##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,
    2010o

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

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

14203(Zip Code)   Registrants telephone number, including area code):
    (716) 853-0802
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

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

NASDAQ Capital Market   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





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

Business


1Item 1A.

Risk Factors


4Item 1B.

Unresolved Staff Comments


6Item 2.

Properties


6Item 3.

Legal Proceedings


6Item 4.

Removed and Reserved


6PART IIItem 5.

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


7Item 6.

Selected Financial Data


10Item 7.

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


11Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


25Item 8.

Financial Statements and Supplementary Data


26Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


49Item 9A.

Controls and Procedures


49Item 9B.

Other Information


49PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


49Item 11.

Executive Compensation


50Item 12.

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


50Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


50Item 14.

Principal Accountant Fees and Services


50PART IVItem 15.

Exhibits, Financial Statement Schedules


50EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



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




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##### Table of Contents



SBIC
    Subsidiary
       2




---



##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



The
    Corporation Operates in a Competitive Market for Investment
    Opportunities
    The
    Corporations Portfolio Has a Limited Number of Companies,
    and May be Subjected to Greater Risk if Any of These Companies
    Defaults
    The
    Corporation May be negatively Affected by Adverse Changes in the
    General Economic Conditions of the Domestic and Global
    Markets
    Fluctuations
    of Quarterly Results
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Removed
    and Reserved   6




---



##### Table of Contents



Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2010 Quarter ending:

High

LowMarch 31st

$
3.84


$
3.20June 30th

$
3.77


$
3.00September 30th

$
3.39


$
2.70December 31st

$
3.80


$
2.97   2009 Quarter ending:

High

LowMarch 31st

$
4.00


$
3.19June 30th

$
4.15


$
2.97September 30th

$
3.95


$
3.15December 31st

$
4.05


$
3.54   Form 8-K
  Profit
    Sharing and Stock Option Plans
     7




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##### Table of Contents



Shareholders
    of Record
    Stock
    Repurchase Plan
   8




---



##### Table of Contents



Company
    Performance Graph
    COMPARISON
    OF CUMULATIVE TOTAL RETURN
  
  ASSUMES
    $100 INVESTED ON JAN. 01, 2006
    ASSUMES DIVIDENDS REINVESTED
    FISCAL YEAR ENDING DEC. 31, 2010
  and/or
  FISCAL
    YEAR ENDING
  COMPANY/INDEX/MARKET


2005



2006



2007



2008



2009



2010Rand Capital Corporation


$
100.00



$
261.19



$
268.51



$
261.19



$
297.01



$
241.04NASDAQ Market Index


$
100.00



$
110.25



$
121.88



$
73.10



$
106.22



$
125.36Peer Group Index


$
100.00



$
132.25



$
94.96



$
38.19



$
67.87



$
97.90           9




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Balance
    Sheet Data as of December 31:
  2010

2009

2008

2007

2006Total assets

$
35,091,260


$
35,631,371


$
32,228,797


$
32,722,151


$
29,463,944Total liabilities

$
12,040,442


$
12,425,490


$
12,001,831


$
12,904,328


$
12,681,539Net assets

$
23,050,818


$
23,205,881


$
20,226,966


$
19,817,823


$
16,782,405Net asset value per outstanding share

$
3.38


$
3.40


$
3.54


$
3.47


$
2.93Common stock shares outstanding


6,818,934



6,818,934



5,718,934



5,718,934



5,718,934   Operating
    Data for the year ended December 31:
  2010

2009

2008

2007

2006Investment income

$
847,283


$
1,749,525


$
1,757,003


$
2,302,870


$
1,326,962Total expenses

$
2,367,911


$
1,850,113


$
1,721,555


$
1,650,947


$
1,519,184Net investment (loss) gain

$
(973,189
)

$
(63,878
)

$
135,689


$
398,703


$
(1,264,802
)Net realized gain (loss) on sales and dispositions of
    investments, net of tax

$
3,222,688


$
2,007,974






$
(42,045
)

$
3,456,441Net (decrease) increase in unrealized appreciation, net of tax

$
(2,404,562
)

$
(2,683,516
)

$
273,454


$
2,362,507


$
5,974,832Net (decrease) increase in net assets from operations

$
(155,063
)

$
(739,420
)

$
409,143


$
2,719,165


$
8,166,471  10




---



##### Table of Contents



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




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##### Table of Contents



2010
    Highlights and Outlook
         12




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##### Table of Contents



Critical
    Accounting Policies
      Valuation
    of Investments
          
    Loan and debt securities are generally valued at the price the
    security would command in order to provide a yield to maturity
    equivalent to the current yield of similar debt securities. A
    debt instrument may be reduced in value if it is judged to be of
    poor quality and collection is in doubt. A debt security may
    also be valued based on the estimated proceeds from the sale of
    a portfolio company at its estimated fair value.
    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.    Level 1:
 13




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##### Table of Contents



Level 2:
  Level 3:
          Revenue
    Recognition (Interest Income)
        Recent
    Accounting Pronouncements
  2010-06 2010-06 2010-06
   14




---



##### Table of Contents



Financial
    Condition
  Overview:
  12/31/10


12/31/09


(Decrease)


% (Decrease)Total assets

$
35,091,260


$
35,631,371


$
(540,111
)


(1.5
)%Total liabilities


12,040,442



12,425,490



(385,048
)


(3.1
)%Net assets

$
23,050,818


$
23,205,881


$
(155,063
)


(0.7
)%             Composition
    of the Corporations Investment Portfolio
    12/31/10


12/31/09


(Decrease)


% (Decrease)Investments, at cost

$
13,573,041


$
14,767,920


$
(1,194,879
)


(8.1
)%Unrealized appreciation, net


5,791,584



9,528,225



(3,736,641
)


(39.2
)%Investments, at fair value

$
19,364,625


$
24,296,145


$
(4,931,520
)


(20.3
)%    15




---



##### Table of Contents



New Investments:

AmountMicrocision LLC (Microcision)

$
850,000Mid America Brick (Mid America)


800,000Liazon Corporation (Liazon)


501,200Rheonix, Inc. (Rheonix)


500,000GridApp Systems, Inc. (GridApp)


480,000Chequed.com, Inc. (Chequed)


