt securities may also be valued at an amount other than the price the security would command in order to provide a yield to maturity equivalent to the current yield of similar debt securities. 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 market approach or income approach. The market approach uses observable prices
and other relevant information generated by similar market transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a
subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an investment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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 increase (decrease) in unrealized appreciation on investments.

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. There were no such Level 1 investments as of December 31, 2015.



53



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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



| |  |  | Financial information obtained from each portfolio company, including 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 occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Qualitative assessment of key management;
| | - |  | -----------------------------------------



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

| |  |  | Other factors deemed relevant by the Corporations management to assess valuation.
| | - |  | ----------------------------------------------------------------------------------

This information is used to determine financial condition, performance, and valuation of the portfolio companies. The valuation may be
reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted.

Equity Securities

Equity Securities may include Preferred Stock, Common Stock, Warrants and Limited Liability Company Membership Interests.

The significant unobservable inputs used in the fair value measurement of the Corporations equity investments are 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, 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 to the unobservable inputs, such as variances in financial performance from expectations, may result in a significantly higher or lower fair value measurement.

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 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



54



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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, the Corporation generally relies on the
cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified causing the Corporation to depart from this basis.

Loan and Debt Securities

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

The following table provides a summary of the significant unobservable inputs used to determine the fair value of the Corporations Level 3 portfolio investments as of December 31, 2015:



|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|-------------------------------- |  | ---------------------------- | -------------- |  | ---------------------------------- | - | ---------- | ----------------------------- |  | - | -------------------------------- |  |  | ------------------------------- | ----------- |  | ------ | - | -------------- |  |  | - | ---------- | 
|Investment Type                  |  | MarketApproachEBITDAMultiple |                |  | MarketApproachLiquidationSeniority |   |            | MarketApproachRevenueMultiple |  |   | MarketApproachTransactionPricing |  |  | Asset
ApproachLiquidationMethod |             |  | Totals |  
|Non-Control/Non-Affiliate Equity |  | $                            | 1,080,694      |  |                                    | $ |           |                               |  | $ |                                 |  |  | $                               | 5,064,041   |  |        | $ | 500,000        |  |  | $ | 6,644,735  | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Non-Control/Non-Affiliate Debt   |  |                              |               |  |                                    |   |           |                               |  |   |                                 |  |  |                                 |            |  |        |   | 1,608,974      |  |  |   | 1,608,974  | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Total Non-Control/Non-Affiliate  |  | $                            | 1,080,694      |  |                                    | $ |           |                               |  | $ |                                 |  |  | $                               | 5,064,041   |  |        | $ | 2,108,974      |  |  | $ | 8,253,709  | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Affiliate Equity                 |  | $                            | 1,128,348      |  |                                    | $ | 22,841     |                               |  | $ | 600,001                          |  |  | $                               | 10,524,065  |  |        | $ |               |  |  | $ | 12,275,255 | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Affiliate Debt                   |  |                              |               |  |                                    |   |           |                               |  |   |                                 |  |  |                                 | 150,000     |  |        |   | 2,236,964      |  |  |   | 2,386,964  | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Total Affiliate                  |  | $                            | 1,128,348      |  |                                    | $ | 22,841     |                               |  | $ | 600,001                          |  |  | $                               | 10,674,065  |  |        | $ | 2,236,964      |  |  | $ | 14,662,219 | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Control Equity                   |  | $                            | 13,400,000     |  |                                    | $ |           |                               |  | $ | 99,500                           |  |  | $                               |            |  |        | $ |               |  |  | $ | 13,499,500 | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Control Debt                     |  |                              | 416,972        |  |                                    |   |           |                               |  |   |                                 |  |  |                                 |            |  |        |   |               |  |  |   | 416,972    | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Total Control                    |  | $                            | 13,816,972     |  |                                    | $ |           |                               |  | $ | 99,500                           |  |  | $                               |            |  |        | $ |               |  |  | $ | 13,916,472 | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|Total Level 3 Investments        |  | $                            | 16,026,014     |  |                                    | $ | 22,841     |                               |  | $ | 699,501                          |  |  | $                               | 15,738,106  |  |        | $ | 4,345,938      |  |  | $ | 36,832,400 | 
|                                 |  |                              |                |  |                                    |   |            |                               |  |   |                                  |  |  |                                 |             |  |        |   |                |  |  |   |            | 
|                                 |  |                              |                |  |                                    |  
|Range                            |  |                              | 3.6X-7.5X      |  |                                    |   | 1X         |                               |  |   | 0.75X-2.5X                       |  |  |                                 | 0.0X  1.0X |  |        |   | Not Applicable |  |  |   |            | 
|                                 |  |                              |                |  |                                    |  
|Unobservable Input               |  |                              | EBITDAMultiple |  |                                    |   | AssetValue |                               |  |   | RevenueMultiple                  |  |  |                                 | Discount    |  |        |   | AssetValue     |  |  |   |            | 
|Weighted Average                 |  |                              | 6.2X           |  |                                    |   | 1X         |                               |  |   | 2X                               |  |  |                                 | 0 .94X      |  |        |   | Not Applicable |  |  |   |            | 



55



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The following table provides a summary of the components of Level 1, 2 and 3 Assets
Measured at Fair Value on a Recurring Basis at December 31, 2015:



|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                               |  |  |   |            | 
|------------------ |  | ---------------- | ---------------------------------------------- |  | ----------------------------------------------------------- | - | - | ------------------------------------- |  | - | --------------------------------------------- |  |  | - | ---------- | 
|                   |  |                  | Fair Value Measurements at Reported Date Using | 
|Description        |  | December 31,2015 |                                                |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | SignificantObservableInputs
(Level 2) |  |   | Other 
SignificantUnobservableInputs(Level
3) | 
|Loan investments   |  | $                | 416,972                                        |  |                                                             | $ |  |                                       |  | $ |                                              |  |  | $ | 416,972    | 
|Debt investments   |  |                  | 5,076,632                                      |  |                                                             |   |  |                                       |  |   |                                              |  |  |   | 5,076,632  | 
|Equity investments |  |                  | 31,338,796                                     |  |                                                             |   |  |                                       |  |   |                                              |  |  |   | 31,338,796 | 
|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                               |  |  |   |            | 
|Total              |  | $                | 36,832,400                                     |  |                                                             | $ |  |                                       |  | $ |                                              |  |  | $ | 36,832,400 | 
|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                               |  |  |   |            | 



