FORM 10-Q

SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549

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

For the quarterly period ended September 30, 2001

[   ]    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:  811-1825

Rand Capital Corporation
(Exact Name of Registrant as specified in its Charter)

|New York
(State of Jurisdiction of Incorporationor organization) | 16-0961359(IRS EmployerIdentification No.)
|---------------------------------------------------------------- | ------------------------------------------

2200 Rand Building, Buffalo, NY 14203
(Address of Principal executive offices)    (Zip Code)

(716) 853-0802
(Registrant's Telephone No. including Area Code)

Indicate by check mark
whether the registrant has (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days

Yes:  X        No

Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practicable date (October 31, 2001): 5,763,034

RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q

|PART I - FINANCIAL INFORMATION
|------------------------------
|Item 1.                       
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|Item 2.                       
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|Item 3.                       
|PART II - OTHER INFORMATION   
|Item 1.                       
|Item 2.                       
|Item 3.                       
|Item 4.                       
|Item 5.                       
|Item 6.                       

RAND CAPITAL CORPORATION
CONDENSED STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000

`ASSETS
                                                           -------------  -----------------
                                                             September         December
                                                              30, 2001         31, 2000
                                                            (Unaudited)
                                                           -------------  -----------------

Cash and cash equivalents                                    $   714,326       $    304,152

Investment portfolio at original cost basis                    5,906,765          6,159,330
Adjustment for unrealized appreciation                         1,745,483            974,597
                                                           -------------  -----------------
    Investments at Directors' valuation                        7,652,248          7,133,927

Interest receivable (net of allowance of $58,101
at September 30, 2001 and $21,729 at December 31, 2000)          151,293            136,780

Deferred tax asset                                               439,551            660,790
Other assets                                                     185,876            206,235

                                                           -------------  -----------------
TOTAL ASSETS                                                 $ 9,143,294       $  8,441,884
                                                           =============  =================

LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)

LIABILITIES:
Income taxes payable                                           $  11,530          $   1,530
Accounts payable and accrued expenses                             41,875             54,657
                                                           -------------  -----------------
                       Total Liabilities                          53,405             56,187
                                                           -------------  -----------------

STOCKHOLDERS' EQUITY (NET ASSETS)

Common stock, $.10 par - shares authorized 10,000,000;
issued and outstanding 5,763,034 at September 30, 2001 and
5,748,034 at December 31, 2000                                   576,304            574,804
Capital in excess of par value                                 6,973,454          6,943,079
Undistributed net investment (loss)                           (2,677,027)        (2,065,672)
Undistributed net realized gain on investments                 3,061,258          2,400,233
Net unrealized appreciation of investments                     1,155,900            533,253
                                                             -----------  -----------------
                               Net assets                      9,089,889          8,385,697
                                                             -----------  -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 9,143,294       $  8,441,884
                                                             ===========  =================

Shares outstanding                                             5,763,034          5,748,034
Net asset value per outstanding share                              $1.58              $1.46`

See notes to condensed financial statements

RAND CAPITAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED)

`----------------------------------------------------------------------
                                                   Three-months      Three-months      Nine-months      Nine-months
                                                       ended            ended             ended            ended
                                                   September 30,    September 30,     September 30,    September 30,
                                                       2001              2000             2001              2000
                                                 ----------------------------------------------------------------------
Investment income:
       Interest from portfolio companies                $   25,769       $   42,689        $   88,298       $  122,396
       Interest from other investments                       1,209           19,086             6,931           63,149
       Other income                                            600              594             8,698              594
                                                 ----------------------------------------------------------------------
                                                            27,578           62,368           103,927          186,139
                                                 ----------------------------------------------------------------------
Expenses:
       Salaries                                             59,176           56,500           247,395          206,304
       Employee benefits                                    12,054           11,395            53,248           56,219
       Directors' fees                                      10,250            4,500            19,750           22,500
       Legal fees                                         (10,000)           13,026             8,981           27,406
       Professional fees                                     7,900            6,100            24,110           21,728
       Shareholders and office                              17,509           16,412            54,594           48,189
       Insurance                                             6,750            7,200            20,250           21,710
       Corporate development                                 4,627            5,085            15,552           13,937
       Other operating expenses                             53,464           24,299           182,414           68,746
                                                 ----------------------------------------------------------------------
                                                           161,730          144,517           626,294          486,739
                                                 ----------------------------------------------------------------------
Investment (loss) before income taxes                    (134,152)         (82,149)         (522,367)        (300,600)
       Income tax provision                                  2,580            3,010            15,987            9,008
       Deferred income tax (expenses)                       73,000                0            73,000                0
                                                 ----------------------------------------------------------------------
Investment (loss) - net                                  (209,732)         (85,159)         (611,354)        (309,608)
                                                 ----------------------------------------------------------------------

Realized and unrealized gain (loss) on
investments:
       Net gain (loss) on sales and dispositions
                                                           660,332          (8,551)           661,025        (108,551)
                                                 ----------------------------------------------------------------------
Net realized gain (loss)                                   660,332          (8,551)           661,025        (108,551)
                                                 ----------------------------------------------------------------------