250,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)


225,000Total of investments made during the year ended
    December 31, 2010


3,606,200Changes to Investments:EmergingMed.com, Inc (Emerging Med) interest conversion


216,712Microcision interest conversion


73,472Niagara Dispensing interest conversion


36,918Mezmeriz, Inc (Mezmeriz) interest conversion


21,509SOMS Technologies, LLC (SOMS) interest conversion


15,897GridApp interest conversion


1,774Total changes to investments during the year ended
    December 31, 2010


366,282Investments Repaid, Sold or Liquidated:GripApp


(1,577,708
)Innov-X Systems Inc (Innovex)


(1,250,000
)Wineisit.com Corporation (Wineisit)


(721,918
)Golden Goal LLC (Golden Goal)


(675,652
)APF Group, Inc. (APF)


(631,547
)Gemcor II, LLC (Gemcor)


(110,286
)Photonic Products Group, Inc. (Photonics)


(76,250
)Adam


(68,000
)Bioworks, Inc. (Bioworks)


(56,000
)Total of investments repaid, sold or liquidated during the
    year ended December 31, 2010


(5,167,361
)Total change in investments, at cost, during the year ended
    December 31, 2010

$
(1,194,879
)     Fair Value at

% of Total AssetsDecember 31,

at December 31,Company

Industry

2010

2010Gemcor

Manufacturing  Aerospace
    Machinery

$
6,113,596



17
%Synacor Inc. (Synacor)

Software

$
4,168,001



12
%Microcision

Manufacturing  Medical Products

$
1,582,282



5
%Carolina Skiff LLC (Carolina Skiff)

Manufacturing  Boats

$
1,500,000



4
%Ultra-Scan Corporation (Ultra-Scan)

Electronics  Hardware/Software

$
1,203,000



3
%  16




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##### Table of Contents



Fair Value at

% of Total AssetsDecember 31,

at December 31,Company

Industry

2009

2009Innovex

Manufacturing  Metals Testing Equipment

$
6,300,000



18
%Gemcor

Manufacturing  Aerospace Machinery

$
6,223,883



17
%Synacor

Software

$
4,168,001



12
%Carolina Skiff

Manufacturing  Boats

$
1,500,000



4
%Ultra-Scan

Electronics  Hardware/Software

$
1,203,000



3
%     % of Net Asset Value at


% of Net Asset Value atGeographic Region

December 31, 2010


December 31, 2009USA  East


92
%


94
%USA  South


8
%


6
%100
%


100
%     Percentage of





Percentage ofCost


Total Portfolio


Fair Value


Total PortfolioDecember 31, 2010:Subordinated Debt and Promissory Notes

$
3,792,655



28
%

$
3,345,326



17
%Convertible Debt


663,596



5



663,596



4Equity and Partnership Interests


9,078,590



67



15,317,503



79Equity Warrants


38,200







38,200



0Total

$
13,573,041



100
%

$
19,364,625



100
%December 31, 2009:Subordinated Debt and Promissory Notes

$
3,320,606



23
%

$
1,617,141



7
%Convertible Debt


2,661,847



18



2,347,674



10Equity and Partnership Interests


8,717,467



59



15,213,330



62Equity Warrants


68,000







5,118,000



21Total

$
14,767,920



100
%

$
24,296,145



100
%   Results
    of Operations
  Investment
    Income
   17




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##### Table of Contents



Comparison
    of the years ended December 31, 2010 and 2009
  December 31,


December 31,


Increase


% Increase2010


2009


(Decrease)


(Decrease)Interest from portfolio companies

$
688,177


$
568,524


$
119,653



21.0
%Interest from other investments


23,574



17,129



6,445



37.6
%Dividend and other investment income


120,071



1,133,102



(1,013,031
)


(89.4
)%Other income


15,461



30,770



(15,309
)


(49.8
)%Total investment income

$
847,283


$
1,749,525


$
(902,242
)


(51.6
)%   Interest from portfolio companies 
    Interest

Investment

Year that InterestCompany

Rate

Cost

Accrual CeasedAssociates Interactive LLC (Associates)


8
%

$
291,331



2009G-Tec Natural Gas Systems (G-Tec)


8
%

$
400,000



2004Niagara Dispensing


14
%

$
547,328



2010   Interest from other investments
  Dividend and other investment income
    Other income
     18




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##### Table of Contents



Comparison
    of the years ended December 31, 2009 and 2008
  December 31,


December 31,


(Decrease)


% (Decrease)2009


2008


Increase


IncreaseInterest from portfolio companies

$
568,524


$
608,180


$
(39,656
)


(6.5
)%Interest from other investments


17,129



90,660



(73,531
)


(81.1
)%Dividend and other investment income


1,133,102



1,027,377



105,725



10.3
%Other income


30,770



30,786



(16
)


(0.1
)%Total investment income

$
1,749,525


$
1,757,003


$
(7,478
)


(0.4
)%   Interest from portfolio companies
    Interest

Investment

Year that InterestCompany

Rate

Cost

Accrual CeasedAPF


8
%

$
631,547



2009Associates Interactive LLC (Associates)


8
%

$
293,518



2009Golden Goal LLC


13
%

$
675,652



2009G-Tec Natural Gas Systems (G-Tec)


8
%

$
400,000



2004UStec, Inc. (Ustec)


5
%


100,000



2006WineIsIt.com (Wineisit)


10
%


801,918



2005   Interest from other investments
  Dividend and other investment income
  Other income
  Operating
    Expenses
  Comparison
    of the years ended December 31, 2010 and 2009
  December 31,

December 31,2010

2009

Increase

% IncreaseTotal expenses

$
2,367,911


$
1,850,113


$
517,798



28.0
%    19




---



##### Table of Contents



Comparison
    of the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

Increase

% IncreaseTotal expenses

$
1,850,113


$
1,721,555


$
128,558



7.5
%           Realized
    Gains and Losses on Investments
  Comparison
    of the years ended December 31, 2010 and 2009
  December 31,

December 31,2010

2009

Change

% IncreaseRealized gain

$
4,962,742


$
3,161,913


$
1,800,829



57.0
%      20




---



##### Table of Contents



Comparison
    of the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

ChangeRealized Gain

$
3,161,913






$
3,161,913       Change in
    Unrealized Appreciation of Investments
  For
    the years ended December 31, 2010 and 2009
  December 31,