56



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The following table provides a summary of changes in Assets Measured at Fair Value on a
Recurring Basis Using Significant Unobservable Inputs (Level 3) for the year ended December 31, 2015:



|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | -------- | --------- | --------------- | - | --------- | ----------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                  |  | Fair Value Measurements Using
SignificantUnobservable Inputs (Level 3)Venture Capital Investments |         
|Description                                                                                       |  | LoanInvestments                                                                                   |          |           | DebtInvestments |   |           | EquityInvestments |  |   | Total      |  
|Ending Balance, December 31, 2014, of Level 3 Assets                                              |  | $                                                                                                 | 622,801  |           |                 | $ | 5,384,339 |                   |  | $ | 23,692,236 |   |  | $ | 29,699,376 |  
|Realized Gains (Losses) included in net change in net assets from operations:                     |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|BinOptics Corporation (Binoptics)                                                                 |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (5,394     | ) |  |   | (5,394     | )
|CrowdBouncer, Inc. (Crowdbouncer)                                                                 |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (300,000   | ) |  |   | (300,000   | )
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Realized Gains (Losses)                                                                     |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (305,394   | ) |  |   | (305,394   | )
|Unrealized Gains or Losses included in net change in net assets from operations:                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Athenex, Inc. (Athenex)                                                                           |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 92,592     |   |  |   | 92,592     |  
|Crowdbouncer                                                                                      |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 300,000    |   |  |   | 300,000    |  
|First Wave Products Group, LLC (First Wave)                                                       |  |                                                                                                   |         |           |                 |   | (728,031  | )                 |  |   | (22,000    | ) |  |   | (750,031   | )
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 4,100,000  |   |  |   | 4,100,000  |  
|GiveGab, Inc. (Give Gab)                                                                          |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (191,907   | ) |  |   | (191,907   | )
|Intrinsiq Material, Inc. (Intrinsiq)                                                              |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (600,002   | ) |  |   | (600,002   | )
|KnowledgeVision Systems, Inc. (Knowledge Vision)                                                  |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (250,000   | ) |  |   | (250,000   | )
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                    |  |                                                                                                   |         |           |                 |   | (150,000  | )                 |  |   | (97,625    | ) |  |   | (247,625   | )
|OnCore Golf Technology, Inc. (Oncore Golf)                                                        |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (187,500   | ) |  |   | (187,500   | )
|SciAps, Inc. (Sciaps)                                                                             |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (500,000   | ) |  |   | (500,000   | )
|SocialFlow, Inc. (Social Flow)                                                                    |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 321,300    |   |  |   | 321,300    |  
|Somerset Gas Transmission Company, LLC (Somerset)                                                 |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (286,748   | ) |  |   | (286,748   | )
|Teleservices Solutions Holdings, LLC (Teleservices)                                               |  |                                                                                                   |         |           |                 |   |          |                   |  |   | (250,000   | ) |  |   | (250,000   | )
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Unrealized Gains and Losses                                                                 |  |                                                                                                   |         |           |                 |   | (878,031  | )                 |  |   | 2,428,110  |   |  |   | 1,550,079  |  
|Purchases of Securities/Changes to Securities/Non-cash conversions:                               |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|BeetNPath, LLC (Beetnpath)                                                                        |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 209,000    |   |  |   | 209,000    |  
|Binoptics                                                                                         |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 5,394      |   |  |   | 5,394      |  
|Chequed.com, Inc. (Chequed)                                                                       |  |                                                                                                   |         |           |                 |   | (250,000  | )                 |  |   | (1,383,222 | ) |  |   | (1,633,222 | )
|City Dining Cards, Inc. (City Dining)                                                             |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|First Wave                                                                                        |  |                                                                                                   |         |           |                 |   | 31,353    |                   |  |   |           |   |  |   | 31,353     |  
|Genicon, Inc. (Genicon)                                                                           |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 1,000,000  |   |  |   | 1,000,000  |  
|Give Gab                                                                                          |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 212,833    |   |  |   | 212,833    |  
|GoNoodle, Inc. (GoNoodle)                                                                         |  |                                                                                                   |         |           |                 |   | 1,008,974 |                   |  |   | 25         |   |  |   | 1,008,999  |  
|Intrinsiq                                                                                         |  |                                                                                                   |         |           |                 |   | 95,000    |                   |  |   |           |   |  |   | 95,000     |  
|Knowledge Vision                                                                                  |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 200,001    |   |  |   | 200,001    |  
|Mercantile                                                                                        |  |                                                                                                   |         |           |                 |   | 9,997     |                   |  |   |           |   |  |   | 9,997      |  
|Mezmeriz, Inc. (Mezmeriz)                                                                         |  |                                                                                                   |         |           |                 |   | (200,000  | )                 |  |   | 351,477    |   |  |   | 151,477    |  
|Oncore Golf                                                                                       |  |                                                                                                   |         |           |                 |   | 150,000   |                   |  |   | 175,000    |   |  |   | 325,000    |  
|Outmatch (formerly Chequed Holdings, LLC)                                                         |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 2,145,496  |   |  |   | 2,145,496  |  
|Rheonix, Inc. (Rheonix)                                                                           |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 702,732    |   |  |   | 702,732    |  
|Sciaps                                                                                            |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 754,710    |   |  |   | 754,710    |  
|Social Flow                                                                                       |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|Statisfy, Inc. (Statisfy)                                                                         |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 150,000    |   |  |   | 150,000    |  
|Teleservices                                                                                      |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 235,398    |   |  |   | 235,398    |  
|Tilson Technology Management, Inc. (Tilson)                                                       |  |                                                                                                   |         |           |                 |   |          |                   |  |   | 600,000    |   |  |   | 600,000    |  
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Purchases of Securities/Changes to Securities/Non-cash conversions                          |  |                                                                                                   |         |           |                 |   | 845,324   |                   |  |   | 6,358,844  |   |  |   | 7,204,168  |  
|Repayments of Securities:                                                                         |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Carolina Skiff, LLC (Carolina Skiff)                                                              |  |                                                                                                   |         |           |                 |   | (125,000  | )                 |  |   | (985,000   | ) |  |   | (1,110,000 | )
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   | (205,829 | )         |                 |   |          |                   |  |   |           |   |  |   | (205,829   | )
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Repayments of Securities                                                                    |  |                                                                                                   | (205,829 | )         |                 |   | (125,000  | )                 |  |   | (985,000   | ) |  |   | (1,315,829 | )
|Transfers within Level 3                                                                          |  |                                                                                                   |         |           |                 |   | (150,000  | )                 |  |   | 150,000    |   |  |   |           |  
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Ending Balance, December 31, 2015, of Level 3 Assets                                              |  | $                                                                                                 | 416,972  |           |                 | $ | 5,076,632 |                   |  | $ | 31,338,796 |   |  | $ | 36,832,400 |  
|                                                                                                  |  |                                                                                                   |          |           |                 |   |           |                   |  |   |            |   |  |   |            |  
|Change in unrealized appreciation on investments for the period included in changes in net assets |  |                                                                                                   |          | 1,550,079 |                
|Net realized (losses) on investments for the period included in changes in net assets             |  |                                                                                                   | ($       | 305,394   | )              