Unrealized appreciation on investments:
       Beginning of period                               2,065,764        1,077,262           974,597        (863,197)
       End of period                                     1,745,483        1,197,225         1,745,483        1,197,225
                                                 ----------------------------------------------------------------------
       Increase (Decrease) in unrealized
       appreciation before income taxes                  (320,281)          119,963           770,886        2,060,422
       Deferred income tax expense
                                                                 0                0           148,239          600,000
                                                 ----------------------------------------------------------------------
Net (decrease) increase in unrealized
appreciation                                             (320,281)          119,963           622,647        1,460,422
                                                 ----------------------------------------------------------------------

Net realized and unrealized gain on investments            340,051          111,412         1,283,672        1,351,871
                                                 ----------------------------------------------------------------------

Net increase (decrease) in net assets from
operations                                              $  130,319      $  (26,253)        $  672,318     $  1,042,263
                                                 ======================================================================
Weighted average shares outstanding                      5,763,034        5,723,034         5,762,045        5,721,715
Basic and diluted net increase (decrease) in
net assets from operations per share                         $0.02          ($0.00)             $0.12            $0.18`

See notes to condensed financial statements

RAND CAPITAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED)

`-----------------------------------------------------------------------------------------------------------------
                                                                  For the nine-months        For the nine-months
                                                                                ended                      ended
                                                                   September 30, 2001         September 30, 2000
-----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
  Net increase in net assets from operations                              $672,318                    $1,042,263
                                                                          --------                    ----------
Adjustments to reconcile net increase in net assets to
net cash used in operating activities:
  Depreciation and amortization                                              9,750                        10,000
  Interest receivable reserve                                               36,372                             0
  (Increase) in unrealized appreciation of
  investments, net of deferred income tax                                (622,647)                   (1,460,422)
Decrease in deferred tax assets                                             73,000                             0
  Net realized (gain) loss on portfolio of investments                   (661,025)                       108,551
    Changes in operating assets and liabilities:
      (Increase) in interest receivable                                   (50,885)                      (43,212)
      (Increase) decrease in other assets                                   10,609                      (27,692)
      Increase (decrease) in accounts
      payable and other accrued liabilities                                (2,782)                        10,869
                                                           ------------------------------------------------------
   Total adjustments                                                   (1,207,608)                   (1,401,906)
                                                           ------------------------------------------------------
   Net cash (used in) operating activities                               (535,290)                     (359,643)
                                                           ------------------------------------------------------
Cash Flows from Investing Activities:
   Proceeds from sale of portfolio investments                           1,084,054                        85,813
   Proceeds from loan repayments                                                                         420,000
                                                                      0


   New portfolio investments                                             (170,465)                   (1,263,537)

                                                           ------------------------------------------------------
   Net cash provided by (used in) investing
   Activities                                                              913,589                     (757,724)
                                                           ------------------------------------------------------

Cash Flows from financing Activities:
   Proceeds from issuance of stock                                          31,875                        57,700
                                                           ------------------------------------------------------
Net cash provided by financing activities                                   31,875                        57,700
                                                           ------------------------------------------------------

Net Increase (decrease) in cash and cash equivalents                       410,174                   (1,059,667)
Cash and cash equivalents at beginning of period                           304,152                     1,139,708
                                                           ------------------------------------------------------
Cash and cash equivalents at end of period                                $714,326                       $80,041
                                                           ------------------------------------------------------`

See notes to condensed financial statements

RAND CAPITAL CORPORATION
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS FOR THE QUARTER AND
NINE-MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED)

`Three-months    Three-months   Nine-months    Nine-months
                                                       ended          ended          ended          ended
                                                   September 30,   September 30,  September 30,  September 30,
                                                       2001              2000         2001          2000
                                                 -------------------------------------------------------------
Net assets at beginning of period                  $8,959,570      $8,640,702     $8,385,697     $7,604,743

Operations:
   Net investment loss                               (209,732)        (85,159)      (611,354)      (309,608)

   Net realized gain (loss) on investments            660,332          (8,551)       661,025       (108,551)

   Net (decrease) increase in unrealized
      appreciation of investments                    (320,281)        119,693        622,647      1,460,422
   Other                                                    0             271             (1)             0
                                                 -------------------------------------------------------------
Net increase in net assets from operations            130,319          26,254        672,317      1,042,263

Net proceeds of private offerings                           0          37,750         31,875         57,700
                                                 -------------------------------------------------------------
Net assets at end of period                        $9,089,889      $8,704,706     $9,089,889     $8,704,706
                                                   ==========      ==========     ==========     ==========`

See notes to condensed financial statements

RAND CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS
AS OF SEPTEMBER 30, 2001
(UNAUDITED)

`------------------------------------------------------------------------------------------------------------
                                                                                           June 30, 2001
             Company                     Type of Investment       Date          Cost         Valuation
                                                                  Acquired       ($)            ($)
------------------------------------------------------------------------------------------------------------
ADIC (NASDAQ:ADIC)*                391,265 shares Common Stock.     5/11/01    $977,239         $4,376,878
Redmond, WA.  Manufactures data    Options to purchase 54,786
storage systems and specialized    shares.  Valued at $10 per
storage management software.       share.
Acquired Pathlight Technology
5/11/01.
www.adic.com