December 31,2010

2009

ChangeChange in Unrealized Appreciation

$
(3,736,642
)

$
(4,211,605
)

$
474,963  21




---



##### Table of Contents



ValuationChangePortfolio Company

during 2010Reclass Wineisit to a realized loss


721,918Reclass Golden Goal to a realized loss


656,652Reclass APF to a realized loss


631,547Reclass GridApp to realized gain


295,935Advantage 24/7


100,000Reclass Bioworks, Inc. to a realized loss


56,000SOMS appreciation


55,717Reclass Photonics to a realized loss


45,752Niagara Dispensing depreciation


(1,250,163
)Reclass Innovex to realized gain


(5,050,000
)Total Change in Unrealized Appreciation during the year ended
    December 31, 2010

$
(3,736,642
)         For
    the years ended December 31, 2009 and 2008
  December 31,

December 31,2009

2008

Decrease

% DecreaseChange in Unrealized Appreciation

$
(4,211,605
)

$
601,985


$
(4,813,590
)


(800
%)     ValuationChangePortfolio Company

during 2009Reclass Rocket Broadband to a realized loss

$
715,000Rheonix Inc. (Rheonix)


136,000Photonics


7,250Adam


(65,341
)G-Tec Natural Gas Systems (Gtec)


(98,000
)Associates Interactive, LLC (Associates)


(293,518
)GridApp


(295,935
)APF


(324,213
)Niagara Dispensing


(367,951
)Golden Goal


(419,238
)Reclass Kionix, Inc. (Kionix) to realized gain


(493,959
)Innovex


(2,711,700
)Total Change in Unrealized Appreciation during the year ended
    December 31, 2009

$
(4,211,605
)  22




---



##### Table of Contents



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




---



##### Table of Contents



Cash Receipts due by year2015 and2011

2012

2013

2014

beyondScheduled Cash Receipts from Portfolio Companies

$
290,000


$
2,823,000


$
2,974,000


$
213,000


$
1,602,000          24




---



##### Table of Contents



Disclosure
    of Contractual Obligations
    Payments due by periodLess than

1-3

3-5

MoreTotal

1 year

years

years

than 5 yrsSBA Debentures

$
10,000,000


$
0


$
0


$
5,400,000


$
4,600,000Operating Lease Obligations (Rent of office space)

$
87,600


$
16,800


$
34,680


$
36,120


$
0Total

$
10,087,600


$
16,800


$
34,680


$
5,436,120


$
4,600,000   Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk  Note 1-
  over-the-counter
   25




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data     
 Statements of Financial Position as of
    December 31, 2010 and 2009


27Statements of Operations for the three years in
    the period ended December 31, 2010


28Statements of Changes in Net Assets for the three
    years in the period ended December 31, 2010


29Statements of Cash Flows for the three years in
    the period ended December 31, 2010


30Schedule of Portfolio Investments as of
    December 31, 2010


31Schedules of Selected Per Share Data and Ratios
    for the five years in the period ended December 31, 2010


34Notes to the Consolidated Financial Statements


35Supplemental Schedule of Consolidated Changes in
    Investments at Cost and Realized Gain for the year ended
    December 31, 2010


47Report of Independent Registered Public
    Accounting Firm


48   26




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONDecember 31,
  2010


2009AssetsInvestments at fair value (identified cost: 2010 
    $13,573,041, 2009  $14,767,920)

$
19,364,625


$
24,296,145Cash and cash equivalents


11,698,653



9,417,236Interest receivable (net of allowance 2010  $158,245,
    2009  $209,089)


1,051,848



1,192,118Prepaid income taxes


414,745



Other assets


2,561,389



725,872Total assets

$
35,091,260


$
35,631,371Liabilities and Stockholders Equity (net
    assets)Liabilities:Debentures guaranteed by the SBA

$
10,000,000


$
9,100,000Deferred tax liability


1,044,315



1,809,000Income taxes payable






1,082,646Accounts payable and accrued expenses


990,477



431,233Deferred revenue


5,650



2,611Total liabilities


12,040,442



12,425,490Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000;
    shares issued 6,863,034


686,304



686,304Capital in excess of par value


10,581,789



10,581,789Accumulated net investment (loss)


(7,674,968
)


(4,961,725
)Undistributed net realized gain on investments


15,860,132



10,897,390Net unrealized appreciation on investments


3,644,767



6,049,329Treasury stock, at cost, 44,100 shares


(47,206
)


(47,206
)Net assets (per share 2010  $3.38, 2009 
    $3.40)


23,050,818



23,205,881Total liabilities and stockholders equity (net
    assets)

$
35,091,260


$
35,631,371    27




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor The Years Ended December 31,
    2010, 2009 and 2008
  2010


2009


2008Investment income:Interest from portfolio companies

$
688,177


$
568,524


$
608,180Interest from other investments


23,574



17,129



90,660Dividend and other investment income


120,071



1,133,102



1,027,377Other income


15,461



30,770



30,786847,283



1,749,525



1,757,003Operating expenses:Salaries


1,120,834



623,765



440,337Employee benefits


190,336



126,046



121,659Directors fees


88,500



76,750



77,250Professional fees


161,862



227,415



248,667Stockholders and office operating


122,029



140,554



120,260Insurance


39,133



49,988



41,489Corporate development


60,849



55,749



65,042Other operating


15,636



(34,718
)


83,9721,799,179



1,265,549



1,198,676Interest on SBA obligations


574,715



497,475



522,062Bad debt (recovery) expense


(5,983
)


87,089



817Total expenses


2,367,911



1,850,113



1,721,555Investment (loss) gain before income taxes


(1,520,628
)


(100,588
)


35,448Income tax benefit


(547,439
)


(36,710
)


(100,241
)Net investment (loss) gain


(973,189
)


(63,878
)


135,689Realized and unrealized gain (loss) on investments:Realized gain on sales and dispositions, net


4,962,742



3,161,913



Income tax expense


1,740,054



1,153,939



Net realized gain on investments


3,222,688



2,007,974



Unrealized appreciation on investments:Beginning of year


9,528,226



13,739,831



13,137,846End of year


5,791,584



9,528,226



13,739,831Change in unrealized appreciation before income taxes


(3,736,642
)