57



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The following table provides a summary of the significant unobservable inputs used to
fair value the Corporations Level 3 portfolio investments as of December 31, 2014:



|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|-------------------------------- |  | ---------------------------- | ---------- |  | ---------------------------------- | - | ------ | ----------------------------- |  | - | --------------------------------- |  |  | -------------------------------------------------- | -------------- |  | ------------------------------ | - | ------- | ------ |  | - | -------------- |  |  | - | ---------- | 
|Investment Type                  |  | MarketApproachEBITDAMultiple |            |  | MarketApproachLiquidationSeniority |   |        | MarketApproachRevenueMultiple |  |   | Market ApproachTransactionPricing |  |  | Black ScholesPricingModel
StockPricing &Volatility |                |  | Face ValueLiquidationSeniority |   |         | Totals | 
|Non-Control/Non-Affiliate Equity |  | $                            | 786,748    |  |                                    | $ |       |                               |  | $ |                                  |  |  | $                                                  | 2,204,628      |  |                                | $ | 97,625  |        |  | $ |               |  |  | $ | 3,089,001  | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Non-Control/Non-Affiliate Debt   |  |                              |           |  |                                    |   |       |                               |  |   |                                  |  |  |                                                    |               |  |                                |   |        |        |  |   | 1,970,697      |  |  |   | 1,970,697  | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Total Non-Control/Non-Affiliate  |  | $                            | 786,748    |  |                                    | $ |       |                               |  | $ |                                  |  |  | $                                                  | 2,204,628      |  |                                | $ | 97,625  |        |  | $ | 1,970,697      |  |  | $ | 5,059,698  | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Affiliate Equity                 |  | $                            | 2,113,348  |  |                                    | $ | 22,841 |                               |  | $ | 100,000                           |  |  | $                                                  | 8,945,546      |  |                                | $ | 22,000  |        |  | $ |               |  |  | $ | 11,203,735 | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Affiliate Debt                   |  |                              |           |  |                                    |   |       |                               |  |   |                                  |  |  |                                                    |               |  |                                |   |        |        |  |   | 3,413,643      |  |  |   | 3,413,643  | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Total Affiliate                  |  | $                            | 2,113,348  |  |                                    | $ | 22,841 |                               |  | $ | 100,000                           |  |  | $                                                  | 8,945,546      |  |                                | $ | 22,000  |        |  | $ | 3,413,643      |  |  | $ | 14,617,378 | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Control Equity                   |  | $                            | 9,399,500  |  |                                    | $ |       |                               |  | $ |                                  |  |  | $                                                  |               |  |                                | $ |        |        |  | $ |               |  |  | $ | 9,399,500  | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Control Debt                     |  |                              |           |  |                                    |   |       |                               |  |   |                                  |  |  |                                                    |               |  |                                |   |        |        |  |   | 622,800        |  |  |   | 622,800    | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Total Control                    |  | $                            | 9,399,500  |  |                                    | $ |       |                               |  | $ |                                  |  |  | $                                                  |               |  |                                | $ |        |        |  | $ | 622,800        |  |  | $ | 10,022,300 | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Total Level 3 Investments        |  | $                            | 12,299,596 |  |                                    | $ | 22,841 |                               |  | $ | 100,000                           |  |  | $                                                  | 11,150,174     |  |                                | $ | 119,625 |        |  | $ | 6,007,140      |  |  | $ | 29,699,376 | 
|                                 |  |                              |            |  |                                    |   |        |                               |  |   |                                   |  |  |                                                    |                |  |                                |   |         |        |  |   |                |  |  |   |            | 
|Range                            |  |                              | 4.5X-10X   |  |                                    |   | 1X     |                               |  |   | 1X                                |  |  |                                                    | Not Applicable |  |                                | $ | 1.13    |        |  |   | Not Applicable |  |  |   |            | 
|Weighted Average                 |  |                              | 5X         |  |                                    |   | 1X     |                               |  |   | 1X                                |  |  |                                                    | N/A            |  |                                | $ | 1.13    |        |  |   | N/A            |  |  |   |            | 

The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value
on a Recurring Basis at December 31, 2014:



|                   |  |                  |                                                |  |                                                             |   |         |                                       |  |   |                                               |  |  |   |            | 
|------------------ |  | ---------------- | ---------------------------------------------- |  | ----------------------------------------------------------- | - | ------- | ------------------------------------- |  | - | --------------------------------------------- |  |  | - | ---------- | 
|                   |  |                  | Fair Value Measurements at Reported Date Using | 
|Description        |  | December 31,2014 |                                                |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |         | SignificantObservableInputs
(Level 2) |  |   | Other 
SignificantUnobservableInputs(Level
3) | 
|Loan investments   |  | $                | 622,801                                        |  |                                                             | $ |        |                                       |  | $ |                                              |  |  | $ | 622,801    | 
|Debt investments   |  |                  | 5,384,339                                      |  |                                                             |   |        |                                       |  |   |                                              |  |  |   | 5,384,339  | 
|Equity investments |  |                  | 24,298,236                                     |  |                                                             |   | 606,000 |                                       |  |   |                                              |  |  |   | 23,692,236 | 
|                   |  |                  |                                                |  |                                                             |   |         |                                       |  |   |                                               |  |  |   |            | 
|Total              |  | $                | 30,305,376                                     |  |                                                             | $ | 606,000 |                                       |  | $ | 0                                             |  |  | $ | 29,699,376 | 
|                   |  |                  |                                                |  |                                                             |   |         |                                       |  |   |                                               |  |  |   |            | 



58



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The following table provides a summary of changes in Assets Measured at Fair Value on a
Recurring Basis Using Significant Unobservable Inputs (Level 3) for the year ended December 31, 2014:



|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | --------- | --------- | --------------- | - | --------- | ----------------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                  |  | Fair Value Measurements Using
SignificantUnobservable Inputs (Level 3)Venture Capital Investments |          
|Description                                                                                       |  | LoanInvestments                                                                                   |           |           | DebtInvestments |   |           | EquityInvestments |  |   | Total       |  
|Ending Balance, December 31, 2013, of Level 3 Assets                                              |  | $                                                                                                 | 1,466,604 |           |                 | $ | 4,172,417 |                   |  | $ | 21,655,032  |   |  | $ | 27,294,053  |  
|                                                                                                  |  |                                                                                                   |           |          
|Realized Gains (Losses) included in net change in net assets from operations:                     |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|BinOptics Corporation (Binoptics)                                                                 |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 8,333,344   |   |  |   | 8,333,344   |  
|EmergingMed.com, Inc. (Emerging Med)                                                              |  |                                                                                                   |          |           |                 |   | (778,253  | )                 |  |   |            |   |  |   | (778,253    | )
|Liazon Corporation (Liazon)                                                                       |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (472,664    | ) |  |   | (472,664    | )
|QuaDPharma, LLC (Quadpharma)                                                                      |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 160,634     |   |  |   | 160,634     |  
|Ultra-Scan Corporation (Ultra-Scan)                                                               |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 4,668       |   |  |   | 4,668       |  
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Realized Gains (Losses)                                                                     |  |                                                                                                   |          |           |                 |   | (778,253  | )                 |  |   | 8,025,982   |   |  |   | 7,247,729   |  
|Unrealized Gains (Losses) included in net change in net assets from operations:                   |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|CrowdBouncer, Inc. (Crowdbouncer)                                                                 |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (300,000    | ) |  |   | (300,000    | )
|Emerging Med                                                                                      |  |                                                                                                   |          |           |                 |   | 778,253   |                   |  |   |            |   |  |   | 778,253     |  
|Kinex Pharmaceuticals, Inc. (Kinex)                                                               |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 111,343     |   |  |   | 111,343     |  
|Knoa Software, Inc. (Knoa)                                                                        |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (356,900    | ) |  |   | (356,900    | )
|Mezmeriz, Inc. (Mezmeriz)                                                                         |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (391,373    | ) |  |   | (391,373    | )
|NDT Acquisitions, LLC (NDT)                                                                       |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 5,336       |   |  |   | 5,336       |  
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Unrealized Gains (Losses)                                                                   |  |                                                                                                   |          |           |                 |   | 778,253   |                   |  |   | (931,594    | ) |  |   | (153,341    | )
|Purchases of Securities/Changes to Securities/Non-cash conversions:                               |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|BeetNPath, LLC (Beetnpath)                                                                        |  |                                                                                                   |          |           |                 |   | 150,000   |                   |  |   |            |   |  |   | 150,000     |  
|Chequed.com, Inc. (Chequed)                                                                       |  |                                                                                                   |          |           |                 |   | 250,000   |                   |  |   | 350,000     |   |  |   | 600,000     |  
|Crashmob, Inc. (Crashmob)                                                                         |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 500,000     |   |  |   | 500,000     |  
|Crowdbouncer                                                                                      |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 300,000     |   |  |   | 300,000     |  
|Empire Genomics, LLC (Empire Genomics)                                                            |  |                                                                                                   |          |           |                 |   | 600,000   |                   |  |   |            |   |  |   | 600,000     |  
|First Wave Products Group, LLC (First Wave)                                                       |  |                                                                                                   |          |           |                 |   | 170,844   |                   |  |   |            |   |  |   | 170,844     |  
|GiveGab, Inc. (Give Gab)                                                                          |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 153,388     |   |  |   | 153,388     |  
|Kinex                                                                                             |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 143,285     |   |  |   | 143,285     |  
|Knoa                                                                                              |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 479,155     |   |  |   | 479,155     |  
|KnowledgeVision Systems, Inc. (Knowledge Vision)                                                  |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 300,000     |   |  |   | 300,000     |  
|Liazon                                                                                            |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 476,334     |   |  |   | 476,334     |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                    |  |                                                                                                   |          |           |                 |   | 166,078   |                   |  |   | 47,625      |   |  |   | 213,703     |  
|OnCore Golf Technology, Inc. (Oncore Golf)                                                        |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 200,000     |   |  |   | 200,000     |  
|Quadpharma                                                                                        |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (143,285    | ) |  |   | (143,285    | )
|SciAps, Inc. (Sciaps)                                                                             |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 500,000     |   |  |   | 500,000     |  
|SocialFlow, Inc. (Social Flow)                                                                    |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 750,000     |   |  |   | 750,000     |  
|Teleservices Solutions Holdings, LLC (Teleservices Holdings)                                      |  |                                                                                                   |          |           |                 |   |          |                   |  |   | 1,400,680   |   |  |   | 1,400,680   |  
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Purchases of Securities/Changes to Securities/Non-cash conversions                          |  |                                                                                                   |          |           |                 |   | 1,336,922 |                   |  |   | 5,457,182   |   |  |   | 6,794,104   |  
|Repayments of Securities:                                                                         |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Binoptics                                                                                         |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (10,133,343 | ) |  |   | (10,133,343 | )
|Carolina Skiff LLC (Carolina Skiff)                                                               |  |                                                                                                   |          |           |                 |   | (125,000  | )                 |  |   |            |   |  |   | (125,000    | )
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   | (287,518  | )         |                 |   |          |                   |  |   |            |   |  |   | (287,518    | )
|Liazon                                                                                            |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (3,670      | ) |  |   | (3,670      | )
|Quadpharma                                                                                        |  |                                                                                                   | (556,285  | )         |                 |   |          |                   |  |   | (367,349    | ) |  |   | (923,634    | )
|NDT                                                                                               |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (5,336      | ) |  |   | (5,336      | )
|Ultra-Scan                                                                                        |  |                                                                                                   |          |           |                 |   |          |                   |  |   | (4,668      | ) |  |   | (4,668      | )
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Repayments of Securities                                                                    |  |                                                                                                   | (843,803  | )         |                 |   | (125,000  | )                 |  |   | (10,514,366 | ) |  |   | (11,483,169 | )
|Transfers within Level 3                                                                          |  |                                                                                                   |          |           |                 |   |          |                   |  |   |            |   |  |   |            |  
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Ending Balance, December 31, 2014, of Level 3 Assets                                              |  | $                                                                                                 | 622,801   |           |                 | $ | 5,384,339 |                   |  | $ | 23,692,236  |   |  | $ | 29,699,376  |  
|                                                                                                  |  |                                                                                                   |           |           |                 |   |           |                   |  |   |             |   |  |   |             |  
|Change in unrealized appreciation on investments for the period included in changes in net assets |  |                                                                                                   | ($        | 153,341   | )              
|Net realized gains on investments for the period included in changes in net assets                |  |                                                                                                   | $         | 7,247,729 |                



59



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3.  OTHER ASSETS

At December 31, 2015 and 2014, other assets was comprised of the following:



|                                             |  |      |           |  |      |   |           | 
|-------------------------------------------- |  | ---- | --------- |  | ---- | - | --------- | 
|                                             |  | 2015 |           |  | 2014 |  
|Escrow receivable from BinOptics Corporation |  | $    | 1,504,854 |  |      | $ | 1,510,248 | 
|Deferred debenture costs, net                |  |      | 199,627   |  |      |   | 227,027   | 
|Dividend receivable                          |  |      | 86,724    |  |      |   | 37,978    | 
|Escrow receivable from Ultra-Scan            |  |      |          |  |      |   | 32,962    | 
|Equipment (net)                              |  |      | 11,676    |  |      |   | 14,558    | 
|Operating receivables                        |  |      | 1,159     |  |      |   | 2,027     | 
|                                             |  |      |           |  |      |   |           | 
|Total other assets                           |  | $    | 1,804,040 |  |      | $ | 1,824,800 | 
|                                             |  |      |           |  |      |   |           | 

During 2014 the Corporation sold its investment in BinOptics Corporation and a portion of the proceeds
were held in escrow and is scheduled to be released during 2016. During 2013, the Corporation sold its investment in Ultra-Scan Corporation (Ultra-Scan) and a portion of the sales proceeds were held in escrow and released during 2014 and 2015.

