##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q    ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2018  ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from
 to Commission File Number: 814-00235   Rand Capital Corporation (Exact Name of Registrant as specified in its Charter)    New York

16-0961359(State or Other Jurisdiction ofIncorporation or Organization)

(IRS EmployerIdentification No.)2200 Rand Building, Buffalo, NY

14203(Address of Principal executive offices)

(Zip Code) (716) 853-0802 (Registrants telephone number, including area code)   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  ☑    No  ☐ Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).    Yes  ☐    No  ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.  Large accelerated filer

☐

Accelerated filer

☐Non-accelerated filer

☑

Smaller reporting company

☐Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).     Yes  ☐    No  ☑ As of November 5, 2018, there were 6,321,988
shares of the registrants common stock outstanding.




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##### Table of Contents

RAND CAPITAL CORPORATION TABLE OF CONTENTS FOR FORM 10-Q PART I.  FINANCIAL INFORMATION  Item 1.

Financial Statements and Supplementary Data


1Consolidated Statements of Financial Position as of September 30, 2018 (Unaudited) and December 31, 2017


1Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2018 and 2017 (Unaudited)


2Consolidated Statements of Changes in Net Assets for the Three Months and Nine Months Ended September 30, 2018 and 2017 (Unaudited)


3Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)


4Consolidated Schedule of Portfolio Investments as of September 30, 2018 (Unaudited)


5Consolidated Schedule of Portfolio Investments as of December 31, 2017


13Notes to the Consolidated Financial Statements (Unaudited)


21Item 2.

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


33Item 3.

Quantitative and Qualitative Disclosures about Market Risk


42Item 4.

Controls and Procedures


42PART II.  OTHER INFORMATIONItem 1.

Legal Proceedings


43Item 1A.

Risk Factors


43Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


43Item 3.

Defaults upon Senior Securities


43Item 4.

Mine Safety Disclosures


43Item 5.

Other Information


43Item 6.

Exhibits


44




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##### Table of Contents

PART I. FINANCIAL INFORMATION  Item 1.
Financial Statements and Supplementary Data RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  September 30,2018(Unaudited)


December 31,2017ASSETSInvestments at fair value:Control investments (cost of $99,500)

$
99,500


$
99,500Affiliate investments (cost of $20,413,709 and $20,871,129, respectively)


16,728,607



17,016,795Non Control/Non-Affiliate investments (cost of $16,796,433
and $15,718,690, respectively)


15,344,150



15,167,767Total investments, at fair value (cost of $37,309,642 and $36,689,319, respectively)


32,172,257



32,284,062Cash and cash equivalents


4,404,574



6,262,039Interest receivable (net of allowance: $211,342 at 9/30/18; $161,000 at 12/31/17)


147,934



231,048Deferred tax asset


772,275



551,863Prepaid income taxes


1,122,826



762,047Other assets


38,360



42,854Total assets

$
38,658,226


$
40,133,913LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA (net of debt issuance costs)

$
7,875,723


$
7,855,173Profit sharing and bonus payable






144,000Accounts payable and accrued expenses


120,886



178,348Deferred revenue


73,941



37,707Total liabilities


8,070,550



8,215,228Commitments and contingencies (See Note 5)Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding
of 6,321,988


686,304



686,304Capital in excess of par value


10,581,789



10,581,789Accumulated net investment loss


(1,643,744
)


(1,597,146
)Undistributed net realized gain on investments


26,496,804



27,215,738Net unrealized depreciation on investments


(4,064,372
)


(3,498,895
)Treasury stock, at cost: 541,046 shares


(1,469,105
)


(1,469,105
)Total stockholders equity (net assets) (per share $4.84 at 9/30/18; $5.05 at
12/31/17)


30,587,676



31,918,685Total liabilities and stockholders equity (net assets)

$
38,658,226


$
40,133,913 See accompanying notes  1




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  Three monthsendedSeptember 30,2018


Three monthsendedSeptember 30,2017


Nine monthsendedSeptember 30,2018


Nine monthsendedSeptember 30,2017Investment income:Interest from portfolio companies:Affiliate investments

$
192,758


$
142,247


$
515,784


$
416,247Non-Control/Non-Affiliate
investments


257,531



167,675



547,553



417,406Total interest from portfolio companies


450,289



309,922



1,063,337



833,653Interest from other investments:Non-Control/Non-Affiliate
investments


7,872



6,348



20,717



24,182Total interest from other investments


7,872



6,348



20,717



24,182Dividend and other investment income:Affiliate investments


48,856



74,408



175,905



189,805Non-Control/Non-Affiliate
investments






2,405



6,058



7,598Total dividend and other investment income


48,856



76,813



181,963



197,403Fee income:Affiliate investments


4,042



2,166



11,625



6,250Non-Control/Non-Affiliate
investments


151,243



1,770



160,987



13,307Total fee income


155,285



3,936



172,612



19,557Total investment income


662,302



397,019



1,438,629



1,074,795Expenses:Salaries


169,875



165,413



509,624



496,239Employee benefits


39,845



38,454



148,841



138,523Directors fees


28,624



36,374



92,123



107,623Professional fees


81,745



48,433



220,773



310,628Stockholders and office operating


47,839



45,355



176,877



193,290Insurance


8,700



8,058



27,588



25,618Corporate development


15,028



16,621



41,470



49,938Other operating


4,875



2,772



9,990



8,055396,531



361,480



1,227,286



1,329,914Interest on SBA obligations


77,568



77,568



232,406



232,706Bad debt (recovery) expense


(26,299
)






50,342



Total expenses


447,800



439,048



1,510,034



1,562,620Net investment gain (loss) before income taxes


214,502



(42,029
)


(71,405
)


(487,825
)Income tax expense (benefit)


50,003



(17,050
)


(24,807
)


(188,961
)Net investment gain (loss)


164,499



(24,979
)


(46,598
)


(298,864
)Net realized loss on sales and dispositions of investments:Affiliate investments


(1,125,673
)






(1,125,673
)


Net realized loss before income tax benefit


(1,125,673
)






(1,125,673
)


Income tax benefit


406,739







406,739



Net realized loss on investments


(718,934
)






(718,934
)


Change in unrealized depreciation on investments:Affiliate investments


725,673







169,232



(665,675
)Non-Control/Non-Affiliate
investments


(249,871
)


111,000



(901,360
)


(322,308
)Change in unrealized depreciation before income tax expense (benefit)


475,802



111,000



(732,128
)


(987,983
)Deferred income tax expense (benefit)


100,669



28,090



(166,651
)


(349,960
)Net change in unrealized depreciation on investments


375,133



82,910



(565,477
)


(638,023
)Net realized and unrealized (loss) gain on investments


(343,801
)


82,910



(1,284,411
)


(638,023
)Net (decrease) increase in net assets from operations

($
179,302
)

$
57,931


($
1,331,009
)

($
936,887
)Weighted average shares outstanding


6,321,988



6,321,988



6,321,988



6,321,988Basic and diluted net (decrease) increase in net assets from operations per share

($
0.03
)

$
0.01


($
0.21
)

($
0.15
) See accompanying notes  2




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)  Three monthsendedSeptember 30,2018


Three monthsendedSeptember 30,2017


Nine monthsendedSeptember 30,2018


Nine monthsendedSeptember 30,2017Net assets at beginning of period

$
30,766,978


$
31,634,545


$
31,918,685


$
32,629,363Net investment gain (loss)


164,499



(24,979
)


(46,598
)


(298,864
)Net realized loss on investment


(718,934
)






(718,934
)


Net change in unrealized depreciation on investments


375,133



82,910



(565,477
)


(638,023
)Net (decrease) increase in net assets from operations


(179,302
)


57,931



(1,331,009
)


(936,887
)Total (decrease) increase in net assets


(179,302
)


57,931



(1,331,009
)


(936,887
)Net assets at end of period

$
30,587,676


$
31,692,476


$
30,587,676


$
31,692,476Accumulated net investment loss

($
1,643,744
)

($
1,876,712
)

($
1,643,744
)

($
1,876,712
) See accompanying notes  3




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  Nine monthsendedSeptember 30,2018


Nine monthsendedSeptember 30,2017Cash flows from operating activities:Net decrease in net assets from operations

($
1,331,009
)

($
936,887
)Adjustments to reconcile net decrease in net assets to net cash and cash equivalents used in
operating activities:Investments in portfolio companies


(1,365,000
)


(3,900,000
)Proceeds from loan repayments


70,131



Change in unrealized depreciation on investments


732,128



987,983Deferred tax benefit


(220,412
)


(542,917
)Realized loss on portfolio investments


1,125,673



Depreciation and amortization


22,200



23,550Original issue discount amortization


(29,462
)


(21,085
)Non-cash conversion of debenture interest


(421,665
)


(262,105
)Change in interest receivable allowance


50,342



Changes in operating assets and liabilities:Decrease in interest receivable


32,772



121,675Decrease in other assets


2,844



561,499Increase in prepaid income taxes


(360,779
)


(266,935
)Decrease in income tax payable






(320,008
)Decrease in accounts payable and accrued expenses


(69,462
)


(210,173
)Decrease in profit sharing and bonus payable


(132,000
)


(1,138,052
)Increase (decrease) in deferred revenue


36,234



(3,557
)Total adjustments


(526,456
)


(4,970,125
)Net cash and cash equivalents used in operating activities


(1,857,465
)


(5,907,012
)Net decrease in cash and cash and cash equivalents


(1,857,465
)


(5,907,012
)Cash and cash equivalents:Beginning of period


6,262,039



12,280,140End of period

$
4,404,574


$
6,373,128 See accompanying notes  4




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Unaudited)  Company, Geographic Location, Business    Description, (Industry) and Website

(a)
Type of Investment

(b)
Date
Acquired

(c)
Equity

Cost


(d)(f)
Fair
Value


Percent  of NetAssetsNon-Control/Non-Affiliate Investments 
50.2% of net assets: (j)ACV Auctions, Inc. (e)(g)

1,181,160 Series A Preferred

8/12/16

<1%









0.9%Buffalo, NY. Live mobile wholesale auctions for new

shares.