(4,211,605
)


601,985Deferred income tax (benefit) expense


(1,332,080
)


(1,528,089
)


328,531Net (decrease) increase in unrealized appreciation


(2,404,562
)


(2,683,516
)


273,454Net realized and unrealized gain (loss) on investments


818,126



(675,542
)


273,454Net (decrease) increase in net assets from operations

$
(155,063
)

$
(739,420
)

$
409,143Weighted average shares outstanding


6,818,934



6,115,081



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

$
(0.02
)

$
(0.12
)

$
0.07    28




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor The Years Ended December 31,
    2010, 2009 and 2008
  2010


2009


2008Net assets at beginning of period

$
23,205,881


$
20,226,966


$
19,817,823Net investment (loss) gain


(973,189
)


(63,878
)


135,689Net realized gain on sales and dispositions of investments


3,222,688



2,007,974



Net (decrease) increase in unrealized appreciation


(2,404,562
)


(2,683,516
)


273,454Net (decrease) increase in net assets from operations


(155,063
)


(739,420
)


409,143Issuance of common stock






3,718,335



Subtotal






3,718,335



Net assets at end of period

$
23,050,818


$
23,205,881


$
20,226,966    29




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 For
    The Years Ended December 31, 2010, 2009 and
    2008
  2010


2009


2008Cash flows from operating activities:Net (decrease) increase in net assets from operations

$
(155,063
)

$
(739,420
)

$
409,143Adjustments to reconcile net increase in net assets to net cash
    used in operating activities:Depreciation and amortization


39,521



36,218



52,230Change in interest receivable allowance


(50,844
)


86,272



817Decrease (increase) in unrealized appreciation of investments


3,736,642



4,211,605



(601,985
)Deferred tax benefit


(764,685
)


(1,681,000
)


(465,000
)Realized gain on portfolio investments, net


(4,962,742
)


(3,161,913
)


Payment in kind, interest accrued






(115,334
)


(15,380
)Non-cash conversion of debenture interest


(366,282
)


(41,599
)


(67,235
)Changes in operating assets and liabilities:Decrease (increase) in interest receivable


191,114



(264,502
)


(367,704
)(Increase) decrease in other assets


(63,384
)


137,059



779,083(Increase) in prepaid income taxes


(414,745
)






(Decrease) increase in income taxes payable


(1,082,646
)


983,923



(375,742
)Increase (decrease) in accounts payable and accrued liabilities


559,244



138,502



(28,479
)Increase (decrease) increase in deferred revenue


3,039



(17,766
)


(33,276
)Total adjustments


(3,175,768
)


311,465



(1,122,671
)Net cash used in operating activities


(3,330,831
)


(427,955
)


(713,528
)Cash flows from investing activities:Investments originated


(3,606,200
)


(2,955,309
)


(1,626,657
)Proceeds from sale of portfolio investments


8,230,833



4,946,781



Proceeds from loan repayments


110,286



420,981



713,465Capital expenditures


(846
)






(12,222
)Net cash provided by (used in) investing activities


4,734,073



2,412,453



(925,414
)Cash flows from financing activities:Issuance of common stock, net






3,718,335



Proceeds from SBA debenture


900,000



1,000,000



Origination costs to SBA


(21,825
)


(43,250
)


Net cash provided by financing activities


878,175



4,675,085



Net increase (decrease) in cash and cash equivalents


2,281,417



6,659,583



(1,638,942
)Cash and cash equivalents:Beginning of year


9,417,236



2,757,653



4,396,595End of year

$
11,698,653


$
9,417,236


$
2,757,653    30




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
    December 31, 2010
  (b)










PerCompany, Geographic Location, Business



Date

(c)





(d)(f)


ShareDescription, (Industry) and Website

Type of Investment

Acquired

Equity


Cost


Value


of RandNon-Control/Non-Affiliate Investments:(j)Chequed.com, Inc.(g)Saratoga Springs, NY. Predictive employee selection and
    development software. (Software)
    www.chequed.com

$250,000 convertible promissory note at 8% due December 31, 2012.


11/17/10



0
%

$
250,000


$
250,000


$
.04Liazon Corporation(e)(g)Buffalo, NY. Employee benefits solution company. (Health
    Benefits Provider)
    www.liazon.com

$500,000 secured promissory note at 8% due November 9, 2015.
    120,000 Series C-1 preferred stock.


11/9/10



1
%


501,200



501,200



.07Mezmeriz, Inc.(g)Ithaca, NY. Developer of micro mirror technology that
    replaces silicon with carbon fibers in micro-electronic
    mechanical systems (MEMS) enabling efficient, wide-angle, Pico
    projectors to be embedded in mobile devices. (Electronics
    Developer)
    www.mezmeriz.com

141,125 Series A preferred shares.


1/9/08



4
%


121,509



121,509



.02Rheonix, Inc.Ithaca, NY. Developer of microfluidic testing devices
    including channels, pumps, reaction vessels, & diagnostic
    chambers, for testing of small volumes of chemicals and
    biological fluids. (Manufacturing)
    www.rheonix.com

9,676 common shares. (g) 694,015 Series A preferred shares.
    50,593 common shares.


10/29/09



4
%


753,000



889,000



.12Somerset Gas Transmission Company, LLC(e)Columbus, OH. Natural gas transportation company. (Oil and
    Gas)
    www.somersetgas.com

26.5337 units.


7/10/02



3
%


719,097



786,748



.12Synacor Inc.(g)Buffalo, NY. Develops provisioning platforms for aggregation
    and delivery of content and services across multiple digital
    devices. (Software)
    www.synacor.com

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


11/18/02



4
%


1,349,479



4,168,001



.61Subtotal Non-Control/Non-Affiliate Investments









$
3,694,285


$
6,716,458


$
.98Affiliate Investments:(k)Carolina Skiff LLC(e)(g)Waycross, GA. Manufacturer of fresh water, ocean fishing and
    pleasure boats. (Manufacturing)
    www.carolinaskiff.com

$985,000 Class A preferred membership interest at 14%.
    Redeemable December 23, 2012. $500,000 subordinated promissory
    note at 14% due December 31, 2016. 6.0825% class A common
    membership interest. (i) Interest receivable $1,019,426.