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 assets and (liabilities) at December 31, 2015 and 2014 are approximately as follows:



|                               |  |      |            |   |      |    |            |  
|------------------------------ |  | ---- | ---------- | - | ---- | -- | ---------- | -
|                               |  | 2015 |            |   | 2014 |   
|Operations                     |  | $    | 305,000    |   |      | $  | 288,000    |  
|Investments                    |  |      | (2,701,000 | ) |      |    | (2,170,000 | )
|NOL & tax credit carryforwards |  |      | 69,000     |   |      |    | 44,000     |  
|Valuation allowance            |  |      | (34,000    | ) |      |    |           |  
|                               |  |      |            |   |      |    |            |  
|Deferred tax liability, net    |  | ($   | 2,361,000  | ) |      | ($ | 1,838,000  | )
|                               |  |      |            |   |      |    |            |  

The major temporary differences cited above include differences in the book and tax bases of the
Corporations joint venture 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). No allowance was deemed necessary for 2014.



60



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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



|          |  |      |         |  |      |   |           |      |  |   |           |  
|--------- |  | ---- | ------- |  | ---- | - | --------- | ---- |  | - | --------- | -
|          |  | 2015 |         |  | 2014 |   |           | 2013 | 
|Current:  |  |      |         |  |      |   |           |      |  |   |           |  
|Federal   |  | $    | 257,279 |  |      | $ | 2,670,129 |      |  | $ | 1,946,727 |  
|State     |  |      | 14,015  |  |      |   | 118,118   |      |  |   | 211,702   |  
|          |  |      |         |  |      |   |           |      |  |   |           |  
|          |  |      | 271,294 |  |      |   | 2,788,247 |      |  |   | 2,158,429 |  
|          |  |      |         |  |      |   |           |      |  |   |           |  
|Deferred: |  |      |         |  |      |   |           |      |  |   |           |  
|Federal   |  |      | 320,546 |  |      |   | (437,470  | )    |  |   | (534,640  | )
|State     |  |      | 202,289 |  |      |   | 69,013    |      |  |   | (205,166  | )
|          |  |      |         |  |      |   |           |      |  |   |           |  
|          |  |      | 522,835 |  |      |   | (368,457  | )    |  |   | (739,806  | )
|          |  |      |         |  |      |   |           |      |  |   |           |  
|Total     |  | $    | 794,129 |  |      | $ | 2,419,790 |      |  | $ | 1,418,623 |  
|          |  |      |         |  |      |   |           |      |  |   |           |  

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



|                                                                                 |  |      |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                 |  | 2015 |           |   | 2014 |   |           | 2013 | 
|Net investment gain, realized gain and unrealized gain before income tax expense |  | $    | 2,294,348 |   |      | $ | 6,961,271 |      |  | $ | 4,291,980 |  
|                                                                                 |  |      |           |   |      |   |           |      |  |   |           |  
|Expected tax expense at statutory rate                                           |  | $    | 780,078   |   |      | $ | 2,366,832 |      |  | $ | 1,459,273 |  
|State - net of federal effect                                                    |  |      | 142,459   |   |      |   | 123,506   |      |  |   | 13,096    |  
|Pass-through benefit from portfolio investment                                   |  |      | (135,262  | ) |      |   | (71,850   | )    |  |   | (51,156   | )
|Dividend received deduction                                                      |  |      | (4,977    | ) |      |   | (5,436    | )    |  |   | (8,154    | )
|Other                                                                            |  |      | 11,831    |   |      |   | 6,738     |      |  |   | 5,564     |  
|                                                                                 |  |      |           |   |      |   |           |      |  |   |           |  
|Total                                                                            |  | $    | 794,129   |   |      | $ | 2,419,790 |      |  | $ | 1,418,623 |  
|                                                                                 |  |      |           |   |      |   |           |      |  |   |           |  

At December 31, 2015 and 2014, the Corporation had no federal net operating loss carryforwards or
capital loss carryforwards. For state tax purposes, there was a Pennsylvania net operating loss carryforward of $517,541 at December 31, 2015. As mentioned previously, the related deferred tax asset has a valuation allowance since the net
operating loss is not expected to be utilized. For state tax purposes the Corporation had a NYS Qualified Emerging Technology Company (QETC) tax credit carryforward of $29,204 and $21,733 at December 31, 2015 and 2014. The QETC credit
carryforward does not have an expiration date. The Corporation also has a Georgia Employers Jobs Tax Credit carryforward of $23,325 and $24,328 at December 31, 2015 and 2014 and this credit expires in the next nine to ten years.

The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years
ended December 31, 2012 through 2015. In general, the Corporations state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2012 through 2015.

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. There was no amount recognized for interest and penalties related to unrecognized tax benefits for the years ended December 31, 2015, 2014, and 2013.

NOTE 5.  SBA DEBENTURE OBLIGATIONS

At December 31, 2015 and
2014, Rand SBIC had debentures payable to and guaranteed by the SBA totaling $8,000,000. The weighted average interest rate at December 31, 2015 was 3.54%.



61



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The debenture terms require semiannual payments of interest at annual interest rates
ranging from 2.245% to 3.644%, plus an annual charge of 0.804%. The debentures have fixed interest rates and a 10 year maturity date. As of December 31, 2015, no additional leverage is available from the SBA.

The debentures outstanding at December 31, 2015 will mature as follows:



|                  |  |          |           | 
|----------------- |  | -------- | --------- | 
|Maturity Date     |  | Leverage |          
|2022              |  |          | 3,000,000 | 
|2023              |  |          | 2,500,000 | 
|2024              |  |          | 1,500,000 | 
|2025              |  |          | 1,000,000 | 
|                  |  |          |           | 
|Total Outstanding |  | $        | 8,000,000 | 
|                  |  |          |           | 

The Corporation was required to pay the SBA a 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. Commitment and leverage draw fees of $0, $24,250 and $72,750 were paid during the years ended December 31, 2015, 2014 and 2013, respectively.

The Corporation 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 the Corporations automatic consent to the appointment of SBA or its designee as receiver under section 311(c) of
the Act.

NOTE 6.  STOCKHOLDERS EQUITY (NET ASSETS)

At December 31, 2015 and 2014, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued.

On October 22, 2015, the Board of Directors authorized the repurchase of up to 1,000,000 shares of the Corporations outstanding
common stock on the open market through October 22, 2016 at prices that are no greater than the then current net asset value. No shares were repurchased during the year ended December 31, 2015. During 2014, the Corporation repurchased
83,380 shares for $257,372 and paid an average of $3.09 per share. At December 31, 2015, the total treasury shares held was 534,496 shares with a total cost of $1,447,491.