American Tactile, Corp. Medina,    Convertible Debentures at 8%     6/23/95       150,000           25,000
NY.  Develops equipment and        due June 2000 and April 2001
systems to produce signage.        with detachable warrants
www.americantactile.com

ARIA Wireless Systems, Inc.        Common Stock - 488,000           5/23/97       543,840            9,760
(OTC:AWSI)*  Buffalo, NY.          shares.  $105,840 Demand
Markets wireless radio             Notes at 15%
transmission communication
equipment.
www.aria-glb.com

BioWorks, Inc.  Geneva, NY.        Series A Convertible             11/6/95        56,000           28,000
Develops and manufactures          Preferred Stock - 32,000
biological alternatives to         shares.
chemical pesticides.
www.bioworksbiocontrol.com

Clearview Cable TV, Inc.  New      Common Stock - 400               2/23/96        55,541           28,000
Providence, NJ.                    shares.
Cable Television Operator.

Contract Staffing, Inc.            Series A 8% Cumulative           11/8/99       100,000          100,000
Buffalo, NY. PEO providing human   Preferred Stock -10,000
resource administration for small  shares.
businesses.
www.contract-staffing.com

DataView, LLC.  Mt. Kisco, NY.     5.5% Membership Interest         10/1/98       310,357          343,357
Designs, develops and markets
browser based software for
investment professionals.
www.marketgauge.com

Fertility Acoustics, Inc.          Common Stock - 848,736 shares    10/1/97        87,440           87,440
Buffalo, NY.  Developer of
proprietary methods to diagnose
onset of ovulation.

G-TEC Natural Gas Systems          41.67% Class A Membership        8/31/99       300,000          300,000
Buffalo, NY.  Manufactures         Interest. 8% Cumulative
and distributes systems that       Dividend
allow natural gas to be used
as an alternative fuel to gases.
www.gas-tec.com

HCI Systems.  Kennebunk, ME.       Series B Preferred Stock -       12/15/99      100,500          100,500
Facilities management software     67,000 shares.  5% Cumulative
solution.                          Dividend
www.hcisystems.com

INRAD, Inc.  OTC:INRD.OB)*         Convertible Series B             10/31/00      105,000          102,640
Northvale, NJ. Develops and        Preferred Stock - 100
manufactures products for laser    shares.  10% Dividend Common
photonics industry.                Stock - 2,000 shares
www.inrad.com

MemberWare Technologies, Inc.      Promissory Note at Prime Rate    9/16/99       100,000          150,000
Pittsford, NY.  Internet company   + 4.5% due September 2004.
engaged in web related consulting  Common Stock - 40,000
services.                          shares.  34,000 warrants for
www.memberware.com                 shares of stock


MINRAD, Inc.  Buffalo, NY.         595,506 Common                   8/4/97        874,030        1,111,000
Developer of laser guided          Shares
surgical devices.                  53,628 Preferred Shares

Ultra-Scan Corporation Amherst,    Common Shares - 49,290           12/11/92      402,586          469,675
NY.  Ultrasonic finger print       $100,000 Bridge Loan at
technology.                        12%
www.ultra-scan.com

UStec, Inc. Victor, NY.            Promissory Note at 12% due       12/17/98      100,500          150,000
Manufactures and markets digital   January 2003.  Common Stock -
wiring systems for residential     50,000 shares.  2,500
new home construction.             warrants for common shares
www.ustecnet.com

Vanguard Modular Building          Preferred Units - 2,673 Units    12/16/99      270,000          270,000
Systems.  Philadelphia, PA.        with warrants. 14% Interest
Leases and sells high-end modular  Rate
space solutions.
www.vanguardmodular.com

Other Investments                                                               1,310,887               (2)
                                                                                ---------        ---------

Total Portfolio Investments                                                    $5,906,765       $7,652,248
                                                                               ==========       ==========`

---

*Publicly owned company.

|Note: | Restricted securities, including securities of publicly-owned
companies which are subject to restrictions on resale, are valued at fair market
value as determined by the Board of Directors. Fair value is considered to be
the amount which the Corporation may reasonably expect to receive for portfolio
securities if such securities were 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. Among the factors considered by the Board of Directors in
determining the fair value of restricted securities are the financial condition
and operating results, projected operations, and other analytical data relating
to the investment. Also considered are the market prices for unrestricted
securities of the same class (if applicable) and other matters which may have an
impact on the value of the portfolio company..
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed financial statements