1/30/04



7
%

$
1,500,000


$
1,500,000


$
.22EmergingMed.com, Inc.(e)(g)New York, NY. Cancer clinical trial matching and referral
    service. (Software)
    www.emergingmed.com

$675,045 senior subordinated note at 8% due January 19, 2013.
    Warrants for 8% of common stock.


12/19/05



8
%


675,045



675,045



.10Microcision LLC(e)(g)Philadelphia, PA. Custom manufacturer of medical and dental
    implants. (Manufacturing). www.microcision.com

$1,500,000 subordinated promissory note at 5%, 6% deferred
    interest due December 31, 2013. 15% class A common membership
    interest.


9/24/09



15
%


1,582,282



1,582,282



.23 31




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2010  (Continued)
  (b)










PerCompany, Geographic Location, Business



Date

(c)





(d)(f)


ShareDescription, (Industry) and Website

Type of Investment

Acquired

Equity


Cost


Value


of RandMid America Brick & Structural Clay Products,
    LLC(g)Mexico, MO. Manufacturer of face brick for residential and
    commercial construction. (Manufacturing). www.midamericabrick.com

19.524 membership units.


6/1/10



19
%


800,000



800,000



.12Niagara Dispensing Technologies, Inc. Amherst, NY. Beverage dispensing technology development and
    products manufacturer, specializing in rapid pour beer
    dispensing systems for high volume stadium and concession
    operations. (Manufacturing) www.niagaradispensing.com

202,081 Series B preferred stock. $25,000 senior secured note at
    8% due January 31, 2011. (g) 463,691 Series A preferred stock.
    518,752 Series B preferred stock. $300,000 promissory note at
    6%, 8% deferred interest due July 30, 2011. $200,000 secured
    convertible note at 14% due February 19, 2012.  Warrants for
    190,561 class A common stock. Warrants for 110,672 Series B
    preferred stock.


3/8/06



14
%


1,854,113



125,000



.02SOMS Technologies, LLC(g)Valhalla, NY. Produces and markets the microGreen Extended
    Performance Oil Filter. (Auto Parts Developer)
    www.microgreenfilter.com

4,808,224 Series B membership units.


12/2/08



12
%


370,687



426,403



.06Ultra  Scan CorporationAmherst, NY. Biometrics application developer of ultrasonic
    fingerprint technology. (Electronics Hardware/Software)
    www.ultra-scan.com

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


12/11/92



2
%


938,164



1,203,000



.18Subtotal Affiliate Investments











$
7,720,291


$
6,311,730


$
.93Control Investments(l)Advantage 24/7 LLC(g)Williamsville, NY. Marketing program for wine and spirits
    dealers. (Marketing Company)

50% Membership interest.


12/30/10



50
%

$
100,000


$
100,000


$
.02Gemcor II, LLC(e)(g)(h) West Seneca, NY. Designs and sells automatic riveting
    machines used in the assembly of aircraft components.
    (Manufacturing)
    www.gemcor.com

$500,000 subordinated promissory note at 15% due December 1,
    2014. 25 membership units.  Warrant to purchase 6.25 membership
    units.


6/28/04



31
%


913,596



6,113,596



.90G-TEC Natural Gas SystemsBuffalo, NY. Manufactures and distributes systems that allow
    natural gas to be used as an alternative fuel to gases.
    (Manufacturing)
    www.gas-tec.com

21.6% Class A membership interest. 8% cumulative dividend.


8/31/99



22
%


400,000



100,000



.01Subtotal Control Investments











$
1,413,596


$
6,313,596


$
.93Other Investments(a)

Various









$
744,869


$
22,841


$
0Total portfolio investments









$
13,573,041


$
19,364,625


$
2.84  32




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    SCHEDULE OF PORTFOLIO INVESTMENTS
 December 31,
    2010  (Continued)
  NOTES TO
    CONSOLIDATED SCHEDULE OF PORTFOLIO
    INVESTMENTS  a)
    
    Unrestricted securities are freely marketable securities having
    readily available market quotations. All other securities are
    restricted securities, which are subject to one or more
    restrictions on resale and are not freely marketable. At
    December 31, 2010 restricted securities represented 100% of
    the value of the investment portfolio. Freed Maxick &
    Battaglia, CPAs PC has not examined the business descriptions of
    the portfolio companies. Individual securities with values less
    than <$100,000 are included in Other
    Investments.(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 & Battaglia, CPAs,
    PC has not audited the date acquired of the portfolio companies.(c)
    
    The equity percentages estimate the Corporations ownership
    interest in the portfolio investment. The estimated ownership is
    calculated based on the percent of outstanding voting securities
    held by the Corporation or the potential percentage of voting
    securities held by the Corporation upon exercise of warrants or
    conversion of debentures, or other available data. Freed
    Maxick & Battaglia, CPAs, PC has not audited the
    equity percentages of the portfolio companies. The symbol
    <1% indicates that the Corporation holds an
    equity interest of less than one percent.(d)
    
    The Corporation uses Accounting Standards Codification (ASC) 820
    Fair Value Measurements which defines fair value and
    establishes guidelines for measuring fair value. At
    December 31, 2010, ASC 820 designated all of the
    Corporations investments as Level 3
    assets due to their privately held restricted nature. Under the
    valuation policy of the Corporation, unrestricted securities are
    valued at the closing price for publicly held securities for the
    last three days of the month. Restricted securities, including
    securities of publicly-held companies, 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.(e)
    
    These investments are income producing. All other investments
    are non-income producing. Income producing investments have
    generated cash payments of interest or dividends within the last
    twelve months.(f)
    
    As of December 31, 2010, the total cost of investment
    securities approximated $13.6 million. Net unrealized
    appreciation was approximately $5.8 million, which was
    comprised of $8.5 million of unrealized appreciation of
    investment securities and $2.7 million related to
    unrealized depreciation of investment securities.(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 Balance Sheet.(j)
    
    Non-Control/Non-Affiliate investments are investments that are
    neither Control Investments nor Affiliated 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 or Rand holds a Board seat.(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. 33