Summary of change in equity accounts:



|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  
|----------------------------------------------------- |  | ---------------------------- | ------- | - | ------------------------------------------- | - | ---------- | -------------------------------------- |  | - | --------- | -
|                                                      |  | AccumulatedNetInvestmentLoss |         |   | UndistributedNet RealizedGain
onInvestments |   |            | NetUnrealizedAppreciationonInvestments | 
|Balance, December 31, 2013                            |  | ($                           | 889,317 | ) |                                             | $ | 13,522,890 |                                        |  | $ | 5,357,785 |  
|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  
|Net increase (decrease) in net assets from operations |  |                              | 21,835  |   |                                             |   | 4,767,484  |                                        |  |   | (247,838  | )
|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  
|Balance, December 31, 2014                            |  | ($                           | 867,482 | ) |                                             | $ | 18,290,374 |                                        |  | $ | 5,109,947 |  
|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  
|Net increase (decrease) in net assets from operations |  |                              | 842,902 |   |                                             |   | (27,973    | )                                      |  |   | 685,290   |  
|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  
|Balance, December 31, 2015                            |  | ($                           | 24,580  | ) |                                             | $ | 18,262,401 |                                        |  | $ | 5,795,237 |  
|                                                      |  |                              |         |   |                                             |   |            |                                        |  |   |           |  

NOTE 7.  STOCK OPTION PLANS

In 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the Option Plan) that provides for the award of options to purchase up to 200,000
common shares to eligible employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new



62



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



profit sharing plan for the Corporations employees in connection with the formation of its SBIC subsidiary. As of December 31, 2015, 2014 and 2013, no stock options had been awarded
under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no
options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation (See Note 8).

NOTE 8.  EMPLOYEE BENEFIT PLANS

The Corporation has a defined contribution 401(k) Plan (the 401K Plan). The 401K Plan provides a base contribution of 1% for eligible employees and also provides up to 5% matching
contributions. The employer contributions to the 401K Plan amounted to $44,793, $55,690 and $40,710 for the years ended December 31, 2015, 2014 and 2013, respectively.

In 2002, the Corporation established a Profit Sharing Plan (the Plan) for its executive officers in accordance with Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay
its executive officers aggregate profit sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital losses and unrealized depreciation 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 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 expensed $0, $899,500 and $887,244 under the Plan for the years ended December 31, 2015, 2014 and 2013, respectively. Included in the profit sharing and bonus payable line on the
accompanying statement of financial position at December 31, 2015 is $182,000 to be paid to the executive officers upon collection of the escrow receivable in 2016. Estimated payroll taxes and benefits on the profit sharing have been accrued at
December 31, 2015, 2014 and 2013. The amounts approved do not exceed the defined limits.

NOTE 9.  COMMITMENTS AND CONTINGENCIES

The Corporation has an agreement which provides health benefits for the spouse of a former officer of the Corporation.
Remaining payments projected to be paid to the surviving spouse have been fully accrued. Total accrued health benefits under this agreement at December 31, 2015 and 2014 were $27,869 and $34,015, respectively.

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, 2015, 2014 and 2013 was $19,200, $18,840 and $18,480, respectively. The operating lease obligations are approximately as follows:



|           |  |        |        | 
|---------- |  | ------ | ------ | 
|Year       |  | Amount |       
|2016       |  | $      | 18,500 | 
|2017       |  |        | 18,800 | 
|2018       |  |        | 19,100 | 
|2019       |  |        | 19,400 | 
|Thereafter |  |        | 19,700 | 
|           |  |        |        | 
|Total      |  | $      | 95,500 | 
|           |  |        |        | 



63



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10.  UNCONSOLIDATED SIGNIFICANT SUBSIDIARY

In accordance with the Rule 4.08(g) of Regulation S-X, the Corporation has an unconsolidated significant subsidiary that is not required
to be consolidated. Accordingly, comparative financial information is presented below.



|                        |  |                                 |        |  |             |   |        | 
|----------------------- |  | ------------------------------- | ------ |  | ----------- | - | ------ | 
|                        |  | For the years ended December 31 |       
|                        |  | 2015(000s)                     |        |  | 2014(000s) |  
|Balance Sheet:          |  |                                 |        |  |             |   |        | 
|Current assets          |  | $                               | 18,131 |  |             | $ | 18,136 | 
|Non-current assets      |  | $                               | 10,417 |  |             | $ | 10,506 | 
|Current liabilities     |  | $                               | 8,609  |  |             | $ | 7,438  | 
|Non-current liabilities |  | $                               | 356    |  |             | $ | 834    | 
|Income Statement:       |  |                                 |        |  |             |   |        | 
|Net sales               |  | $                               | 36,603 |  |             | $ | 29,875 | 
|Gross profit            |  | $                               | 7,704  |  |             | $ | 7,537  | 
|Net income              |  | $                               | 4,768  |  |             | $ | 4,727  | 

NOTE 11.  QUARTERLY OPERATIONS AND EARNINGS DATA  UNAUDITED



|                                                                                  |  |            |           |  |            |   |         |            |  |   |            |  |  |    |         |  
|--------------------------------------------------------------------------------- |  | ---------- | --------- |  | ---------- | - | ------- | ---------- |  | - | ---------- |  |  | -- | ------- | -
|                                                                                  |  | 4thQuarter |           |  | 3rdQuarter |   |         | 2ndQuarter |  |   | 1stQuarter | 
|2015                                                                              |  |            |           |  |            |   |         |            |  |   |            |  |  |    |         |  
|Investment income                                                                 |  | $          | 745,787   |  |            | $ | 718,279 |            |  | $ | 718,524    |  |  | $  | 641,747 |  
|Net increase in net assets from operations                                        |  | $          | 891,078   |  |            | $ | 286,497 |            |  | $ | 143,096    |  |  | $  | 179,548 |  
|Basic and diluted net increase in net assets per share from operations            |  | $          | 0.14      |  |            | $ | 0.05    |            |  | $ | 0.02       |  |  | $  | 0.03    |  
|2014                                                                              |  |            |           |  |            |   |         |            |  |   |            |  |  |    |         |  
|Investment income                                                                 |  | $          | 825,620   |  |            | $ | 569,349 |            |  | $ | 671,559    |  |  | $  | 517,947 |  
|Net increase (decrease) in net assets from operations                             |  | $          | 3,967,876 |  |            | $ | 223,442 |            |  | $ | 519,776    |  |  | ($ | 169,613 | )
|Basic and diluted net increase (decrease) in net assets per share from operations |  | $          | 0.63      |  |            | $ | 0.03    |            |  | $ | 0.08       |  |  | ($ | 0.03    | )

NOTE 12.  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:



|                             |  |      |         |   |      |    |         |      |  |    |         |  
|---------------------------- |  | ---- | ------- | - | ---- | -- | ------- | ---- |  | -- | ------- | -
|                             |  | 2015 |         |   | 2014 |    |         | 2013 | 
|Balance at beginning of year |  | ($   | 128,311 | ) |      | ($ | 122,000 | )    |  | ($ | 196,795 | )
|Provision for losses         |  |      |        |   |      |    | (6,311  | )    |  |    |        |  
|Write offs/Recoveries        |  |      | 6,311   |   |      |    |        |      |  |    | 74,795  |  
|                             |  |      |         |   |      |    |         |      |  |    |         |  
|Balance at end of year       |  | ($   | 122,000 | ) |      | ($ | 128,311 | )    |  | ($ | 122,000 | )
|                             |  |      |         |   |      |    |         |      |  |    |         |  