$163,000



$282,356and used car dealers. (Software)
www.acvauctions.comCentivo Corporation (e)(g)

190,967 Series A-1 Preferred

7/5/17

<1%









1.0%New York, NY. Tech-enabled health solutions

shares.






200,000



200,000company that helps self-insured employers and their

337,808 Series A-2 Preferredemployees save money and have a better experience.

shares.






101,342



101,342(Health Care)

Total Centivo






301,342



301,342www.centivo.comeHealth Global Technologies, Inc. (g)

$3,500,000 Replacement Term

6/28/16

0%









11.5%Henrietta, NY. eHealth Connect® improves health

Note at 13% due December 31, 2020.






3,500,000



3,500,000care delivery through intelligently aggregated clinical record and images for patient referrals.(Health Care) www.ehealthtechnologies.comEmpire Genomics, LLC (g)(m)

$1,209,014 Senior Secured

6/13/14

0%









2.3%Buffalo, NY. Molecular diagnostics company that

Convertible Term Notes at 10%offers a comprehensive menu of assay services for

(8% Payment in Kind (PIK)) duediagnosing and guiding patient therapeutic treatments.

December 31, 2020.






1,209,014



450,000(Health Care)

$444,916 Promissory Note at 9%www.empiregenomics.com

due December 31, 2020.






394,915



252,569Total Empire






1,603,929



702,569GiveGab, Inc. (e)(g)

5,084,329 Series Seed Preferred

3/13/13

4%









2.0%Ithaca, NY. Online fundraising, day of giving

shares.






616,221



616,221supporter engagement software for non-profitorganizations. (Software)www.givegab.comGoNoodle, Inc. (g)(m)

$1,000,000 Secured Note at 12%

2/6/15

<1%









3.4%Nashville, TN. Student engagement education

due January 31, 2020, (1%software providing core aligned physical activity

Payment in Kind (PIK)).






1,037,070



1,037,070breaks. (Software)

Warrant for 47,324 Series Cwww.gonoodle.com

Preferred shares.






25



25Total GoNoodle






1,037,095



1,037,095Mercantile Adjustment Bureau, LLC (g)

$1,199,039 Subordinated Secured

10/22/12

4%









3.1%Williamsville, NY. Full service accounts receivable

Note at 13% (3% for the calendarmanagement and collections company. (Contact

year 2018) due January 31, 2019.






1,199,040



949,040Center) www.mercantilesolutions.com

(e)$150,000 SubordinatedDebenture at 8% due June 30,2018.






150,000



-Warrant for 3.29% MembershipInterests. Option for 1.5%Membership Interests.






97,625



-(i)Interest receivable $51,761.Total Mercantile






1,446,665



949,040Outmatch Holdings, LLC (e)(g)

2,745,545 Class P1 Units.

11/18/10

4%


2,140,007



2,140,007


7.0%(Chequed Holdings, LLC)

109,788 Class C1 Units.






5,489



5,489Dallas, TX. Web based predictive employee selection

Total Outmatch






2,145,496



2,145,496and reference checking. (Software)www.outmatch.comPostProcess Technologies LLC (e)(g)

$300,000 Convertible Promissory

7/25/16

0%









1.0%Buffalo, NY. Provides innovative solutions for the

Note at 5% due July 28, 2020.






300,000



300,000post-processing of additive manufactured 3D parts.(Manufacturing)www.postprocess.com  5




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  Company, Geographic Location, Business    Description, (Industry) and Website

(a)
Type of Investment

(b)
Date
Acquired

(c) 
Equity

Cost


(d)(f)
Fair
Value


Percent  of NetAssetsRheonix, Inc. (e)

9,676 Common shares.

10/29/09

4%


-



11,000


9.6%Ithaca, NY. Developer of fully automated

(g)1,839,422 Series A preferredmicrofluidic based molecular assay and diagnostic

shares.






2,099,999



2,165,999testing devices. (Health Care)

(g)50,593 Common shares.






-



59,000www.rheonix.com

(g)589,420 Series B Preferred shares.






702,732



702,732Total Rheonix






2,802,731



2,938,731SocialFlow, Inc. (e)(g)

1,049,538 Series B Preferred shares.

4/5/13

4%


500,000



731,431


6.8%New York, NY. Provides instant analysis of social

1,204,819 Series B-1 Preferred shares.






750,000



839,648networks using a proprietary, predictive analytic

717,772 Series C Preferred shares.






500,000



500,221algorithm to optimize advertising and publishing.

Total Social Flow






1,750,000



2,071,300(Software)www.socialflow.comSomerset Gas Transmission Company, LLC (e)

26.5337 Units.

7/10/02

3%


719,097



500,000


1.6%Columbus, OH. Natural gas transportation.(Oil and Gas)www.somersetgas.comOther Non-Control/Non-Affiliate Investments:DataView, LLC(Software) (e)

Membership Interest.

-

-


310,357



-


0.0%UStec/Wi3(Manufacturing) (e)

Common stock.

-

-


100,500



-


0.0%Subtotal Non-Control/Non-Affiliate Investments$16,796,433



$15,344,150Affiliate Investments  54.7% of net assets (k)BeetNPath, LLC (Grainful) (e)(g)

1,119,024 Series A-2 Preferred

10/20/14

9%









2.6%Ithaca, NY. Frozen entrées made from 100%

Membership Units.






$359,000



$359,000whole grain steel cut oats under Grainful brand

1,032,918 Series B Preferredname. (Consumer Product)

Membership Units.






261,277



291,000www.grainful.com

$140,000 Convertible Secured Note at8% due December 21, 2019






140,000



140,000Total BeetNPath






760,277



790,000Carolina Skiff LLC (g)

6.0825% Class A Common

1/30/04

7%









5.8%Waycross, GA. Manufacturer of ocean fishing and

Membership Interest.






15,000



1,750,000pleasure boats.(Manufacturing)www.carolinaskiff.comClearView Social, Inc. (e)(g)

312,500 Series Seed Plus Preferred

1/4/16

6%









0.6%Buffalo, NY. Social media publishing tool for law,

shares.






200,000



200,000CPA and professional firms. (Software)www.clearviewsocial.comFirst Wave Products Group, LLC (e)(g)

$500,000 Senior Term Notes at 10%

4/19/12

7%









0.0%Batavia, NY. Sells First Crush automated pill

due July 31, 2017.






661,563



-crusher that crushes and grinds pills for nursing

$280,000 Junior Term Notes at 10%homes and medical institutions. (Health Care)

due July 31, 2017.






316,469



-www.firstwaveproducts.com

Warrant for 41,619 Capital Securities.






22,000



-Total First Wave






1,000,032



-  6




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  (b)

(c)




(d)(f)


PercentCompany, Geographic Location, Business

(a)

Date






Fair


of NetDescription, (Industry) and Website

Type of Investment

Acquired

Equity

Cost


Value


AssetsGenicon, Inc. (g) (m)

1,586,902 Series B Preferred shares.

4/10/15

6%


1,000,000



1,000,000


13.7%Winter Park, FL. Designs, produces and

$3,000,000 Promissory Notes at 10%distributes patented surgical instrumentation.

due May 1, 2020, (8% Payment in Kind(Health Care)

(PIK)).






3,057,327



3,057,327www.geniconendo.com

Warrant for 250,000 Common shares.






80,000



80,000Warrant for 125,000 Common shares.






40,000



40,000Total Genicon






4,177,327



4,177,327G-TEC Natural Gas Systems (e)

16.639% Class A Membership Interest.

8/31/99

17%









0.3%Buffalo, NY. Manufactures and distributes

8% cumulative dividend.






400,000



100,000systems that allow natural gas to be used as analternative fuel to gases. (Manufacturing)www.gas-tec.comKnoa Software, Inc. (e)(g)(h)

973,533 Series A-1 Convertible

11/20/12

7%









4.0%New York, NY. End user experience

Preferred shares.






750,000



750,000management and performance (EMP) solutions

1,876,922 Series B Preferred shares.






479,155



479,155utilizing enterprise applications. (Software)

Total Knoa






1,229,155



1,229,155www.knoa.comKnowledgeVision Systems, Inc. (g)

200,000 Series A-1 Preferred shares.

11/13/13

7%


250,000



-


4.3%Lincoln, MA. Online presentation and training

214,285 Series A-2 Preferred shares.






300,000



300,000software. (Software)

129,033 Series A-3 Preferred shares.






165,001



165,001www.knowledgevision.com

Warrant for 46,743 Series A-3 shares.






35,000



35,000$75,000 Subordinated Promissory Notesat 8% payable on demand of majority ofholders after August 31, 2019.(e)






75,000



75,000$750,000 Replacement Term Note at11% due April 30, 2021.






750,000



750,000Total KnowledgeVision






1,575,001



1,325,001Mezmeriz, Inc. (e)(g)

1,554,565 Series Seed Preferred shares.

1/9/08

14%


742,850



351,477


1.1%Ithaca, NY. Micro-electronic mechanical systems(MEMS) developer of carbon fiber MEMS mirrormodules for gesture recognition and 3D scanning.(Electronics Developer)www.mezmeriz.comMicrocision LLC (g)(m)

$1,500,000 Subordinated Promissory

9/24/09

15%









6.3%Pennsauken Township, NJ. Manufacturer of

Note at 12% (1% Payment in Kindprecision machined medical implants,

(PIK)) due December 31, 2024.






1,928,532



1,928,532components and assemblies. (Manufacturing)

15% Class A Common Membershipwww.microcision.com

Interest.






-



-Total Microcision






1,928,532



1,928,532New Monarch Machine Tool, Inc. (g)

22.84 Common shares.

9/24/03

15%


22,841



22,841


0.1%Cortland, NY. Manufactures and servicesvertical/horizontal machining centers.(Manufacturing)www.monarchmt.comOnCore Golf Technology, Inc. (e)(g)

150,000 Series AA Preferred shares.

12/31/14

9%


375,000



-


1.0%Buffalo, NY. Maker of patented golf balls.

$300,000 Subordinated Convertible(Consumer Product)

Promissory Notes at 10% due Januarywww.oncoregolf.com

24, 2018.