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  SCHEDULES
    OF SELECTED PER SHARE DATA AND RATIOS
 For
    the Five Years Ended December 31, 2010, 2009, 2008, 2007
    and 2006
    Year Ended December 31,2010


2009


2008


2007


2006Income from investment operations(1):Investment income

$
0.12


$
0.28


$
0.31


$
0.40


$
0.23Expenses


0.34



0.30



0.30



0.29



0.26Investment (loss) gain before income taxes


(0.22
)


(0.02
)


0.01



0.11



(0.03
)Income tax (benefit) expense


(0.08
)


(0.01
)


(0.01
)


0.04



0.19Net investment (loss)gain


(0.14
)


(0.01
)


0.02



0.07



(0.22
)Issuance of common stock


0.00



0.61



0.00



0.00



0.00Cumulative effect adjustments for uncertain tax
    positions  ASC 740


0.00



0.00



0.00



0.06



0.00Net realized and unrealized (loss) gain on investments


0.12



(0.11
)


0.05



0.41



1.65Increase (decrease) in net asset value


(0.02
)


0.49



0.07



0.54



1.43Net asset value, beginning of year based on weighted average
    shares


3.40



3.54



3.47



2.93



1.51Net asset value, end of year based on weighted average shares

$
3.38


$
4.03


$
3.54


$
3.47


$
2.93Per share market value, end of year

$
3.23


$
3.98


$
3.50


$
3.60


$
3.50Total return based on market value


(18.84
)%


13.71
%


(2.78
)%


2.86
%


161.2
%Total return based on net asset value


(0.67
)%


(3.74
)%


2.1
%


18.1
%


94.8
%Supplemental data:Ratio of expenses before income taxes to average net assets


10.24
%


8.52
%


8.60
%


9.02
%


11.96
%Ratio of expenses including taxes to average net assets


7.87
%


8.35
%


9.10
%


10.41
%


20.41
%Ratio of net investment (loss) gain to average net assets


(4.21
)%


(0.29
)%


0.68
%


2.18
%


(9.96
)%Portfolio turnover


16.5
%


11.3
%


6.0
%


8.6
%


18.1
%Net assets end of year

$
23,050,818


$
23,205,881


$
20,226,966


$
19,817,823


$
16,782,405Weighted average shares outstanding at end of year


6,818,934



6,115,081



5,718,934



5,718,934



5,718,934   (1)
    
    Per share data are based on weighted average shares outstanding
    and results are rounded. 34




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
  Note 1. 
    Summary
    of Significant Accounting Policies  Nature of Business
    Principles of Consolidation
  Reclassifications
  Investments
      
    Loan and debt securities are generally valued at the price the
    security would command in order to provide a yield to maturity
    equivalent to the current yield of similar debt securities. A
    debt instrument may be reduced in value if it is judged to be of
    poor quality and collection is in doubt. A debt security may
    also be valued based on the estimated proceeds from the sale of
    a portfolio company at its estimated fair value.
    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. 35




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  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.    Level 1:
  Level 2:
  Level 3:
                 36




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Realized Gain or Loss and Unrealized Appreciation or
    Depreciation of Investments
  Investment Classification
  Cash and Cash Equivalents
  Revenue Recognition
    Revenue Recognition
  Original Issue Discount
  Deferred Debenture Costs
 37




---



##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Deferred Revenue
  Net Assets Per Share
  Supplemental Cash Flow Information
  Concentration of Credit and Market
    Risk
    Income Taxes
  Accounting Estimates
  Recent Accounting Pronouncement 2010-06 2010-06 2010-06
 38




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. 
    Investments    Assets
    Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at Reported Date UsingQuoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableDecember 31,


Identical Assets


Inputs


InputsDescription

2010


(Level 1)


(Level 2)


(Level 3)Loan investments

$
413,596










$
413,596Debt investments


3,595,327











3,595,327Equity investments


15,355,702











15,355,702Total Venture Capital Investments

$
19,364,625


$
0


$
0


$
19,364,625   Fair Value Measurements at Reported Date UsingSignificantQuoted Prices in

Other

SignificantActive Markets for

Observable

UnobservableDecember 31,

Identical Assets

Inputs

InputsDescription

2009

(Level 1)

(Level 2)

(Level 3)Venture Capital Investments

$
24,296,145


$
30,498


$
0


$
24,265,647   Assets
    Measured at Fair Value on a Recurring Basis Using Significant
    Unobservable Inputs (Level 3)
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsLoan


Debt


EquityDescription

Investments


Investments


Investments


TotalBeginning Balance, December 31, 2009, of Level 3
    Assets

$
488,104


$
3,487,120


$
20,290,423


$
24,265,647Realized Gains or Losses included in net change in net
    assets from operationsAdam










(68,000
)


(68,000
)APF Products Group, Inc. (APF)






(631,547
)






(631,547
)Bioworks Inc. (Bioworks)










(49,830
)


(49,830
)Golden Goal LLC (Golden Goal)






(5,560
)


(637,414
)


(642,974
)GridApp Systems Inc. (GridApp)










2,719,569



2,719,569Innov-X Systems Inc (Innovex)










4,403,984



4,403,984Wineisit.com, Inc. (Wineisit)






(721,918
)






(721,918
)Total Realized Gains and Losses






(1,359,025
)


6,368,309



5,009,284Unrealized gains or losses included in net change in net
    assets from operationsAPF






631,547







631,547Bioworks










56,000



56,000Golden Goal






19,238



637,414



656,652GridApp










295,935



295,935Innovex










(5,050,000
)


(5,050,000
)Niagara Dispensing Technologies, Inc. (Niagara Dispensing)






(447,327
)


(802,835
)


(1,250,162
)SOMS Technologies, LLC (SOMS)










55,717



55,717Wineisit






721,918



100,000



821,918Total Unrealized Gains and Losses






925,376



(4,707,769
)


(3,782,393
) 39




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsLoan


Debt


EquityDescription

Investments


Investments


Investments


TotalPurchases of SecuritiesChequed.com, Inc. (Chequed)






250,000







250,000EmergingMed.com, Inc. (Emerging Med)






216,712







216,712GridApp










481,774



481,774Liazon Corporation (Liazon)