RAND CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE-MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)

|1. | Basis of Presentation
|-- | ---------------------

| | In Management's opinion, the accompanying condensed financial
statements include all adjustments necessary for a fair presentation of
financial position, results of operations, and cash flows for the interim
periods presented. Certain information and note disclosures normally included in
audited annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, have been
omitted; however, the Corporation believes that the disclosures made are
adequate to make the information presented not misleading. The interim results
for the nine-months ended September 30, 2001 are not necessarily indicative of
the results for the full year.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | It is suggested that these statements be read in conjunction with the financial
statements and the notes included in the Corporation's Annual Report for the
year ended December 31, 2000. Information contained in this filing should also
be reviewed in conjunction with Rand Capital Corporation's related filings with
the Securities & Exchange Commission ("SEC") during the period of time covered
by this filing. These filings include, but are not limited to the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | N-30-B2 | Quarterly & Annual Reports to Shareholders                   
| | ------- | -------------------------------------------------------------
| | N-54A   | Election to Adopt Business Development Company status        
| | NSAR-A  | Semi-Annual filing as closed end investment company          
| | NSAR-B  | Semi-Annual filing as closed end investment company          
| | DEF-14A | Definitive Proxy Statement submitted to shareholders         
| | 10-Q    | Quarterly Financial Reporting for quarter ended June 30, 2001

|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

| | Nature of Business
| | ------------------

| | Rand Capital Corporation ("Rand" or "Corporation") is a venture capital
investment company operating as a business development company ("BDC") under the
Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of
investment company under the 1940 Act. A BDC must be primarily engaged in the
business of furnishing capital and managerial expertise to companies that do not
have ready access to capital through conventional financial channels; such
companies are termed "eligible portfolio companies". Rand, as a BDC, may invest
in other securities, however such investments may not exceed 30% of Rand's total
asset value at the time of such investment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On July 20, 2001, Rand's shareholders approved the proposal to allow Rand to
adopt BDC status. Following this authorization by the Shareholders, and approval
by Rand's Board of Directors, Rand filed its BDC election with the SEC (Form
N-54A) on August 16, 2001. Prior to Rand's election as a BDC, Rand operated as a
closed-end, diversified, management company under the 1940 Act.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Rand was founded in 1969 and its stock has traded publicly since
1971. Rand's stock is currently listed on the NASDAQ Small Cap Market under the
symbol "RAND". The company is headquartered in Buffalo, New York. Rand operates
as an internally managed investment company whereby its officers and employees
conduct its operations under the general supervision of its Board of Directors.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Asset Value
| | ---------------

| | Rand accounts for its operations under accounting principles
generally accepted in the United States of America for investment companies. On
this basis, the principal measure of its financial performance is provided in
its Condensed Statements of Operations under the caption "Net Increase
(decrease) in net assets from operations" which is composed of the following:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | "Investment loss - net" (from operations) which is the difference
between the Corporation's income from interest, dividends and fees and its
operating expenses and taxes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | "Net realized (loss) gain" which is the difference between the
proceeds received from dispositions of portfolio securities and their stated
cost.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| | "Net increase (decrease) in unrealized appreciation" which is the
net change in the fair value of Rand's investment portfolio, net of any increase
(decrease) in deferred income taxes that would become payable if the unrealized
appreciation were realized through the sale or other disposition of the
investment portfolio.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Rand's net assets are calculated based on the net assets at the
end of the period, after the effect of the items included in the calculation of
the net increase or decrease in net assets from operations. The net asset value
per share is then determined based on the common shares outstanding. Rand has no
preferred stock, or stock options outstanding that would be potential common
shares, thus reported per share net asset value and diluted net asset value per
share results would be the same.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income Taxes
| | ------------

| | Rand has not elected pass-through tax treatment as a regulated
investment company under Subchapter M of the Internal Revenue Code for Income
tax purposes. Therefore, Rand is taxed as a corporation under regulation C.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The tax effect of the major temporary difference and
carry-forwards that give rise to the Corporation's net deferred tax assets at
September 30, 2001 and December 31, 2000 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | September 30, 2001 | December 31, 2000
| | --------------------------------- | ------------------ | -----------------
| | Operations                        | $  (29,209)        | $  (51,697)      
| | Investments                       | (784,256)          | (389,254)        
| | Net operating loss carry-forwards | 1,253,016          | 1,086,443        
| | Capital loss carry-forward        | 0                  | 183,948          
| | Subtotal                          | $  439,551         | $  829,440       
| | Valuation allowance               | 0                  | (168,650)        
| | Deferred tax assets, net          | $  439,551         | $  660,790       

| | At September 30, 2001 and December 31, 2000, the Corporation had a
federal and state net operating loss carry-forward of approximately $3,102,000
and $2,720,000, respectively, which expire commencing in 2007.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stockholders' Equity
| | --------------------

| | On July 20, 2001 Rand's shareholders approved the proposal to
establish the 2001 Stock Option Plans including the "Employee Plan" which
provides for grant of stock options for up to an aggregate of 200,000 shares to
the Corporation's key employees and officers; and the Non-Employee Director
Stock Option Plan, or "Director Plan" which provides for up to an aggregate of
100,000 shares to Rand's outside directors. The Director Plan also will require
an exemptive order by the SEC prior to any options being issued through the
plan. Both Plans are fully described in the information presented under the
caption "Proposal to Approve Stock Option Plans for the Corporation" in the
Company's definitive Proxy Statement as filed with the SEC on June 8, 2001,
which information is incorporated herein by reference.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | No stock options have been granted under the Employee Plan or the
Director Plan through September 30, 2001.
| | -----------------------------------------------------------------------------------------------------------