300,000



300,000(i)Interest receivable $50,342.Total OnCore






675,000



300,000  7




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  (a)

(b)

(c)



(d)(f)

PercentCompany, Geographic Location, Business



Date





Fair

of NetDescription, (Industry) and Website

Type of Investment

Acquired

Equity

Cost

Value

AssetsSciAps, Inc. (e)(g)

187,500 Series A Preferred shares.

7/12/13

6%

1,500,000


700,000


6.6%Woburn, MA. Instrumentation company producing

274,299 Series A-1 Convertibleportable analytical devices using XRF, LIBS and

Preferred shares.





504,710


250,000RAMAN spectroscopy to identify compounds,

117,371 Series B Convertibleminerals, and elements. (Manufacturing)

Preferred shares.





250,000


250,000www.sciaps.com

113,636 Series C ConvertiblePreferred shares.





175,000


175,000369,698 Series C-1 ConvertiblePreferred shares.





399,274


399,274147,059 Series D ConvertiblePreferred shares.





250,000


250,000Total SciAps





3,078,984


2,024,274SOMS Technologies, LLC (e)(g)

5,959,490 Series B Membership

12/2/08

9%







0.1%Valhalla, NY. Produces and markets the

Interests.





472,632


30,000microGreen Extended Performance Oil Filter.(Consumer Products)www.microgreenfilter.comTeleservices Solutions Holdings, LLC (e) (g)(m)

250,000 Class B Preferred Units.

5/30/14

6%

250,000


-


0.0%Montvale, NJ. Customer contact center

1,000,000 Class C Preferred Units.





1,190,680


-specializing in customer acquisition and retention

80,000 Class D Preferred Units.





91,200


-for selected industries. (Contact Center)

104,198 Class E Preferred Units.





104,198


-www.ipacesetters.com

PIK dividend for Series C and D at12% and 14%, respectively.Total Teleservices





1,636,078


-Tilson Technology Management, Inc. (g)

120,000 Series B Preferred shares.

1/20/15

11%

600,000


600,000


8.2%Portland, ME. Cellular, fiber optic and wireless

21,391 Series C Convertible Preferredinformation systems, construction, and

shares.





200,000


200,000management. (Professional Services)

65,790 Series D Preferred shares.





750,000


750,000www.tilsontech.com

$750,000 Subordinated PromissoryNote at 8% due December 1, 2022.





750,000


750,000$200,000 Subordinated PromissoryNote at 8% due September 28, 2021.





200,000


200,000Total Tilson





2,500,000


2,500,000Subtotal Affiliate Investments







$20,413,709


$16,728,607Control Investments  0.3% of net assets (l)Advantage 24/7 LLC (e)(g)

45% Membership Interest.

12/30/10

45%

$99,500


$99,500


0.3%Williamsville, NY. Marketing program for wineand spirits dealers. (Marketing Company)www.advantage24-7.comSubtotal Control Investments







$99,500


$99,500TOTAL INVESTMENTS 105.2%







$37,309,642


$32,172,257OTHER ASSETS IN EXCESS OFLIABILITIES  (5.2%)










(1,584,581)NET ASSETS  100%










$30,587,676  8




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  Notes to the Consolidated Schedule of Portfolio Investments (a)  At September 30, 2018, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are
subject to one or more restrictions on resale and are not freely marketable. (b)  The Date Acquired column indicates the date in which the
Corporation first acquired an investment in the company or a predecessor company. (c)  Each equity percentage estimates the Corporations
ownership interest in the applicable portfolio investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation
upon exercise of warrants or conversion of debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an equity interest of less than one percent. (d)  The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value
Measurements and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At September 30, 2018, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the
valuation policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject to restrictions on
resale, and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for
portfolio securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these
favorable or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating
to the investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 3 Investments to the
Consolidated Financial Statements). (e)  These investments are non-income producing. All other
investments are income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions
within the last twelve months, or are not expected to do so going forward. (f)  As of September 30, 2018 the total cost of investment
securities was approximately $37.3 million. Net unrealized depreciation was approximately ($5.1) million, which was comprised of $2.3 million of unrealized appreciation of investment securities and ($7.4) million of unrealized depreciation
of investment securities. At September 30, 2018, the aggregate gross unrealized gain for federal income tax purposes was $2.6 million and the aggregate gross unrealized loss for federal income tax purposes was ($6.5) million. The net
unrealized loss for federal income tax purposes was ($3.9) million based on a tax cost of $36.1 million. (g)  Rand Capital SBIC, Inc.
investment. (h)  Reduction in cost and value from previously reported balances reflects current principal repayment. (i)  Represents interest due (amounts over $50,000) from investments included as interest receivable on the Corporations Statement of Financial
Position. (j)  Non-Control/Non-Affiliate Investments are
investments that are neither Control Investments nor Affiliate Investments. (k)  Affiliate Investments are defined by the Investment Company Act
of 1940, as amended (1940 Act), as those Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation. (l)  Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the
Corporation or where greater than 50% of the board representation is maintained. (m)  Payment in kind (PIK) represents earned interest that is
added to the cost basis of the investment.  9




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  Investments in and Advances to Affiliates   Amount ofNet


Interest/December





Gross


September


Realized


Dividend/Company

Type of Investment

31, 2017  Fair Value


Gross  Additions (1)


Reductions
(2)


30, 2018  Fair Value


Gains(Losses)


Fee
Income (3)Control Investments:Advantage 24/7 LLC

45% Membership interest.


$99,500



$-



$-



$99,500



$-



$-Total Control Investments


$99,500



$-



$-



$99,500



$-



$-Affiliate Investments:BeetNPath, LLC

1,119,024 Series A-2 Preferred MembershipUnits.


$359,000



$-



$-



$359,000



$-



$-1,032,918 Series B Preferred Membership


















-Units.


291,000



-



-



291,000



-



-$140,000 convertible secured note at 8%


-



140,000



-



140,000



-



2,551Total BeetNPath


650,000



140,000



-



790,000







2,551Carolina Skiff LLC

6.0825% Class A common membershipinterest.


1,750,000



-



-



1,750,000



-



119,433ClearView Social, Inc.

312,500 Series seed plus preferred shares.


200,000



-



-



200,000



-



-First Wave Products

$500,000 senior term notes at 10%.


250,000



-



(250,000)



-



-



-Group, LLC

$280,000 junior term notes at 10%.


-



-



-



-



-



-Warrant for 41,619 capital securities.


-



-



-



-



-



-Total First Wave


250,000



-



(250,000)



-



-



-Genicon, Inc.

1,586,902 Series B preferred shares.


1,000,000



-



-



1,000,000



-



-$3,000,000 promissory notes at 8%.


2,903,779



153,548



-



3,057,327



-



251,069Warrant for 250,000 common shares


80,000



-



-



80,000



-



-Warrant for 125,000 common shares


40,000



-



-



40,000



-



-Total Genicon


4,023,779



153,548



-



4,177,327



-



251,069GiveGab, Inc.

5,084,329 Series Seed preferred shares.


424,314



191,907



(616,221)



-



-



-G-TEC Natural Gas

16.639% Class A membership interest. 8%Systems

cumulative dividend.


100,000



-



-



100,000



-



-Intrinsiq Materials,

4,161,747 Series A preferred shares.


400,000



-



(400,000)



-



(1,125,673)



-Inc.Knoa Software, Inc.

973,533 Series A-1 convertible preferredshares.


750,000



-



-



750,000



-



-1,876,922 Series B preferred shares.


479,155



-



-



479,155



-



-$48,466 convertible promissory note at 8%.


48,466



-



(48,466)



-



-



773Total Knoa


1,277,621



-



(48,466)



1,229,155



-



773KnowledgeVision

200,000 Series A-1 preferred shares.


-



-



-



-



-



-Systems, Inc.

214,285 Series A-2 preferred shares.


300,000



-



-



300,000



-



-129,033 Series A-3 preferred shares.


165,001



-



-



165,001



-



-$75,000 subordinated promissory notes at 8%


50,000



25,000



-



75,000



-



3,896$750,000 replacement term note at 11%


-



750,000



-



750,000



-



37,571Warrant for 46,743 Series A-3 shares.


35,000



-



-



35,000



-



-Total Knowledge


550,001



775,000



-



1,325,001



-



41,467VisionMezmeriz, Inc.

1,554,565 Series seed preferred shares.


351,477



-



-



351,477



-



-Microcision LLC

$1,500,000 subordinated promissory note at12% (1% PIK).


1,914,140



14,392



-



1,928,532



-



172,704New Monarch

22.84 common shares.


22,841



-



-



22,841



-



29,409Machine Tool, Inc.  10




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)  Investments in and Advances to Affiliates  Company

Type of Investment

December 31,  2017 Fair  Value


Gross  Additions  (1)


Gross  Reductions  (2)


September  30, 2018  Fair
Value


Net  Realized  Gains(Losses)


Amount of  Interest/Dividend/Fee Income(3)OnCore Golf

150,000 Series AA preferred shares.


-



-



-



-



-



-Technology, Inc.

$300,000 subordinated convertiblepromissory notes at 6%.


300,000



-



-



300,000



-



-Total OnCore


300,000



-



-



300,000



-



-SciAps, Inc.

187,500 Series A convertible preferredshares.


700,000



-



-



700,000



-



-274,299 Series A-1 convertible preferredshares.


250,000



-



-



250,000



-



-117,371 Series B convertible preferredshares.


250,000



-



-



250,000



-



-113,636 Series C preferred shares.


175,000



-



-



175,000



-



-369,698 Series C-1 preferred shares.


399,274



-



-



399,274



-



-147,059 Series D shares


-



250,000



-



250,000



-



-Total SciAps


1,774,274



250,000



-



2,024,274



-



-SOMS

5,959,490 Series B membership interests.


528,348



-



(498,348
)


30,000



-



-Technologies, LLCTeleservices

250,000 Class B preferred units.


-



-



-



-



-



-Solutions

1,000,000 Class C preferred units.


-



-



-



-



-



-Holdings, LLC

80,000 Class D preferred units.


-



-



-



-



-



-104,198 Class E preferred units.