463,000



38,200



501,200Mezmeriz, Inc. (Mezmeriz)










21,509



21,509Microcision LLC (Microcision)






923,472







923,472Mid America Brick (Mid America)










800,000



800,000Niagara Dispensing






261,918







261,918Rheonix, Inc. (Rheonix)










500,000



500,000SOMS






15,897







15,897Total Purchases of Securities






2,130,999



1,841,483



3,972,482Repayments of SecuritiesBioworks










(6,170
)


(6,170
)Gemcor II, LLC (Gemcor)


(74,508
)


(35,778
)






(110,286
)Golden Goal






(32,678
)






(32,678
)GridApp










(4,297,277
)


(4,297,277
)Innovex






(250,000
)


(5,403,984
)


(5,653,984
)Total Repayments of Securities


(74,508
)


(318,456
)


(9,707,431
)


(10,100,395
)Transfers within Level 3






(1,270,687
)


1,270,687



Transfers in or out of Level 3














Ending Balance, December 31, 2010, of Level 3
    Assets

$
413,596


$
3,595,327


$
15,355,702


$
19,364,625   Amount of total gains or losses for the period included in
    changes in net assets attributable to the change in unrealized
    gains or losses relating to assets still held at the reporting
    date and reported within the net realized and unrealized gains
    or losses on investments in the Condensed Consolidated Statement
    of Operations

$
(3,736,642
)Amount of realized gains and losses included in changes in net
    assets from operations for the period above reported within the
    net realized and unrealized gains or losses on investments in
    the Condensed Consolidated Statement of Operations


4,962,742Change in unrealized gains or losses relating to assets still
    held at reporting date

$
1,226,100   40




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsEnding Balance, December 31, 2008, of Level 3
    Assets





$
28,014,282Realized Gains or Losses included in net change in net assets
    from operationsKionix

$
3,743,245Rocket Broadband

$
(705,030
)Ramsco

$
155,000


$
3,193,215Unrealized gains or losses included in net change in net
    assets from operationsAdam

$
(65,341
)APF

$
(324,213
)Associates Interactive

$
(293,518
)Golden Goal

$
(419,238
)GridApp

$
(295,935
)G-Tec

$
(98,000
)Innovex

$
(2,711,700
)Kionix

$
(493,959
)Niagara Dispensing

$
(367,951
)Rheonix

$
136,000Rocket Broadband realized loss

$
715,000


$
(4,218,855
)Purchases of SecuritiesAssociates

$
43,517APF

$
24,212Carolina Skiff

$
500,000Gemcor

$
500,000Golden Goal

$
38,238GridApp

$
429,267Innovex

$
250,000Microcision

$
658,808Niagara Dispensing

$
310,408Rheonix

$
253,000SOMS

$
104,790


$
3,112,240Repayments of SecuritiesEmergingMed

$
(41,667
)Gemcor

$
(79,314
)Kionix

$
(5,249,284
)RAMSCO (Ramsco)

$
(455,000
)Rocket Broadband

$
(9,970
)

$
(5,835,235
)Transfers in or out of Level 3






Ending Balance, December 31, 2009, of Level 3
    Assets





$
24,265,647The amount of total gains or losses for the period included
    in changes in net assets attributable to the change in
    unrealized gains or losses relating to assets still held at the
    reporting date.





$
(4,439,896
)Gains and losses (realized and unrealized) included in net
    decrease in net assets from operations for the period above are
    reported as follows:Net Gain (Loss) on Sales and Dispositions





$
3,193,215Change in unrealized gains or losses relating to assets still
    held at reporting date





($
1,246,681
)  41




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. 
    Other
    Assets    2010


2009Escrow receivable from GripApp Systems, Inc.

$
957,563



Escrow receivable from Innov-X Systems, Inc.


831,420



Escrow receivable from Kionix, Inc.


524,926


$
524,926Deferred debenture costs


174,621



187,286Escrow receivable from USTec






22,199Property, plant and equipment (net)


3,609



7,794Prepaid expense






4,374Operating receivables


69,250



1,492Reserve for uncollectible USTec escrow






(22,199
)Total other assets

$
2,561,389


$
725,872         Note 4. 
    Income
    Taxes      2010


2009Operations

$
975,000


$
1,502,000Investments


(2,147,000
)


(3,479,000
)Tax credit carryforwards


128,000



168,000Deferred tax liability, net

$
(1,044,000
)

$
(1,809,000
)    42




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    2010


2009


2008Current:Federal

$
588,654


$
1,200,502


$
677,635State


36,566



69,638



(5,345
)625,220



1,270,140



672,290Deferred:Federal


(755,713
)


(1,528,770
)


(427,692
)State


(8,972
)


(152,230
)


(16,308
)(764,685
)


(1,681,000
)


(444,000
)Total

$
(139,465
)

$
(410,860
)

$
228,290     2010


2009


2008Net investment gain and realized gain before income tax expense

$
(294,528
)

$
(1,150,280
)

$
648,757Expected tax expense at statutory rate

$
(100,140
)

$
(391,095
)

$
241,577State  net of federal effect


18,213



(54,511
)


15,016Pass-through benefit from Portfolio Investment


(37,214
)


(44,052
)


(42,500
)Non-deductible restructuring costs






43,439



Realized losses


(16,857
)






Other


(3,467
)


35,359



14,197Total

$
(139,465
)

$
(410,860
)

$
228,290       Balance at December 31, 2007


8,500Increases for positions taken in prior year


21,000Balance at December 31, 2008


29,500Increases for positions taken in prior year


66,000Balance at December 31, 2009

$
95,500Decreases for settlements with taxing authorities


23,000Balance at December 31, 2010

$
72,500    43




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        Note 5. 
    SBA
    Debenture Obligations    Maturity Date

Leverage2014

$
3,500,0002015


1,900,0002016


2,700,0002020


1,900,000Total Outstanding

$
10,000,000   Note 6. 
    Stockholders
    Equity (Net Assets)     44




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Accumulated


UndistributedNet


Net Realized


Net UnrealizedInvestment


Gain


on AppreciationLoss


Investments


on InvestmentsBalance, December 31, 2008

$
(3,743,908
)

$
7,735,477


$
8,732,845Net increase (decrease) in net assets from operations


(1,217,817
)