| | Rand sold shares of its common stock through a private stock
offering with two officers of the Corporation for a total of 15,000 shares in
January 2001; 15,000 shares in January 2000; and 25,000 shares in September
2000; the shares were priced at $2.12; $1.33 and $1.51 respectively; total
proceeds to the Corporation were $31,875 in 2001 and $57,700 in 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use of Estimates
| | ----------------

| | The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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 periods. Actual results could differ
from those estimates.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Significant Events
| | ------------------

| | On May 11, 2001, one of
Rand's privately held portfolio investments, Pathlight Technologies Inc. was
acquired by Advanced Digital Information Corporation (NASDAQ:ADIC). Rand held an
estimated 5% ownership of Pathlight (cost basis of approximately $1.2 million)
and in exchange for the Pathlight investment, Rand has received 461,265 shares
of ADIC common stock and options to purchase 54,786 shares for an equivalent
total of 516,051 shares. In addition, there are 13,683 shares remaining in
escrow pending release subject to certain conditions. The ADIC shares received
by Rand are subject to sale under Rule 145 restrictions and became tradable
August 20, 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During August 2001 Rand sold a total of 70,000 shares at an
average price of $12.41 (range $12.01 - $12.72). Rand's average cost basis for
the ADIC securities is $2.12. Rand's remaining ADIC holdings have been valued at
$4.4 million in its September 30, 2001 investment portfolio.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following the end of the quarter, an additional 229,000 shares
were sold in October 2001 at an average price of $13.52 (range of $10.10 -
$15.50). At October 31, 2001, Rand continues to hold approximately 217,000
shares of ADIC (including the 54,786 shares held via options).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2: | 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 Company 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 Company'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
Company's portfolio companies operate, the state of the securities markets in
which the securities of the Company'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 "Certain Risk Factors" below.

Financial Condition

Rand's total assets and net assets at September 30, 2001 and December 31, 2000
were as follows:

| |                           | September 30, 2001 | December 31, 2000
| | ------------------------- | ------------------ | -----------------
| | Total assets              | $9,143,294         | $8,441,884       
| | Net assets                | 9,089,889          | 8,385,697        
| | Net asset value per share | $1.58              | $1.46            

Primarily contributing to the $701,000 increase in total assets and the
$704,000 increase in net assets was the net change in valuations of various
portfolio companies, the sale of ADIC securities for a gain, and the related tax
effects of these transactions during the nine-month period.

Rand's financial condition is dependent on the success of its investments.
Rand has invested a substantial portion of its assets in early stage or start-up
companies. These private businesses tend to be thinly capitalized, unproven,
small companies that may lack management depth and history of operations. A
summary of Rand's investment portfolio is as follows:

| |                           | September 30, 2001 | December 31, 2000
| | ------------------------- | ------------------ | -----------------
| | Investments, at cost      | $5,906,765         | $6,159,330       
| | Unrealized appreciation   | 1,745,483          | 974,597          
| | Investments at fair value | $7,652,248         | $7,133,927       

The  increase in the unrealized  appreciation of the investments is primarily
attributable  to the  net  effect  of  portfolio  valuation  adjustments  to the
following  portfolio  companies during the nine-month period ended September 30,
2001: Pathlight  Technology/Advanced  Digital Information  Corporation ("ADIC"),
$2.4  million;  BNKR.com,  ($0.4  million);  Fertility  Acoustics,  Inc.,  ($1.1
million),  Aria Wireless Systems,  Inc., ($0.1 million), and Platform Technology
Holdings, LLC, ($0.1 million).

Rand's  total  investments  at fair value  approximated  84% of net assets at
September  30,  2001 and 85% of net  assets  at  December  31,  2000.  Of Rand's
portfolio investments, one investment, Pathlight/ADIC, valued at $4.4 million at
September  30, 2001 and $2.0 million at December 31, 2000,  approximated  48% of
net assets at September 30, 2001 and 24% of net assets at December 31, 2000.

During  the  nine-month  period ending  September 30, 2001 Rand's  investment
activities  included the sale of 70,000  shares of ADIC in August 2001,  (with a
realized gain of approximately  $720,000).  Other investing  activity during the
period included the sale of Rand's  investments in Motorola and Texaco preferred
stocks,  valued at $0.2 million at December 31, 2000; New investments included a
$100,000  bridge  loan to  Ultra-Scan  and a  $55,000  follow-on  investment  in
Platform Technology Holdings (subsequently written off).

The effect of the portfolio  valuation changes,  net operating losses for the
period,  and the realized gain from the sale of ADIC  securities,  resulted in a
net change in the  deferred  tax asset from  $660,790  at  December  31, 2000 to
$439,551 at September 30, 2001.  In addition,  during the quarter ended June 30,
2001, Rand reversed the $168,650 tax valuation  allowance  previously  recorded,
reflecting the increased  likelihood of its utilization given the Pathlight/ADIC
transaction.