-



-



-



-



-



-Total Teleservices


-



-



-



-



-



-Tilson Technology

120,000 Series B preferred shares.


600,000



-



-



600,000



-



15,000Management, Inc.

21,391 Series C convertible preferredshares.


200,000



-



-



200,000



-



-$200,000 subordinated promissory note at8%.


200,000



-



-



200,000



-



11,96765,790 Series D preferred shares.


750,000



-



-



750,000



-



14,064$750,000 subordinated promissory note at8%.


750,000



-



-



750,000



-



44,877Total Tilson


2,500,000



-



-



2,500,000



-



85,908Total Affiliate Investments


$17,016,795



$1,524,847



($1,813,035)



$16,728,607



($1,125,673)



$703,314Total Control and Affiliate Investments


$17,116,295



$1,524,847



($1,813,035)



$16,828,107



($1,125,673)



$703,314 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements. (1) Gross additions include increases in the cost basis
of investments resulting from new portfolio investments, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation,
and the movement of an existing portfolio company into this category and out of another category. (2) Gross reductions include decreases in the cost basis
of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing
portfolio company out of this category and into another category. (3) Represents the total amount of interest, fees or dividends credited to income for
the portion of the period an investment was included in Control or Affiliate categories, respectively.  11




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS September 30, 2018 (Continued) (Unaudited)     Industry Classification

Percentage of TotalInvestments (at fair value)as
of September 30, 2018Healthcare

36.1%Software

27.7Manufacturing

19.0Professional Services

7.8Consumer Product

3.5Contact Center

2.9Oil and Gas

1.6Electronics

1.1Marketing

0.3Total Investments

100%  12




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017  Company, Geographic Location, Business
Description, (Industry) and Website

(a) 
Type of Investment

(b)
Date
Acquired

(c) 
Equity

Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsNon-Control/Non-Affiliate Investments  47.5%of net assets: (j)ACV Auctions, Inc. (e)(g)

1,181,160 Series A preferred

8/12/16

<1%









0.9%Buffalo, NY. Live mobile wholesale auctions for new

shares.






$163,000



$282,356and used car dealers. (Software)www.acvauctions.comCentivo Corporation (e)(n)

$100,000 convertible unsecured

7/5/17

0%









0.3%New York, NY. Tech-enabled health solutions

note at 2% due February 1, 2019.






100,000



100,000company that helps self-insured employers and theiremployees save money and have a better experience.(Health Care)eHealth Global Technologies, Inc.

(g)$1,500,000 term note at 10%

6/28/16

0%









11.0%Henrietta, NY. eHealth Connect® improves health

due September 2, 2019.






1,500,000



1,500,000care delivery through intelligently aggregated clinical

(n)$2,000,000 term note at 10%record and images for patient referrals.

due September 2, 2019.






2,000,000



2,000,000(Health Care)

Total eHealth






3,500,000



3,500,000www.ehealthtechnologies.comEmpire Genomics, LLC (g)

$1,101,489 senior secured

6/13/14

0%









4.2%Buffalo, NY. Molecular diagnostics company that

convertible term notes at 10% dueoffers a comprehensive menu of assay services for

April 30, 2018.






1,101,489



1,101,489diagnosing and guiding patient therapeutic treatments.

$250,000 promissory note at 12%(Health Care)

due December 31, 2019.






250,000



250,000www.empiregenomics.com

(i)Interest receivable $65,906.Total Empire






1,351,489



1,351,489GoNoodle, Inc. (g)(m)

$1,000,000 secured note at 12%

2/6/15

<1%









3.2%(Formerly HealthTeacher, Inc.)

due January 31, 2020, (1%Nashville, TN. Student engagement education

Payment in Kind (PIK)).






1,029,330



1,029,330software providing core aligned physical activity

Warrant for 47,324 Series Cbreaks. (Software)

Preferred shares.






25



25www.gonoodle.com

Total GoNoodle






1,029,355



1,029,355Mercantile Adjustment Bureau, LLC (g)

$1,199,039 subordinated secured

10/22/12

4%









3.0%Williamsville, NY. Full service accounts receivable

note at 13% (3% for the calendarmanagement and collections company.

year 2017) due January 31, 2018.






1,199,040



949,040(Contact Center)

(e)$150,000 subordinatedwww.mercantilesolutions.com

debenture at 8% due June 30,2018.






150,000



-Warrant for 3.29% membershipinterests. Option for 1.5%membership interests.






97,625



-(i)Interest receivable $55,983.Total Mercantile






1,446,665



949,040Outmatch Holdings, LLC (e)(g)

2,641,899 Class P1 Units.

11/18/10

4%


2,140,007



2,140,007


6.7%(Chequed Holdings, LLC)

109,788 Class C1 Units.






5,489



5,489Dallas, TX. Web based predictive employee selection

Total Outmatch






2,145,496



2,145,496and reference checking. (Software)www.outmatch.comPostProcess Technologies LLC (e)(g)

$300,000 convertible promissory

7/25/16

0%









0.9%Buffalo, NY. Provides innovative solutions for the

note at 5% due July 28, 2018.






300,000



300,000post-processing of additive manufactured 3D parts.(Manufacturing)www.postprocess.com  13




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, Business
Description, (Industry) and Website

(a) 
Type of Investment

(b)
Date
Acquired

(c) 
Equity

Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsRheonix, Inc. (e)

9,676 common shares.

10/29/09

4%


-



11,000


9.2%Ithaca, NY. Developer of fully automated

(g)1,839,422 Series A preferredmicrofluidic based molecular assay and diagnostic

shares.






2,099,999



2,165,999testing devices. (Health Care)

(g)50,593 common shares.






-



59,000www.rheonix.com

(g)589,420 Series B preferred shares.






702,732



702,732Total Rheonix






2,802,731



2,938,731SocialFlow, Inc. (e)(g)

1,049,538 Series B preferred shares.

4/5/13

4%


500,000



731,431


6.5%New York, NY. Provides instant analysis of social

1,204,819 Series B-1 preferred shares.






750,000



839,648networks using a proprietary, predictive analytic

717,772 Series C preferred shares.






500,000



500,221algorithm to optimize advertising and publishing.

Total Social Flow






1,750,000



2,071,300(Software)www.socialflow.comSomerset Gas Transmission Company, LLC (e)

26.5337 units.

7/10/02

3%


719,097



500,000


1.6%Columbus, OH. Natural gas transportation.(Oil and Gas)www.somersetgas.comOther Non-Control/Non-Affiliate Investments:DataView, LLC(Software) (e)

Membership Interest.

-

-


310,357



-


0.0%UStec/Wi3(Manufacturing) (e)

Common Stock.

-

-


100,500



-


0.0%Subtotal Non-Control/Non-Affiliate Investments$15,718,690



$15,167,767Affiliate Investments  53.3% of net assets (k)BeetNPath, LLC (Grainful) (e)(g)

1,119,024 Series A-2 Preferred

10/20/14

9%









2.0%Ithaca, NY. Frozen entrées and packaged dry side

Membership Units.






$359,000



$359,000dishes made from 100% whole grain steel cut oats

1,032,918 Series B Preferredunder Grainful brand name. (Consumer Product)

Membership Units.






261,277



291,000www.grainful.com

Total BeetNPath






620,277



650,000Carolina Skiff LLC (g)

6.0825% Class A common

1/30/04

7%









5.5%Waycross, GA. Manufacturer of fresh water,

membership interest.






15,000



1,750,000ocean fishing and pleasure boats.(Manufacturing)www.carolinaskiff.comClearView Social, Inc. (e)(g)

312,500 Series seed plus preferred

1/4/16

6%









0.6%Buffalo, NY. Social media publishing tool for law,

shares.






200,000



200,000CPA and professional firms. (Software)www.clearviewsocial.comFirst Wave Products Group, LLC (e)(g)

$500,000 senior term notes at 10% due

4/19/12

7%









0.8%Batavia, NY. Sells First Crush automated pill

July 31, 2017.






661,563



250,000crusher that crushes and grinds medical pills for

$280,000 junior term notes at 10% duenursing homes and medical institutions. (Health

July 31, 2017.






316,469



-Care)

Warrant for 41,619 capital securities.






22,000



-www.firstwaveproducts.com

Total First Wave






1,000,032



250,000Genicon, Inc.

(g)1,586,902 Series B preferred shares.

4/10/15

6%


1,000,000



1,000,000


12.6%Winter Park, FL. Designs, produces and

(g)$2,000,000 promissory note at 8%distributes patented surgical instrumentation.

due May 1, 2020.






1,936,002



1,936,002(Health Care)

(g)Warrant for 250,000 commonwww.geniconendo.com

shares.






80,000



80,000(n)$1,000,000 promissory note at 8%due May 1, 2020.






967,777



967,777(n)Warrant for 125,000 commonshares.






40,000



40,000Total Genicon






4,023,779



4,023,779  14




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, Business
Description, (Industry) and Website

(a) 
Type of Investment

(b)
Date
Acquired

(c) 
Equity

Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsGiveGab, Inc. (e)(g)

5,084,329 Series Seed preferred shares.

3/13/13

6%


616,221



424,314


1.3%Ithaca, NY. Online fundraising, day of givingsupporter engagement software for non-profitorganizations. (Software)www.givegab.comG-TEC Natural Gas Systems (e)

16.639% Class A membership interest.

8/31/99

17%









0.3%Buffalo, NY. Manufactures and distributes

8% cumulative dividend.






400,000



100,000systems that allow natural gas to be used as analternative fuel to gases. (Manufacturing)www.gas-tec.comIntrinsiq Materials, Inc. (e)(g)

4,161,747 Series A preferred shares.

9/19/13

12%


1,125,673



400,000


1.3%Rochester, NY. Produces printable electronicsutilizing a unique process of nanomaterial basedink in a room-temperature environment.(Manufacturing)www.intrinsiqmaterials.comKnoa Software, Inc. (g)

973,533 Series A-1 convertible

11/20/12

7%









4.0%New York, NY. End user experience

preferred shares.






750,000



750,000management and performance (EMP) solutions

1,876,922 Series B preferred shares.