64



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13.  SUBSEQUENT EVENT

On December 29, 2015 the Corporation entered into an asset purchase agreement under which it agreed to sell its investment in Gemcor
II LLC (Gemcor). The required percentage of Gemcor shareholders ratified and approved the sale in January 2016. The transaction is anticipated to close in the first quarter of 2016, and remains subject to customary approvals and closing conditions.
Based on the Corporations ownership of Gemcor, gross cash proceeds of approximately $14 million are expected upon completion of the transaction. The final aggregate purchase price payable by the buyer remains subject to post-closing working
capital adjustments. Additionally, the Corporation will incur the related profit sharing expense in the first quarter of 2016.



65



---

##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

SCHEDULE OF CONSOLIDATED CHANGES IN INVESTMENTS AT

COST AND REALIZED LOSS

For the Year Ended December 31, 2015



|                                                                                     |  |                        |            |   |                     |    |          |  
|------------------------------------------------------------------------------------ |  | ---------------------- | ---------- | - | ------------------- | -- | -------- | -
|                                                                                     |  | CostIncrease(Decrease) |            |   | RealizedGain (Loss) |   
|New investments:                                                                     |  |                        |            |   |                     |    |          |  
|GoNoodle, Inc. (GoNoodle) (formerly HealthTeacher, Inc.)                             |  | $                      | 1,000,025  |   |                     | $  |         |  
|Genicon, Inc. (Genicon)                                                              |  |                        | 1,000,000  |   |                     |    |         |  
|SciAps, Inc. (SciAps)                                                                |  |                        | 749,999    |   |                     |    |         |  
|Rheonix, Inc. (Rheonix)                                                              |  |                        | 680,475    |   |                     |    |         |  
|Tilson Technology Management, Inc. (Tilson)                                          |  |                        | 600,000    |   |                     |    |         |  
|Outmatch (formerly Chequed Holdings LLC)                                             |  |                        | 500,000    |   |                     |    |         |  
|City Dining Cards, Inc. (City Dining)                                                |  |                        | 500,000    |   |                     |    |         |  
|SocialFlow, Inc. (Social Flow)                                                       |  |                        | 500,000    |   |                     |    |         |  
|OnCore Golf Technology, Inc. (Oncore Golf)                                           |  |                        | 325,000    |   |                     |    |         |  
|GiveGab, Inc. (Give Gab)                                                             |  |                        | 212,833    |   |                     |    |         |  
|Knowledge Vision Systems Inc. (Knowledge Vision)                                     |  |                        | 200,001    |   |                     |    |         |  
|BeetNPath, LLC (BeetNPath)                                                           |  |                        | 200,000    |   |                     |    |         |  
|Mezmeriz, Inc. (Mezmeriz)                                                            |  |                        | 151,477    |   |                     |    |         |  
|Statisfy, Inc. (Statisfy) (formerly CrashMob, Inc.)                                  |  |                        | 150,000    |   |                     |    |         |  
|Teleservices Solutions Holdings, LLC (Teleservices)                                  |  |                        | 104,198    |   |                     |    |         |  
|Intrinsiq Materials, Inc. (Intrinsiq)                                                |  |                        | 95,000     |   |                     |    |         |  
|                                                                                     |  |                        |            |   |                     |    |          |  
|Total of new investments                                                             |  |                        | 6,969,008  |   |                     |    |         |  
|Other changes to investments:                                                        |  |                        |            |   |                     |    |          |  
|Teleservices dividend conversion                                                     |  |                        | 131,200    |   |                     |    |         |  
|First Wave Products Group, LLC (First Wave) interest conversion and OID amortization |  |                        | 31,353     |   |                     |    |         |  
|Rheonix interest conversion                                                          |  |                        | 22,257     |   |                     |    |         |  
|Outmatch interest conversion                                                         |  |                        | 12,274     |   |                     |    |         |  
|Mercantile Adjustment Bureau, LLC (Mercantile) OID amortization                      |  |                        | 9,997      |   |                     |    |         |  
|BeetNPath interest conversion                                                        |  |                        | 9,000      |   |                     |    |         |  
|GoNoodle interest conversion                                                         |  |                        | 8,974      |   |                     |    |         |  
|SciAps interest conversion                                                           |  |                        | 4,711      |   |                     |    |         |  
|                                                                                     |  |                        |            |   |                     |    |          |  
|Total of other changes to investments                                                |  |                        | 229,766    |   |                     |    |         |  
|Investments repaid, sold or liquidated:                                              |  |                        |            |   |                     |    |          |  
|Gemcor II, LLC (Gemcor) repayment                                                    |  |                        | (205,828   | ) |                     |    |         |  
|CrowdBouncer, Inc. (Crowdbouncer) realized loss                                      |  |                        | (300,000   | ) |                     |    | (300,000 | )
|Synacor, Inc. (Synacor) shares sold                                                  |  |                        | (385,680   | ) |                     |    | 262,925  |  
|Carolina Skiff LLC (Carolina Skiff) repayment                                        |  |                        | (1,110,000 | ) |                     |    |         |  
|Binoptics Corporation (Binoptics) escrow adjustment                                  |  |                        |           |   |                     |    | (5,394   | )
|                                                                                     |  |                        |            |   |                     |    |          |  
|Total investments repaid, sold or liquidated                                         |  |                        | (2,001,508 | ) |                     |    | (42,469  | )
|                                                                                     |  |                        |            |   |                     |    |          |  
|Net change in investments, at cost                                                   |  | $                      | 5,197,266  |   |                     | ($ | 42,469   | )
|                                                                                     |  |                        |            |   |                     |    |          |  





66



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Rand Capital Corporation and Subsidiary

We have audited the accompanying
consolidated statements of financial position of Rand Capital Corporation and Subsidiary (the Corporation) as of December 31, 2015 and 2014, including the consolidated schedule of portfolio investments as of December 31, 2015
and 2014, and the related consolidated statements of operations, cash flows and changes in net assets for each of the three years in the period ended December 31, 2015, and the financial highlights schedule for each of the five years in the
period then ended. These consolidated financial statements and the financial highlights schedule are the responsibility of the Corporations management. Our responsibility is to express an opinion on these consolidated financial statements and
financial highlights schedule based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included examination or confirmation of securities owned as of December 31, 2015 and 2014. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements and financial highlights schedule referred to above present fairly, in all material
respects, the financial position of the Corporation as of December 31, 2015 and 2014, the results of their operations, their cash flows and the changes in their net assets for each of the three years in the period ended December 31, 2015,
and the financial highlights schedule for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2, the investment securities included in the consolidated financial statements valued at $36,832,400 (109% of net assets) and $30,305,376 (94% of net assets) as of December 31,
2015 and 2014, respectively include securities valued at $36,832,400 and $29,699,376, respectively, whose fair values have been estimated by management in the absence of readily ascertainable fair value. The fair value estimates are then approved by
the Board of Directors. We have reviewed the procedures used by management in preparing the valuations of investment securities and have inspected the underlying documentation, and in the circumstances we believe the procedures are reasonable and
the documentation appropriate. Those estimated values may differ from the values that would have been used had a ready market for the investments existed.