Results of Operations

On  May  11,  2001,  one of  Rand's  privately  held  portfolio  investments,
Pathlight  Technologies  Inc.  was  acquired  by  Advanced  Digital  Information
Corporation  (NASDAQ:ADIC).  In exchange  for Rand's  estimated  5% ownership of
Pathlight (cost basis of approximately $1.2 million),  Rand has received 461,265
shares of ADIC  common  stock and options to purchase  54,786  shares.  The ADIC
shares  received  by Rand are  subject to sale under Rule 145  restrictions  and
became tradable August 20, 2001.

During  August 2001 Rand sold a total of 70,000 shares at a range of $12.10 -
$12.72.  Rand's  average  cost basis for the ADIC  securities  is $2.12.  Rand's
remaining  ADIC  holdings  have been valued at $4.4 million in its September 30,
2001 investment portfolio.

Following the end of the quarter,  an additional  229,000 shares were sold in
October 2001 at a range of $10.10 - $15.50. At October 31, 2001, Rand is holding
approximately 217,000 shares of ADIC.

Investment Income and Expenses:

Total  investment  income for the  three-months  ended September 30, 2001 and
2000 was $27,578 and $62,368,  respectively,  of which $25,769 (93%) and $42,689
(68%)  consisted of interest from  portfolio  companies  during the period.  The
remaining income consisted of interest on other temporary short-term investments
and cash balances.  For the  nine-months  ended September 30, 2001 and 2000, the
total  investment  income was  $103,927  and  $186,139,  respectively,  of which
$88,298 (85%) and $122,396 (66%) consisted of interest from portfolio  companies
during the period.  The  remaining  income  consisted of interest on  short-term
investments,  cash balances,  and other income.  The total investment income for
the three and  nine-months  ended  September  30, 2000 was higher  mainly due to
higher idle cash balances and the related interest income earnings,  in addition
to the  shutdown of  portfolio  companies  affecting  the  portfolio's  interest
earning investments. Due to the lower cash balances in 2001, the Corporation was
not  materially  affected by decline in interest  rates during the  preceding 12
months.

Expenses for the three-months ended September 30, 2001 and 2000 were $161,730
and $144,517,  respectively.  Expenses for the nine-month period ended September
30, 2001 and  September 30, 2000 were  $626,294 and  $486,739,  respectively.  A
majority of the Rand's expenses  consist of employee  compensation,  shareholder
and office expenses,  expenses  related to identifying and reviewing  investment
opportunities  and  professional  fees. A major increase in expenses  during the
three-month  and  nine-month  periods  in  2001  directly  resulted  from  costs
(consulting and advisory fees) incurred for  restructuring  the Corporation to a
Business  Development Company ("BDC"),  and research into stock option plans and
other  corporate  matters.  These costs have been  included  in other  operating
expenses and total $71,000 for the  nine-months  ended  September 30, 2001. Also
increasing  expenses during 2001 were the establishment of allowances related to
the write-off of certain portfolio related receivables  totaling $36,371 for the
nine-months ended September 30,
2001.

Net  investment  losses from  operations  were  $209,732  and $85,159 for the
three-months  ended  September  30,  2001  and  2000,   respectively.   For  the
nine-months  ended  September  30,  2001 and 2000,  net  investment  losses were
$611,354 and $309,608,  respectively. The combined effect of the shutdown of the
operations  of  several  Rand  portfolio  companies,  the loss of their  related
dividend/interest  payments,  and the  increased  costs related to Rand's annual
proxy filings have resulted in increased operating losses in 2001 as compared to
2000.

Net Realized Gains and Losses on Portfolio of Investments:

During the three-months  ended September 30, 2001, Rand sold 70,000 shares of
its ADIC holdings,  generating a realized gain of approximately  $720,000.  Also
during the quarter,  ADIC settled its patent  litigation with  Pathlight,  which
resulted in a release from escrow of an  additional  26,417 ADIC shares to Rand,
and a forfeiture  of 28,313  shares  previously  held in escrow (with an average
cost basis of $60,024).  During the same period in 2000 Rand had realized a loss
of  $8,551  from  the  sale  of  certain   preferred   securities  held  in  the
portfolio.

Net Increase (decrease) in Net Assets from Operations:

Rand  accounts  for its  operations  under  accounting  principles  generally
accepted  in the United  States of America  for  investment  companies.  On this
basis,  the  principal  measure of its  financial  performance  is "net increase
(decrease)  in net  assets  from  operations"  on its  condensed  statements  of
operations.  For the three-months  ended September 30, 2001, the net increase in
net assets from  operations  was  $130,319 as compared to a net  decrease in net
assets from  operation of ($26,253)  for the  three-months  ended  September 30,
2000. The increase in net realized and unrealized gain on investments during the
third  quarter is primarily  attributable  to the sale of ADIC  securities  at a
gain.  The  year-to-date  increase  in assets is  attributable  to net effect of
portfolio valuation  adjustments to the following portfolio companies during the
nine-month  period ended September 30, 2001:  Pathlight  Technology,  Inc./ADIC,
$2.4  million;  BNKR.com,  ($.4  million);   Fertility  Acoustics,  Inc.,  ($1.1
million);  Aria Wireless Systems,  Inc., ($0.1 million); and Platform Technology
Holdings, LLC ($0.1 million).