479,155



479,155utilizing enterprise applications. (Software)

$48,466 convertible promissory note atwww.knoa.com

8% due May 9, 2018.






48,466



48,466Total Knoa






1,277,621



1,277,621KnowledgeVision Systems, Inc. (e)(g)

200,000 Series A-1 preferred shares.

11/13/13

7%


250,000



-


1.7%Lincoln, MA. Online presentation and training

214,285 Series A-2 preferred shares.






300,000



300,000software. (Software)

129,033 Series A-3 preferred shares.






165,001



165,001www.knowledgevision.com

Warrant for 46,743 Series A-3 shares.






35,000



35,000$50,000 subordinated promissory noteat 8% payable on demand of majority ofnoteholders after August 31, 2017.






50,000



50,000Total KnowledgeVision






800,001



550,001Mezmeriz, Inc. (e)(g)

1,554,565 Series Seed preferred shares.

1/9/08

14%


742,850



351,477


1.1%Ithaca, NY. Micro-electronic mechanical systems(MEMS) developer of carbon fiber MEMS mirrormodules for gesture recognition and 3D scanning.(Electronics Developer)www.mezmeriz.comMicrocision LLC (g)(m)

$1,500,000 subordinated promissory

9/24/09

15%









6.0%Pennsauken Township, NJ. Manufacturer of

note at 12% (1% PIK) due Decemberprecision machined medical implants,

31, 2024.






1,914,140



1,914,140components and assemblies. (Manufacturing)

15% Class A common membershipwww.microcision.com

interest.






-



-Total Microcision






1,914,140



1,914,140New Monarch Machine Tool, Inc. (g)

22.84 common shares.

9/24/03

15%


22,841



22,841


0.1%Cortland, NY. Manufactures and servicesvertical/horizontal machining centers.(Manufacturing)www.monarchmt.com  15




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Company, Geographic Location, Business
Description, (Industry) and Website

(a) 
Type of Investment

(b)
Date
Acquired

(c) 
Equity

Cost


(d)(f)
Fair
Value


Percent
of Net
AssetsOnCore Golf Technology, Inc. (e)(g)

150,000 Series AA preferred shares.

12/31/14

9%


375,000



-


0.9%Buffalo, NY. Maker of patented golf balls.

$300,000 subordinated convertible(Consumer Product)

promissory notes at 6% (10% forwww.oncoregolf.com

calendar year 2017) due January 24,2018.(i)Interest receivable $50,342.






300,000



300,000Total OnCore






675,000



300,000SciAps, Inc. (e)(g)

187,500 Series A convertible preferred

7/12/13

8%









5.6%Woburn, MA. Instrumentation company

shares.






1,500,000



700,000producing portable analytical devices using XRF,

274,299 Series A-1 convertibleLIBS and RAMAN spectroscopy to identify

preferred shares.






504,710



250,000compounds, minerals, and elements.

117,371 Series B convertible preferred(Manufacturing)

shares.






250,000



250,000www.sciaps.com

113,636 Series C preferred shares.






175,000



175,000369,698 Series C-1 preferred shares.






399,274



399,274Total SciAps






2,828,984



1,774,274SOMS Technologies, LLC (e)(g)

5,959,490 Series B membership

12/2/08

9%









1.7%Valhalla, NY. Produces and markets the

interests.






472,632



528,348microGreen Extended Performance Oil Filter.(Consumer Products)www.microgreenfilter.comTeleservices Solutions Holdings, LLC (e)

250,000 Class B preferred units.

5/30/14

6%


250,000



-


0.0%(g)(m)

1,000,000 Class C preferred units.






1,190,680



-Montvale, NJ. Customer contact center

80,000 Class D preferred units.






91,200



-specializing in customer acquisition and retention

104,198 Class E preferred units.






104,198



-for selected industries. (Contact Center)

PIK dividend for Series C and D at 12%www.ipacesetters.com

and 14%, respectively.Total Teleservices






1,636,078



-Tilson Technology Management, Inc.

(g)120,000 Series B preferred shares.

1/20/15

11%


600,000



600,000


7.8%Portland, ME. Cellular, fiber optic and wireless

21,391 Series C convertible preferredinformation systems, construction, and

shares.






200,000



200,000management. (Professional Services)

(g)$200,000 subordinated promissorywww.tilsontech.com

note at 8% due September 28, 2021.






200,000



200,000(n)65,790 Series D preferred shares.






750,000



750,000(n)$750,000 subordinated promissorynote at 8% due December 1, 2022.






750,000



750,000Total Tilson






2,500,000



2,500,000Subtotal Affiliate Investments








$20,871,129



$17,016,795Control Investments  0.3% of net assets (l)Advantage 24/7 LLC (e)(g)

53% Membership interest.

12/30/10

53%


$99,500



$99,500


0.3%Williamsville, NY. Marketing program for wineand spirits dealers. (Marketing Company)www.advantage24-7.comSubtotal Control Investments








$99,500



$99,500TOTAL INVESTMENTS  101.1%








$36,689,319



$32,284,062OTHER ASSETS IN EXCESS OF LIABILITIES  (1.1%)












(365,377)NET ASSETS  100%












$31,918,685  16




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Notes to the Consolidated Schedule of Portfolio Investments (a) At December 31, 2017, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or
more restrictions on resale and are not freely marketable. (b) The Date Acquired column indicates the date in which the Corporation first acquired an
investment in the company or a predecessor company. (c) Each equity percentage estimates the Corporations ownership interest in the applicable
portfolio investment. The estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of warrants or
conversion of debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an equity interest of less than one percent. (d) The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value Measurements
and Disclosures, which defines fair value and establishes guidelines for measuring fair value. At December 31, 2017, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the valuation
policy of the Corporation, unrestricted publicly held securities are valued at the average closing bid price for these securities for the last three trading days of the reporting period. Restricted securities are subject to restrictions on resale,
and are valued at fair value as determined by the management of the Corporation and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio
securities when sold on the valuation date. Valuations as of any particular date, however, are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and these favorable
or unfavorable differences could be material. Among the factors considered in determining the fair value of restricted securities are the financial condition and operating results, projected operations, and other analytical data relating to the
investment. Also considered are the market prices for unrestricted securities of the same class (if applicable) and other matters which may have an impact on the value of the portfolio company (see Note 3 Investments to the Consolidated
Financial Statements). (e) These investments are non-income producing. All other investments are income
producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions within the last twelve
months, or are not expected to do so going forward. (f) As of December 31, 2017, the total cost of investment securities was approximately
$36.7 million. Net unrealized depreciation was approximately ($4.4) million, which was comprised of $2.4 million of unrealized appreciation of investment securities and ($6.8) million of unrealized depreciation of investment securities. At
December 31, 2017, the aggregate gross unrealized gain for federal income tax purposes was $2.8 million and the aggregate gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized loss for federal income
tax purposes was ($1.6) million based on a tax cost of $33.9 million. (g) Rand Capital SBIC, Inc. investment. (h) Reduction in cost and value from previously reported balances reflects current principal repayment. There were no principal repayments during the year
ended December 31, 2017. (i) Represents interest due (amounts over $50,000) from investments included as interest receivable on the
Corporations Statement of Financial Position. (j)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. (k) Affiliate Investments are defined by the Investment Company Act of 1940, as amended (1940 Act), as those
Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by the Corporation. (l) Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation
or where greater than 50% of the board representation is maintained. (m) Payment in kind (PIK) represents earned interest that is added to the cost basis
of the investment. (n) Rand Capital SBIC II, L.P. investment.  17




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Investments in and Advances to Affiliates  Company

Type of Investment

December31, 2016  Fair Value


Gross  Additions  (1)


Gross  Reductions  (2)


December31, 2017 FairValue


NetRealizedGains(Losses)


Amount ofInterest/Dividend/Fee Income (3)Control Investments:Advantage 24/7 LLC

53% Membership interest.


$99,500



$-



$-



$99,500



$-



$-Total Control Investments


$99,500



$-



$-



$99,500



-



$-Affiliate Investments:BeetNPath, LLC

1,119,024 Series A-2 Preferred MembershipUnits.


$359,000







$-



$359,000



-



$-1,032,918 Series B Preferred Membership


















-Units


-



$291,000



-



291,000



-



-$150,000 convertible promissory note at 8%.


150,000



-



(150,000)



-



-



4,800Total BeetNPath


509,000



291,000



(150,000)



650,000



-



4,800Carolina Skiff LLC

6.0825% Class A common membership interest.


1,100,000



650,000



-



1,750,000



-



178,532ClearView Social, Inc.

312,500 Series seed plus preferred shares.


200,000



-



-



200,000



-



-First Wave Products

$500,000 senior term notes at 10%.


250,000



-



-



250,000



-



-Group, LLC

$280,000 junior term notes at 10%.


-



-



-



-



-



-Warrant for 41,619 capital securities.


-



-



-



-



-



-Total First Wave


250,000



-



-



250,000



-



-Genicon, Inc.

1,586,902 Series B preferred shares.


1,000,000



-



-



1,000,000



-



-$1,100,000 senior term loans at 12%.


1,100,000



-



(1,100,000)



-



-



50,234$600,000 term loan at 14%.


600,000



-



(600,000)



-



-



32,200$2,000,000 promissory note at 8%


-



2,016,002



(80,000)



1,936,002



-



129,752$1,000,000 promissory note at 8%


-



1,007,777



(40,000)



967,777



-



60,860Warrant for 250,000 common shares


-



80,000



-



80,000



-Warrant for 125,000 common shares


-



40,000



-



40,000



-



-Total Genicon


2,700,000



3,143,779



(1,820,000)



4,023,779



-



273,046GiveGab, Inc.

5,084,329 Series Seed preferred shares.


424,314



-



-



424,314



-



-G-TEC Natural Gas Systems

16.639% Class A membership interest. 8% cumulative dividend


100,000



-



-



100,000



-



-Intrinsiq Materials, Inc.

4,161,747 Series A preferred shares.


780,000



-



(380,000)



400,000



-



-Knoa Software, Inc.