3,161,913



(2,683,516
)Balance, December 31, 2009

$
(4,961,725
)

$
10,897,390


$
6,049,329Net (decrease) increase in net assets from operations


(2,713,243
)


4,962,742



(2,404,562
)Balance, December 31, 2010

$
(7,674,968
)

$
15,860,132


$
3,644,767   Note 7. 
    Stock
    Option Plans    Note 8. 
    Employee
    Benefit Plans      Note 9. 
    Commitments
    and Contingencies   45




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Note 10. 
    Quarterly
    Operations and Earnings Data  
    Unaudited  4th


3rd


2nd


1stQuarter


Quarter


Quarter


Quarter2010Investment income

$
233,039


$
227,430


$
198,428


$
188,386Net increase (decrease) in net assets from operations


884,569



(216,627
)


(143,740
)


(679,265
)Basic and diluted net increase (decrease) in net assets from
    operations per share


0.13



(0.03
)


(0.02
)


(0.10
)2009Investment income

$
751,656


$
298,615


$
320,995


$
378,259Net increase (decrease) in net assets from operations


(94,157
)


33,394



(657,418
)


(21,239
)Basic and diluted net increase (decrease) in net assets from
    operations per share


(0.01
)


0.00



(0.11
)


(0.00
)   Note 11. 
    Allowance for Doubtful Accounts    2010


2009


2008Balance at beginning of year

($
209,089
)

$
(122,817
)

$
(122,000
)Provision for losses






(87,089
)


(817
)Write offs/Recoveries


50,844



817



Balance at end of year

($
158,245
)

$
(209,089
)

$
(122,817
)  46




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##### Table of Contents



RAND
    CAPITAL CORPORATION AND SUBSIDIARIESSCHEDULE OF CONSOLIDATED CHANGES IN
    INVESTMENTS AT
    COST AND REALIZED GAIN
    For the Year Ended December 31, 2010
  CostIncrease


Realized(Decrease)


Gain (Loss)New and additions to previous investmentsMicrocision LLC

$
923,472Mid America Brick & Structural Clay Products, LLC


800,000Liazon Corporation


501,200Rheonix, Inc


500,000GridApp Systems, Inc.


481,774Niagara Dispensing Technologies, Inc.


261,918Chequed.com, Inc.


250,000EmergingMed.com, Inc.


216,712Mezmeriz, Inc.


21,509SOMS Technologies, LLC


15,8973,972,482Investments repaid, sold or liquidatedGridApp repayment


(1,577,708
)

$
2,719,569Innov-X Systems, Inc. repayment


(1,250,000
)


4,403,984Wineisit.com realized loss


(721,918
)


(721,918
)Golden Goal, LLC realized loss


(675,652
)


(642,974
)APF Group, Inc. realized loss


(631,547
)


(631,547
)Gemcor LLC repayment


(110,286
)


Photonic Products Group, Inc. sale


(76,250
)


(46,542
)Adam realized loss


(68,000
)


(68,000
)Bioworks, Inc. sale


(56,000
)


(49,830
)(5,167,361
)

$
4,962,742Net change in investments

$
(1,194,879
)

$
4,962,742  47




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               
    48




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Management report on Internal Control Over Financial
    Reporting.
          Changes in Internal Control over Financial
    Reporting.
  Item 9B.
    Other
    Information   Part III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance     49




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##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules                           50




---



##### Table of Contents



(b)
    The following exhibits are filed with this report or are
    incorporated herein by reference to a prior filing, in
    accordance with
    Rule 12b-32
    under the Securities Exchange Act of 1934.  (3)(i)
    Certificate of Incorporation of the Corporation, incorporated by
    reference to Exhibit (a)(1) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (3)(ii)
    By-laws of the Corporation incorporated by reference to Exhibit
    (b) of Form N-2 filed with the Securities Exchange
    Commission on April 22, 1997.  (4)
    Specimen certificate of common stock certificate, incorporated
    by reference to Exhibit (b) of
    Form N-2
    filed with the Securities Exchange Commission on April 22,
    1997.  (10.1)
    Employee Stock Option Plan  incorporated by reference
    Appendix B to the Corporations definitive Proxy
    Statement filed on June 1, 2002.*(10.2)
    Certificate of Incorporation of Rand Merger Corporation as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(a) to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.3)
    By-laws of Rand Capital SBIC, Inc.  incorporated by
    reference to Exhibit 2 to Registration Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.4)
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand
    Capital Management, LLC into Rand Merger Corporation, as filed
    by the NY Department of State on
    12/18/08 
    incorporated by reference to Exhibit 1(b) to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.(10.5)
    Rand Capital Corporation Amended and Restated Profit Sharing
    Plan applicable to Rand Capital SBIC, Inc. 
    incorporated by reference to Exhibit 7 to Registration
    Statement
    No. 811-22276
    on
    Form N-5
    of Rand Capital SBIC, Inc. filed with the SEC on
    2/6/09.*(31.1)
    Certification of Principal Executive Officer Pursuant to Rules
    13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as amended-filed
    herewith(31.2)
    Certification of Principal Financial Officer Pursuant to Rules
    13a-14(a)/15d-14(a)
    under the Securities Exchange Act of 1934, as
    amended  filed herewith(32.1)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital Corporation 
    furnished herewith(32.2)
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002  Rand Capital SBIC, Inc. 
    furnished herewith  *
    
    Management contract or compensatory plan. 51




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##### Table of Contents



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

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

President

March 14, 2011(ii) Principal Accounting & Financial Officer:/s/  Daniel
    P. PenberthyDaniel
    P. Penberthy

Treasurer

March 14, 2011(iii) Directors:/s/  Allen
    F. GrumAllen
    F. Grum

Director

March 14, 2011/s/  Erland
    E. KailbourneErland
    E. Kailbourne

Director

March 14, 2011/s/  Ross
    B. KenzieRoss
    B. Kenzie

Director

March 14, 2011/s/  Reginald
    B. Newman IIReginald
    B. Newman II

Director

March 14, 2011/s/  Jayne
    K. RandJayne
    K. Rand

Director

March 14, 2011/s/  Robert
    M. ZakRobert
    M. Zak

Director

March 14, 2011  52