The supplementary schedule of consolidated changes in investments at cost and realized loss for the year ended December 31, 2015 has been subjected to audit procedures performed in conjunction with
the audit of the Corporations consolidated financial statements. The supplemental information is the responsibility of the Corporations management. Our audit procedures included determining whether the supplemental information reconciles
to the consolidated 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 information. In our opinion, the
supplemental schedule of consolidated changes in investments at cost and realized loss for the year ended December 31, 2015 is fairly stated, in all material respects, in relation to the financial statements as a whole.

/s/ FREED MAXICK CPAs, P.C.

Buffalo, New York

March 10, 2016



67



---

##### Table of Contents

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

None

Item 9A.Controls and Procedures

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

Management assessed the
effectiveness of the Corporations internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control-Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2015, the Corporations internal control over financial reporting is effective based on those criteria.

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 is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and
forms, and that this information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive
Officer and the Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as of December 31, 2015. 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, 2015.

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 Securities and Exchange Commission
that permit the corporation to provide only managements report in this Annual Report.

Changes in Internal Control
over Financial Reporting.    There have been no changes in our internal control over financial reporting during the Corporations most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Corporations internal control over financial reporting.

Item 9B.Other Information

None

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, and Section 16(a) Beneficial Ownership Compliance provided in the Corporations definitive Proxy Statement for its 2016
Annual Meeting of Shareholders, to be filed under Regulation 14A (the 2016 Proxy Statement).

The Corporation has
adopted a written Code of Ethics that applies to our principal executive officer, principal financial officer and vice president of finance, and a Business Ethics Policy applicable to the Corporations directors, officers and employees. The
Corporations Code of Ethics and Business Ethics Policy are available, free of charge, in the Governance section of the Corporations website located at www.randcapital.com.



68



---

##### Table of Contents

Item 11.Executive
Compensation

Information in response to this Item is incorporated herein by reference to the information
provided in the Corporations 2016 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 2016 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 2016 Proxy Statement under the heading DIRECTOR INDEPENDENCE.

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 2016 Proxy Statement under the heading INDEPENDENT REGISTERED PUBLIC ACCOUNTANT (INDEPENDENT ACCOUNTANT) FEES.

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
| | --- | ---------------------------------

Statements of Financial Position as of December 31, 2015 and 2014

Statements of Operations for the three years in the period ended December 31, 2015

Statements of Changes in Net Assets for the three years in the period ended December 31, 2015

Statements of Cash Flows for the three years in the period ended December 31, 2015

Schedule of Portfolio Investments as of December 31, 2015

Schedule of Portfolio Investments as of December 31, 2014

Financial
Highlights Schedule for the five years in the period ended December 31, 2015

Notes to the Consolidated Financial
Statements

Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Loss for the year ended
December 31, 2015

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 12 to the consolidated financial statements.



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



| | (3.1)(i) | Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of Form N-2 filed with the Securities Exchange Commission on
April 22, 1997. (File No. 814-00235).
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69



---

##### Table of Contents

| | (3.1)(ii) | By-laws of the Corporation incorporated by reference to Exhibit (b) of Form N-2 filed with the Securities Exchange Commission on April 22, 1997. (File
No. 814-00235).
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) of Form N-2 filed with the Securities Exchange Commission on
April 22, 1997. (File No. 814-00235).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10.1) | Employee Stock Option Plan  incorporated by reference to Appendix B to the Corporations definitive Proxy Statement filed on June 8, 2001.* (File
No. 811-01825).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (3.2)(ii) | By-laws of Rand Capital SBIC, Inc.  incorporated by reference to Exhibit 2 to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc.
filed with the SEC on February 6, 2009. (File No. 811-22276).
| | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10.2) | Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital Management, LLC into Rand Merger Corporation, as filed by the NY Department of State on 12/18/08
 incorporated by reference to Exhibit 1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009 (File No. 811-22276).
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10.3) | Rand Capital Corporation Amended and Restated Profit Sharing Plan applicable to Rand Capital SBIC, Inc.  incorporated by reference to Exhibit 7 to Registration
Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on February 6, 2009. (File No. 811-22276)*
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (31.1) | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended  filed herewith.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (32.1) | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Rand Capital Corporation  filed herewith.
| | ------ | --------------------------------------------------------------------------------------------------------------------



|*  Management | contract or compensatory plan.
|------------- | ------------------------------



70



---

##### Table of Contents

Signatures

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



|                     |  |                          |  |                         
|-------------------- |  | ------------------------ |  | ------------------------
|Date: March 10, 2016 |  | RAND CAPITAL CORPORATION
|                     |  |                         
|                     |  | By:                      |  | /s/  Allen F. Grum      
|                     |  |                          |  | Allen F. Grum, President

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



|                                                            |  |               
|----------------------------------------------------------- |  | --------------
|Signature/Title                                             |  |               
|(i) Principal Executive Officer:                            |  |               
|                                                            | 
|/s/  Allen F. Grum
Allen F. Grum / President                |  | March 10, 2016
|                                                            | 
|(ii) Principal Accounting & Financial Officer:              |  |               
|                                                            | 
|/s/  Daniel P. Penberthy
Daniel P. Penberthy / Treasurer    |  | March 10, 2016
|                                                            | 
|(iii) Directors:                                            |  |               
|                                                            | 
|/s/  Allen F. Grum
Allen F. Grum / Director                 |  | March 10, 2016
|                                                            | 
|/s/  Erland E. Kailbourne
Erland E. Kailbourne / Director   |  | March 10, 2016
|                                                            | 
|/s/  Ross B. Kenzie
Ross B. Kenzie / Director               |  | March 10, 2016
|                                                            | 
|/s/  Robert S. McLeese
Robert S. McLeese / Director         |  | March 10, 2016
|                                                            | 
|/s/  Reginald B. Newman II
Reginald B. Newman II / Director |  | March 10, 2016
|                                                            | 
|/s/  E. Wycliffe Orr, Jr.
E. Wycliffe Orr, Jr / Director    |  | March 10, 2016
|                                                            | 
|/s/  Jayne K. Rand
Jayne K. Rand / Director                 |  | March 10, 2016
|                                                            | 
|/s/  Robert M. Zak
Robert M. Zak / Director                 |  | March 10, 2016



71