973,533 Series A-1 convertible preferred


-



750,000



-



750,000



-



-shares. 1,876,922 Series B preferred shares.


449,455



29,700



-



479,155



-



-$48,466 convertible promissory note at 8%.


48,466



-



-



48,466



-



3,877Total Knoa


497,921



779,700



-



1,277,621



-



3,877KnowledgeVision

200,000 Series A-1 preferred shares.


-



-



-



-



-



-Systems, Inc.

214,285 Series A-2 preferred shares.


300,000



-



-



300,000



-



-129,033 Series A-3 preferred shares.


165,001



-



-



165,001



-



-$50,000 subordinated promissory note at 8%


-



50,000



-



50,000



-



3,748Warrant for 46,743 Series A-3 shares.


35,000



-



-



35,000



-



-Total Knowledge Vision


500,001



50,000



-



550,001



-



3,748Mezmeriz, Inc.

1,554,565 Series seed preferred shares.


351,477



-



-



351,477



-



-Microcision LLC

$1,500,000 subordinated promissory note at 12% (1% PIK).


1,891,964



22,176



-



1,914,140



-



228,239New MonarchMachine Tool, Inc.

22.84 common shares.


22,841



-



-



22,841



-



28,409  18




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)  Investments in and Advances to Affiliates  Company

Type of Investment

December31, 2016  Fair Value


Gross  Additions  (1)


Gross  Reductions  (2)


December  31, 2017 FairValue


NetRealizedGains(Losses)


Amount ofInterest/Dividend/  Fee Income (3)OnCore Golf

150,000 Series AA preferred shares.


-



-



-



-



-



-Technology, Inc.

$300,000 subordinated convertiblepromissory notes at 6%.


300,000



-



-



300,000



-



29,211Total OnCore


300,000



-



-



300,000



-



29,211SciAps, Inc.

187,500 Series A convertible preferredshares.


1,000,000



-



(300,000)



700,000



-



-274,299 Series A-1 convertible preferredshares.


504,710



-



(254,710)



250,000



-



-117,371 Series B convertible preferredshares.


250,000



-



-



250,000



-



-113,636 Series C preferred shares.


-



175,000



-



175,000



-



-369,698 Series C-1 preferred shares.


-



399,274



-



399,274



-



-$200,000 subordinated promissory note at10%.


200,000



-



(200,000)



-



-



4,731$100,000 secured subordinated convertiblenote at 10%.


100,000



-



(100,000)



-



-



2,376Total SciAps


2,054,710



574,274



(854,710)



1,774,274



-



7,107SOMS

5,959,490 Series B membership interests.


528,348



-



-



528,348



-



6,024Technologies, LLCTeleservices

250,000 Class B preferred units.


-



-



-



-



-



-Solutions

1,000,000 Class C preferred units.


200,000



-



(200,000)



-



-



-Holdings, LLC

80,000 Class D preferred units.


91,200



-



( 91,200)



-



-



-104,198 Class E preferred units.


104,198



-



(104,198)



-



-



-Total Teleservices


395,398



-



(395,398)



-



-



-Tilson Technology

120,000 Series B preferred shares.


600,000



-



-



600,000



-



20,000Management, Inc.

21,391 Series C convertible preferred


200,000



-







200,000



-



-shares.










-$200,000 subordinated promissory note at


200,000



-







200,000



-



16,0008%.


-



750,000







750,000







1,57965,790 Series D preferred shares.$750,000 subordinated promissory note at


-



750,000



-



750,000



-



5,0968%.


1,000,000



1,500,000



-



2,500,000



-



42,675Total TilsonTotal Affiliate Investments


$13,605,974



$7,010,929



($3,600,108)



$17,016,795



$-



$805,668Total Control and Affiliate     Investments


$13,705,474



$7,010,929



($3,600,108)



$17,116,295



$-



$805,668 This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements. (1) Gross additions include increases in the cost basis
of investments resulting from new portfolio investments, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation,
and the movement of an existing portfolio company into this category and out of another category. (2) Gross reductions include decreases in the cost basis
of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing
portfolio company out of this category and into another category. (3) Represents the total amount of interest, fees or dividends credited to income for
the portion of the period an investment was included in Control or Affiliate categories, respectively.  19




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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2017 (Continued)     Industry Classification

Percentage of TotalInvestments (at fair value)as
of December 31, 2017Healthcare

37.7%Software

24.7Manufacturing

19.4Professional Services

7.7Consumer Product

4.6Contact Center

2.9Oil and Gas

1.6Electronics

1.1Marketing

0.3Total Investments

100%  20




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##### Table of Contents

Rand Capital Corporation and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) Note 1. ORGANIZATION Rand Capital Corporation (Rand, we, us and our) was incorporated under the laws of New
York in February 1969. We completed our initial public offering in 1971 as an internally managed, closed-end, diversified, management investment company. We have elected to be treated as a business development
company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total
assets in qualifying assets and provide managerial assistance to the portfolio companies in which we invest. See Item 1. Business  Regulation, Regulation as a Business Development Company in our Annual Report on Form 10-K for the year ended December 31, 2017. Throughout our history, our principal business has been
to make venture capital investments in early or expansion stage companies, often in upstate New York and regions in close proximity. In accordance with our strategic growth plan, we look for companies with strong leadership that are bringing to
market new or unique products, technologies or services and have a high potential for growth. We invest in a mixture of debt and equity instruments. The debt securities typically have an equity component in the form of warrants or options to acquire
stock or the right to convert the debt securities into equity securities. We established our first small business investment company
(SBIC) in 2002, Rand Capital SBIC, Inc. (Rand SBIC), whereby we utilized funds borrowed from the Small Business Administration (SBA) combined with our capital to invest in our portfolio companies. We historically
made the majority of our venture capital investments through Rand SBIC. Rand SBICs predecessor was organized as a Delaware limited partnership and was converted into a New York corporation on December 31, 2008, at which time our
operations as a licensed SBIC were continued. Although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. In 2012, the SEC granted an Order of Exemption for Rand with respect to the operations
of Rand SBIC, and then Rand SBIC filed an election to be regulated as a BDC under the 1940 Act. Rand SBICs board of directors is comprised of the directors of Rand, a majority of whom are not interested persons of Rand or Rand
SBIC. During 2017 we established a second SBIC subsidiary, Rand Capital SBIC II, L.P. (Rand SBIC II), and began making
investments through this SBIC subsidiary. During the first quarter of 2018, together with the SBA, we determined that the optimal structure was to revert back to investing in small businesses through our original SBIC, Rand SBIC, and the assets of
Rand SBIC II were transferred to Rand SBIC. Rand SBIC has applied for $6 million in new SBA leverage commitment and is currently undergoing the review and approval process. We operate as an internally managed investment company whereby our officers and employees conduct the business of the Corporation under the
general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code. In this Quarterly Report on Form 10-Q, unless the context otherwise requires, we, the
Corporation, us, and our refer to Rand Capital Corporation and Rand SBIC. Our corporate office is
located in Buffalo, NY and our website address is www.randcapital.com. We make available free of charge on our website our annual and periodic reports, proxy statements and other information as soon as reasonably practicable after such material is
filed with the Securities and Exchange Commission (SEC). Our shares are traded on the NASDAQ Capital Market under the ticker symbol RAND.  21




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##### Table of Contents

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation It is our opinion that the accompanying consolidated financial statements include all adjustments of
a normal recurring nature necessary for a fair presentation in accordance with United States generally accepted accounting principles (GAAP) of the consolidated financial position, results of operations, cash flows and statement of
changes in net assets for the interim periods presented. Certain information and note disclosures normally included in audited annual consolidated financial statements prepared in accordance with GAAP have been omitted; however, we believe that the
disclosures made are adequate to make the information presented herein not misleading. Our interim results for the nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Information contained in this filing should also be reviewed in conjunction with our related filings with the SEC prior to the date of this report. Those filings
include, but are not limited to, the following:  N-54A
Election to Adopt Business Development Company status DEF-14A
2018 Definitive Proxy Statement submitted to shareholders Principles of Consolidation  The consolidated financial statements include the accounts of Rand and its two wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Fair Value of Financial
Instruments  The carrying amounts reported in the consolidated statement of financial position of cash, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term nature of
these financial instruments. Fair Value of SBA Debentures In September 2018, the SBIC Funding Corporation completed
a pooling of SBA debentures that have a coupon rate of 3.548%, excluding a mandatory SBA annual charge estimated to be 0.804%, resulting in a total estimated fixed rate for ten years of 4.352%. The carrying value of Rands SBA debentures
is a reasonable estimate of fair value because their stated interest rates approximate current interest rates that are available for debt with similar terms. Investment Classification In accordance with the provisions of the 1940 Act, the Corporation classifies its investments
by level of control. Under the 1940 Act, Control Investments are investments in companies that the Corporation is deemed to Control because it owns more than 25% of the voting securities of the company or has greater than 50%
representation on the companys board. Affiliate Investments are companies in which the Corporation owns between 5% and 25% of the voting securities.
Non-Control/Non-Affiliate Investments are those companies that are neither Control Investments nor Affiliate Investments. Investments  Investments are valued at fair value as determined in good faith by the management of the Corporation and
approved by the Board of Directors. The Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that
judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistent valuation process. The Corporation analyzes and values each investment quarterly, and records unrealized depreciation for an
investment that it believes has become impaired, including where collection of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it
believes that an underlying portfolio company has appreciated in value and, therefore, its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been used had a ready market for the
investments existed and these differences could be material if the Corporations assumptions and judgments differ from results of actual liquidation events.  22