For the  nine-months  ended  September 30, 2001 and 2000, the net increase in
net assets from operations was $672,318 and $1,042,263, respectively.

Liquidity and Capital Resources

Rand's 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 certain Rand portfolio investments may be
structured  to provide  little or no current  yield in the form of  dividends or
interest  payments.  Rand does earn interest income on idle cash balances.  Rand
has historically relied on and continues to rely to a large extent upon proceeds
from sales of investments  rather than investment income to defray a significant
portion of its operating  expenses.  Because such sales cannot be predicted with
certainty,  Rand attempts to maintain  adequate  working  capital  necessary for
short-term needs.

On  September  30,  2001,  Rand was  holding  approximately  $714,000 in cash
(primarily  generated  from the  sale of the ADIC  securities  in  August  2001)
compared to a total of  approximately  $512,000  ($304,000  cash and $208,000 in
marketable  preferred equities) at December 31, 2000. Through August, Rand had a
decrease in liquidity,  which  resulted in decreased  interest  earnings on idle
cash balances.

During the nine-month  period ended  September 30, 2001, Rand has sold 70,000
shares of its ADIC holdings and also sold its investments in Motorola and Texaco
preferred stocks. New investments included an Ultra-scan bridge loan of $100,000
and a $55,000 follow-on investment in Platform Technology Holdings.

During the year,  Rand also  adjusted the  valuations  for several  portfolio
investments  during the period,  which included;  ARIA Wireless  Systems,  Inc.,
Pathlight Technology,  Inc./ADIC,  Fertility Acoustics,  Inc., BNKR.com;  INRAD,
Inc. These were non-cash  adjustments,  included as adjustments in the condensed
statements of cash flows.

During  the  nine-month  period  ended  September  30,  2000,  Rand  made new
investments  in  BNKR.com,  $250,000  and  TSS-Transnet,   $250,000  (both  were
subsequently  written  off);  and  made  a  follow-on  investment  in  Pathlight
Technology,  Inc.,  $750,000.  The InfoMiners.com  $420,000 bridge loan was also
repaid. During this period,  valuation changes were made to Fertility Acoustics,
Inc. and Pathlight Technology, Inc. However, these are non-cash adjustments.

Certain Risk Factors

Investing in Rand's Stock is Highly Speculative and an Investor Could Lose
Some or All of the Amount Invested

The value of Rand's  common stock may decline and may be affected by numerous
market  conditions,  which could result in the loss of some or all of the amount
invested in Rand's shares. The securities markets frequently  experience extreme
price and volume  fluctuations  which affect  market  prices for  securities  of
companies generally,  and technology and very small capitalization  companies in
particular.  General economic conditions, and general conditions in the Internet
and  information  technology,  life sciences,  material  sciences and other high
technology  industries,  will also  affect the Rand's  stock  price.  The recent
decimalization of the stock exchanges, particularly NASDAQ, is a new risk factor
that  may  decrease  liquidity  of  smaller  capitalization  issues  such as the
Company's  own  common  stock  and  that of its  publicly  traded  holdings.  In
addition, the terrorist acts of September 11, 2001 in the United States also are
a new  risk  factor,  which  may  affect  the  operations  of both  Rand and its
portfolio companies.

Investing in Rand's Shares May be Inappropriate for the Investor's Risk Tolerance

Rand's investments, in accordance with its investment objective and principal
strategies,  result in a far above average amount of risk and volatility and may
well result in loss of principal.  Rand's investments in portfolio companies are
highly  speculative and aggressive and,  therefore,  an investment in its shares
may not be suitable for investors for whom such risk is inappropriate.

Rand may face  competition in its investing  activities  from private venture
capital funds,  investment affiliates of large industrial,  technology,  service
and  financial   companies,   small  business  investment   companies,   wealthy
individuals and foreign investors.  As a regulated Business  Development Company
("BDC"),  the Company is required to disclose  quarterly  the name and  business
description of portfolio companies and value of any portfolio  securities.  Most
of Rand's  competitors  are not subject to this disclosure  requirement.  Rand's
obligation  to disclose this  information  could hinder its ability to invest in
certain  portfolio  companies.  Additionally,  other  regulations,  current  and
future,  may make  Rand  less  attractive  as a  potential  investor  to a given
portfolio company than a private venture.

Rand Operates in a Regulated Environment

Rand is subject to substantive SEC  regulations as a BDC.  Securities and tax
laws and regulations  governing the Rand's activities may change in ways adverse
to Rand's and its shareholders'  interests, and interpretations of such laws and
regulations may change with unpredictable  consequences.  Any change in the laws
or regulations  that govern Rand's business could have an adverse impact on Rand
or its operations.

Rand is Dependent Upon Key Management Personnel for Future Success

Rand is dependent for the selection,  structuring,  closing and monitoring of
its investments on the diligence and skill of its senior management.  The future
success of Rand depends to a  significant  extent on the  continued  service and
coordination  of  its  senior  management  team.  The  departure  of  any of the
executive  officers or key employees could  materially  adversely  affect Rand's
ability to implement its business strategy.  Rand does not maintain key man life
insurance on any of its officers or employees.