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##### Table of Contents

Qualifying Assets  All of the Corporations investments were made
in privately held small business enterprises, that were not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act. Cash and Cash Equivalents  Temporary cash investments having a maturity of less than a year when purchased are considered
to be cash equivalents. Revenue Recognition  Interest Income  Interest income is recognized on
the accrual basis except where the investment is in default or otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate. Rand SBICs interest accrual is also regulated by the SBAs Accounting Standards and Financial Reporting Requirements for
Small Business Investment Companies. Under these rules, interest income cannot be recognized if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in doubt when there is substantial
doubt about a portfolio companys ability to continue as a going concern or a loan is in default for more than 120 days. Management also uses other qualitative and quantitative measures to determine the value of a portfolio investment and the
collectability of any accrued interest. The following investments are on non-accrual status: G-TEC Natural Gas Systems (G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc. (Oncore) and a portion of the Mercantile Adjustment Bureau, LLC
(Mercantile) outstanding loan balance. The Corporation holds debt securities in its investment portfolio that contain payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal
balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Revenue Recognition  Dividend Income The Corporation may receive cash distributions from portfolio companies that
are limited liability companies or corporations and these distributions are classified as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated. The Corporation may hold preferred equity securities that contain cumulative dividend provisions. Cumulative dividends are recorded as
dividend income, if declared and deemed collectible, and any dividends in arrears are recognized into income and added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such
time as the preferred equity is redeemed. Revenue Recognition  Fee Income  Consists of the revenue associated
with the amortization of financing fees charged to the portfolio companies upon successful closing of SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of financing fees
was $28,266 and $18,557 for the nine months ended September 30, 2018 and 2017, respectively. The board fees were $2,000 and $1,000 for the nine months ended September 30, 2018 and 2017, respectively. In addition, we recorded a fee of
approximately $142,000 for modifying a debt instrument during the nine months ended September 30, 2018. Realized Gain or Loss
and Unrealized Appreciation or Depreciation of Investments Amounts reported as realized gains and losses are measured by the difference between the proceeds from the sale or exchange and the cost basis of the investment without regard
to unrealized gains or losses recorded in prior periods. The cost of securities that have, in managements judgment, become worthless are written off and reported as realized losses when appropriate. Unrealized appreciation or depreciation
reflects the difference between the fair value of the investments and the cost basis of the investments.  23




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##### Table of Contents

Original Issue Discount  Investments may include original issue
discount or OID income. This occurs when the Corporation purchases a warrant and a note from a portfolio company simultaneously, which requires an allocation of a portion of the purchase price to the warrant and reduces the note or debt
instrument by an equal amount in the form of a note discount or OID. The note is reported net of the OID and the OID is accreted into interest income over the life of the loan. The Corporation recognized $29,462 and $21,085 in OID income for nine
months ended September 30, 2018 and 2017, respectively. OID income is estimated to be approximately $10,000 for the remainder of 2018. Deferred Debenture Costs  SBA debenture origination and commitment costs, which are netted against the debenture
obligation (See Note 6 SBA Debentures), will be amortized ratably over the terms of the SBA debentures. Amortization expense was $20,550 for each of the nine months ended September 30, 2018 and 2017. Amortization expense on
currently outstanding debentures for the next five years is estimated to average approximately $23,000 per year. SBA Debentures
The Corporation had $8,000,000 in outstanding SBA debentures at September 30, 2018 and December 31, 2017 with a weighted average interest rate of 3.54%. The debentures are presented net of deferred debenture costs (See Note
6 SBA Debentures). The $8,000,000 in outstanding SBA leverage matures from 2022 through 2025. In the event of a future
default of such SBA obligations, the Corporation has consented to the exercise, by the SBA, of all rights of the SBA under 13 C.F.R. 107.1810(i) SBA remedies for automatic events of default and has agreed to take all actions that the SBA
may so require. These actions may include the Corporations automatic consent to the appointment of the SBA, or its designee, as receiver under Section 311(c) of the Small Business Investment Act of 1958. Net Assets per Share  Net assets per share are based on the number of shares of common stock outstanding. The Corporation
does not have any common stock equivalents outstanding. Supplemental Cash Flow Information  Income taxes (refunded)
paid during the nine months ended September 30, 2018 and 2017 were ($17,006) and $590,940, respectively. Interest paid during each of the nine months ended September 30, 2018 and 2017 was $282,875. The Corporation converted $279,319 and
$262,105 of interest receivable into investments during the nine months ended September 30, 2018 and 2017, respectively. Accounting Estimates  The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Stockholders Equity (Net Assets) At
September 30, 2018 and December 31, 2017, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued. On October 25, 2018, the Board of Directors extended the repurchase authorization for up to 1,000,000 shares of the Corporations
outstanding common stock on the open market through October 25, 2019 at prices no greater than the then current net asset value. No shares were repurchased during the nine months ended September 30, 2018. At September 30, 2018, the
total treasury shares held was 541,046 shares with a total cost of $1,469,105. Profit Sharing and Stock Option PlanIn 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the Option Plan), that provides for the award of stock options to purchase up to 200,000 common shares to eligible
employees. In 2002, the Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporations employees in connection with the formation of its SBIC subsidiary. As of September 30, 2018, no
stock options had been  24




---

##### Table of Contents

awarded under the Option Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC where any option, warrant or right
is outstanding under an executive compensation plan, no stock options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation. In 2002, the Corporation established a Profit Sharing Plan (the Plan) for its executive officers in accordance with
Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital losses and
unrealized depreciation of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporations interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of the Corporations net
income, as defined in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporations net investment gain (loss) and its net realized gain (loss) on investments, prior
to inclusion of the estimated profit sharing obligation. The profit sharing payments are split equally between the Corporations two executive officers, each of whom is fully vested in the Plan. The Corporation did not record any expense pursuant to the Plan for the nine months ended September 30, 2018 and 2017, respectively.
Included in the profit sharing and bonus payable line on the Consolidated Statement of Financial Position at December 31, 2017 was $132,000 that was paid during the first quarter of 2018. Income Taxes The Corporation reviews the tax positions it has taken to determine if they meet a more likely than
not threshold for the benefit of the tax position to be recognized in the consolidated financial statements. A tax position that fails to meet the more likely than not recognition threshold will result in either a reduction of a current or
deferred tax asset or receivable, or the recording of a current or deferred tax liability. There were no uncertain tax positions recorded at September 30, 2018. It is the Corporations policy to include interest and penalties related to income tax liabilities in income tax expense. There were no
amounts recognized for interest or penalties for the nine months ended September 30, 2018 or 2017. Concentration of Credit and
Market Risk  The Corporations financial instruments potentially subject it to concentrations of credit risk. Cash is invested with banks in amounts which, at times, exceed insurable limits. Management does not anticipate non-performance by such banks. The following are the concentrations of the top five portfolio company
values to the fair value of the Corporations total investment portfolio:  September 30,2018


December 31,2017Genicon, Inc. (Genicon)


13
%


12
%eHealth Global Technologies, Inc. (eHealth),


11
%


11
%Rheonix, Inc. (Rheonix)


9
%


9
%Tilson Technology Management, Inc. (Tilson)


8
%


8
%Outmatch (Outmatch)


7
%


7
% Note 3. INVESTMENTS The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value
Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.  25




---

##### Table of Contents

Loan investments are defined as traditional loan financings with no equity features. Debt
investments are defined as debt financings that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A financing may also be categorized as a debt financing if it is accompanied by
the direct purchase of an equity interest in the company. The Corporation uses several approaches to determine the fair value of an
investment. The main approaches are:  

Loan and debt securities are valued at cost when it is representative of the fair value of the investment
or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value. However, they may be valued at an amount other than cost given the carrying interest rate versus the related inherent
portfolio risk of the investment. A loan or debt instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.  

Equity securities may be valued using the asset approach, market approach or
income approach. The asset approach involves estimating the liquidation value of the portfolio companys assets. To the extent the value exceeds the remaining principal amount of the debt or loan securities of the portfolio
company, the fair value of such securities is generally estimated to be their cost. However, where value is less than the remaining principal amount of the loan and debt securities, the Corporation may discount the value of an equity security.
The market approach uses observable prices and other relevant information generated by similar market transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the
Corporation adjusts valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting
methodology to value an investment. ASC 820 classifies the inputs used to measure fair value into the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporations valuation at the measurement
date. Under the valuation policy, the Corporation values unrestricted publicly traded companies, categorized as Level 1 investments, at the average closing bid price for the last three trading days of the reporting period. Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3: Unobservable and
significant inputs to determining the fair value. Financial assets are categorized based upon the level of judgment associated with the
inputs used to measure their fair value. Any changes in estimated fair value are recorded in the statement of operations. There were no
Level 1 or 2 investments as of September 30, 2018. In the valuation process, the Corporation values restricted securities,
categorized as Level 3 investments, using information from these portfolio companies, which may include:  

Audited and unaudited statements of operations, balance sheets and operating budgets;  

Current and projected financial, operational and technological developments of the portfolio company;  

Current and projected ability of the portfolio company to service its debt obligations;  26




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##### Table of Contents



The current capital structure of the business and the seniority of the various classes of equity if a deemed
liquidation event were to occur;  

Pending debt or capital restructuring of the portfolio company;  

Current information regarding any offers to purchase the investment, or recent fundraising transactions;  

Current ability of the portfolio company to raise additional financing if needed;  

Changes in the economic environment which may have a material impact on the operating results of the portfolio
company;  

Internal circumstances and events that may have an impact (both positive and negative) on the operating
performance of the portfolio company;  

Qualitative assessment of key management;  

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

Other factors deemed relevant by the Corporations management to assess valuation. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that led
to a reduction in valuation are overcome, the valuation may be readjusted. Equity Securities Equity securities may include preferred stock, common stock, warrants and limited liability company membership interests. The significant unobservable inputs used in the fair value measurement of the Corporations equity investments are earnings before
interest, tax and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the debt and senior equity preferences that may exist in a deemed liquidation event.
Standard industry multiples may be used when available; however, the Corporations portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific
financial and operational performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes in any of these
unobservable inputs may result in a significantly higher or lower fair value estimate. Another key factor used in valuing equity
investments is a significant recent arms-length equity transaction entered into by the portfolio company with a sophisticated, non-strategic, unrelated, new investor. The terms of these equity transactions may
not be identical to the equity transactions between the portfolio company and the Corporation, and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify. When appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model requires
the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable
inputs may result in a significantly higher or lower fair value estimate. For recent investments of less than one year old, the
Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation to depart from this basis.  27