Investment in Small, Private Companies

There are significant risks inherent in Rand's venture capital business. Rand
has  invested a  substantial  portion of its assets in early  stage or  start-up
companies.  These private  businesses tend to be thinly  capitalized,  unproven,
small companies with risky  technologies that lack management depth and have not
attained  profitability  or  have  no  history  of  operations.  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  traditional
investment securities. Rand expects that some of its venture capital investments
will be a complete loss or will be unprofitable  and that some will appear to be
likely to become  successful  but never realize their  potential.  Rand has been
risk  seeking  rather  than risk averse in its  approach to venture  capital and
other  investments.  Neither  Rand's  investments  nor an  investment in Rand is
intended  to  constitute  a balanced  investment  program.  Rand has in the past
relied,  and  continues to rely to a large  extent,  upon proceeds from sales of
investments  rather than  investment  income to defray a significant  portion of
it's operating  expenses.  Such sales are  unpredictable  and may not occur. The
terrorist acts in the United States of September 11, 2001 are the type of events
that could severely  impact a small company that does not have as many resources
to ride out market  downturns and would need immediate  investment  capital that
might be temporarily unavailable.

Illiquidity of Portfolio Investments

Most  of the  investments  of Rand are or will be  either  equity  securities
acquired  directly from small companies or below investment  grade  subordinated
debt  securities.  The  Company's  portfolio of equity  securities  are and will
usually be subject to  restrictions  on resale or otherwise  have no established
trading market. The illiquidity of most of the Company's portfolio may adversely
affect the ability of the Company to dispose of such securities at times when it
may be advantageous for the Company to liquidate such investments.

Even  if the Rand's  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 Rand's portfolio companies may not be successful.

Valuation of Portfolio Investments

There  is  typically  no  public  market of  equity  securities  of the small
privately  held companies in which Rand invests.  As a result,  the valuation of
the equity  securities in Rand's portfolio is subject to the good faith estimate
of Rand's Board of Directors.  In the absence of a readily  ascertainable market
value,  the  estimated  value of  Rand's  portfolio  of  securities  may  differ
significantly  from the values that would be placed on the  portfolio if a ready
market for the equity  securities  existed.  Any changes in estimated  net asset
value are recorded in Rand's  statement of  operations  as "Change in unrealized
appreciation on investments".

Fluctuations of Quarterly Results

Rand's quarterly operating results could fluctuate 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 one quarter should not
be relied upon as being indicative of performance in future quarters.

Changes In Interest Rates

Rand has no borrowings;  therefore, any change in interest rates will have no
material  impact on interest  expense.  A hypothetical  10% change in short-term
interest rates on our income  generated from cash and cash equivalent  would not
be  material   to  the  results  of   operations.   Such   discussion   includes
forward-looking  statements of risks,  which involve  certain  assumptions as to
market interest rates.  Actual market conditions may differ materially from such
assumptions.  Changes in  interest  rates may  impact  future  interest  income,
however,   through   September   30,  2001,   Rand  has  not  held  strong  cash
positions.

Item 3.    Quantitative and Qualitative Disclosures about Market Risks

A portion of the Company's  portfolio is in marketable  securities  traded in
the  over-the-counter  market, and there is a portion of the Company's 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 the  markets  to trade in an  orderly
fashion, the Company may not be able to realize the fair value of its marketable
investments or other investments in a timely manner.

As of September 30, 2001, the Company did not have any off-balance sheet
investments or hedging investments.

PART II  OTHER INFORMATION

|Item 1. | Legal Proceedings
|------- | -----------------

| | None
| | ----

|Item 2. | Changes in Securities and Use of Proceeds
|------- | -----------------------------------------

| | None
| | ----

|Item 3. | Defaults upon Senior Securities Holders
|------- | ---------------------------------------

| | None
| | ----

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

| | Rand  held its annual  shareholder  meeting on July 20, 2001. The
following  matters  were  submitted  to a  vote  of  shareholders:  Election  of
Directors;  Approval  for BDC  election;  Approval of Stock  Option  Plans;  and
approval of independent  auditors.  Information  concerning the results of these
votes is  presented  in an  attachment  titled  "Results  of  Balloting"  to the
Company's  NSAR-A  filed with the SEC on August 8, 2001,  which  information  is
incorporated herein by reference.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 5. | Other Information
|------- | -----------------

| | The Board of Directors has also authorized the repurchase of up to
5% of the Company's  outstanding  stock through  purchases on the open market at
any time, or from time to time,  during the one-year  period ending  October 18,
2002,  when, in the discretion of management,  the price of the Company's  stock
does not appropriately reflect its net asset value
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------

| | None
| | ----

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date:    November 14, 2001

| | RAND CAPITAL CORPORATION                                      
| | --------------------------------------------------------------
| | By:/s/ Allen F. Grum
     Allen F. Grum, President            
| | By:/s/ Daniel P. Penberthy
     Daniel P. Penberthy, Treasurer