---

##### Table of Contents

Loan and Debt Securities The significant unobservable inputs used in the fair value measurement of the Corporations loan and debt securities are the financial and
operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio companys products or services. These inputs will likely provide an indicator
as to the probability of principal recovery of the investment. The Corporations loan and debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where appropriate.
Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are
identified causing the Corporation to depart from this basis. The following table provides a summary of the significant unobservable
inputs used to determine the fair value of the Corporations Level 3 portfolio investments as of September 30, 2018:  Investment Type

MarketApproachEBITDAMultiple


MarketApproachLiquidationSeniority


MarketApproachRevenueMultiple


MarketApproachTransactionPricing


TotalsNon-Control/Non-Affiliate
Equity

$



$
25


$
2,645,496


$
6,209,950


$
8,855,471Non-Control/Non-Affiliate
Debt

$
949,040



1,739,639



3,500,000



300,000



6,488,679Total
Non-Control/Non-Affiliate

$
949,040


$
1,739,664


$
6,145,496


$
6,509,950


$
15,344,150Affiliate Equity

$
4,420,000


$
22,841


$
4,053,430


$
1,031,477


$
9,527,748Affiliate Debt


5,935,859











1,265,000



7,200,859Total Affiliate

$
10,355,859


$
22,841


$
4,053,430


$
2,296,477


$
16,728,607Control Equity

$



$



$
99,500


$



$
99,500Total Control

$



$



$
99,500


$



$
99,500Total Level 3 Investments

$
11,304,899


$
1,762,505


$
10,298,426


$
8,806,427


$
32,172,257Range


4X-9X



1X



1X-3.3X



Not ApplicableUnobservable Input


EBITDA Multiple



Asset Value



Revenue Multiple



Transaction PriceWeighted Average


5.6X



1X



2.1X



Not Applicable The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair
Value at September 30, 2018:  Fair Value Measurements at Reported Date UsingDescription

September 30,2018


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservable Inputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
4,325,000


$



$



$
4,325,000Debt investments


9,364,538











9,364,538Equity investments


18,482,719











18,482,719Total

$
32,172,257


$



$



$
32,172,257  28




---

##### Table of Contents

The following table provides a summary of the components of Level 1, 2 and 3 Assets
Measured at Fair Value on a Recurring Basis at December 31, 2017:  Fair Value Measurements at Reported Date UsingDescription

December 31,2017


Quoted Prices inActive Markets forIdentical Assets(Level 1)


SignificantObservable Inputs(Level 2)


Other SignificantUnobservableInputs(Level 3)Loan investments

$
3,550,000


$



$



$
3,550,000Debt investments


10,096,244











10,096,244Equity investments


18,637,818











18,637,818Total

$
32,284,062


$



$



$
32,284,062 The following table provides a summary of changes in Assets Measured at Fair Value Using Significant
Unobservable Inputs (Level 3) for the nine months ended September 30, 2018:  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2017, of Level 3 Assets

$
3,550,000


$
10,096,244


$
18,637,818


$
32,284,062Realized loss included in net change in net assets from operations:Intrinsiq Material, Inc. (Intrinsiq)










(1,125,673
)


(1,125,673
)Total Realized Losses










(1,125,673
)


(1,125,673
)Unrealized Losses included in net change in net assets from operations:Empire Genomics, LLC (Empire Genomics)






(901,360
)






(901,360
)First Wave Products Group, LLC (First Wave)






(250,000
)






(250,000
)GiveGab, Inc. (Givegab)










191,907



191,907Intrinsiq










725,673



725,673SOMS Technologies, LLC (SOMS)










(498,348
)


(498,348
)Total Unrealized Losses






(1,151,360
)


419,232



(732,128
)Purchases of Securities/Changes to
Securities/Non-cash conversions:BeetNPath, LLC (Beetnpath)






140,000







140,000Centivo Corporation (Centivo)










201,342



201,342Empire Genomics






274,106







274,106Genicon, Inc. (Genicon)






153,548







153,548GoNoodle, Inc. (GoNoodle)






7,739







7,739KnowledgeVision Systems, Inc. (Knowledgevision)


775,000











775,000Microcision LLC (Microcision)






14,392







14,392SciAps, Inc. (Sciaps)










250,000



250,000Total Purchases of Securities/Changes to
Securities/Non-cash conversions


775,000



589,785



451,342



1,816,127Repayments and Sale of Securities:Empire Genomics






(21,665
)






(21,665
)Knoa Software, Inc. (Knoa)






(48,466
)






(48,466
)Total Repayments and Sale of Securities






(70,131
)






(70,131
)Transfers within Level 3






(100,000
)


100,000



Ending Balance, September 30, 2018, of Level 3 Assets

$
4,325,000


$
9,364,538


$
18,482,719


$
32,172,257Change in unrealized depreciation on investments for the period included in changes
in net assets


($
732,128
)Net realized loss on investments for the period included in changes in net
assets






($
1,125,673
)  29




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##### Table of Contents

The following table provides a summary of changes in Assets Measured at Fair Value Using
Significant Unobservable Inputs (Level 3) for the nine months ended September 30, 2017:  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsDescription

LoanInvestments


DebtInvestments


EquityInvestments


TotalEnding Balance, December 31, 2016, of Level 3 Assets

$
3,200,000


$
6,700,221


$
17,600,260


$
27,500,481Unrealized Gains and Losses included in net change in net assets from
operations:ACV Auctions, Inc. (ACV Auctions)










119,356



119,356Athenex, Inc. (Athenex)










308,336



308,336BeetNPath, LLC (Beetnpath)










29,723



29,723City Dining Cards, Inc. (Loupe)










(500,000
)


(500,000
)Mercantile Adjustment Bureau, LLC (Mercantile)






(250,000
)






(250,000
)SciAps, Inc. (Sciaps)










(300,000
)


(300,000
)Teleservices Solutions Holdings, LLC (Teleservices)










(395,398
)


(395,398
)Total Unrealized Gains and Losses






(250,000
)


(737,983
)


(987,983
)Purchases of Securities/Changes to
Securities/Non-cash conversions:Beetnpath






100,000



11,277



111,277Centivo Corporation (Centivo)






100,000







100,000eHealth Global Technologies, Inc. (eHealth)


2,000,000











2,000,000Empire Genomics, LLC (Empire Genomics)






201,489







201,489Genicon, Inc. (Genicon)


300,000



893,588



120,000



1,313,588GoNoodle, Inc. (GoNoodle)






7,662







7,662KnowledgeVision Systems, Inc. (Knowledge Vision)


50,000











50,000Mercantile






107,497







107,497Microcision LLC (Microcision)






17,403







17,403Sciaps










274,274



274,274Total Purchases of Securities/Changes to
Securities/Non-cash conversions


2,350,000



1,427,639



405,551



4,183,190Transfers within Level 3


(2,000,000
)


1,450,000



550,000



Transfers out of Level 3










(725,000
)


(725,000
)Ending Balance, September 30, 2017, of Level 3 Assets

$
3,550,000


$
9,327,860


$
17,092,828


$
29,970,688Change in unrealized depreciation on investments for the period included in changes
in net assets


($
987,983
)Net realized gain on investments for the period included in changes in net
assets






$
  30




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##### Table of Contents

NOTE 4. OTHER ASSETS At September 30, 2018 and December 31, 2017, other assets was comprised of the following:  September 30, 2018


December 31, 2017Prepaid expenses

$
34,621


$
Operating receivables


2,899



3,204Equipment (net)


840



2,490Dividend receivable






37,160Total other assets

$
38,360


$
42,854 Note 5. COMMITMENTS AND CONTINGENCIES The Corporation had one commitment to fund a $50,000 investment at September 30, 2018. Note 6. SBA DEBENTURES Pursuant to
Accounting Standard Update (ASU) 2015-03, the debt origination costs associated with the SBA debt obligations are presented as a direct deduction of the related debt obligation.  September 30, 2018


December 31, 2017Debentures guaranteed by the SBA

$
8,000,000


$
8,000,000Less unamortized issue costs


(124,277
)


(144,827
)Debentures guaranteed by the SBA, net

$
7,875,723


$
7,855,173  31




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##### Table of Contents

Note 7. FINANCIAL HIGHLIGHTS The following schedule provides the financial highlights, calculated based on weighted average shares outstanding, for the nine months ended
September 30, 2018 and 2017:  Nine months endedSeptember 30, 2018(Unaudited)


Nine months endedSeptember 30, 2017(Unaudited)Income from investment operations (1):Investment income

$
0.23


$
0.17Operating expenses


0.24



0.25Investment loss before income taxes


(0.01
)


(0.08
)Income tax benefit


0.00



(0.03
)Net investment loss


(0.01
)


(0.05
)Net realized and unrealized loss on investments


(0.20
)


(0.10
)Decrease in net asset value


(0.21
)


(0.15
)Net asset value, beginning of period


5.05



5.16Net asset value, end of period

$
4.84


$
5.01Per share market price, end of period

$
2.40


$
2.96Total return based on market value


(20.5
%)


(6.3
%)Total return based on net asset value


(4.2
%)


(2.9
%)Supplemental data:Ratio of operating expenses before income taxes to average net assets


4.8
%


4.9
%Ratio of operating expenses including income taxes to average net assets


2.9
%


3.2
%Ratio of net investment loss to average net assets


(0.2
%)


(0.9
%)Portfolio turnover


4.2
%


13.4
%Net assets, end of period

$
30,587,676


$
31,692,476Weighted shares outstanding, end of period


6,321,988



6,321,988  (1)
Per share data are based on weighted average shares outstanding and the results are rounded to the nearest
cent. The Corporations interim period results could fluctuate as a result of a number of factors; therefore
results for any interim period should not be relied upon as being indicative of performance for the full year or in future periods.  32




---

##### Table of Contents

Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with the consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of
trends in operating results for any future periods. FORWARD LOOKING STATEMENTS Statements included in this Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
report that do not relate to present or historical conditions are forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities
Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with the Securities and Exchange Commission.
Forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements
relating to our plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as believes,
forecasts, intends, possible, expects, estimates, anticipates, or plans and similar expressions are intended to identify forward-looking statements. Among the
important factors on which such statements are based are assumptions concerning the state of the United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of our
portfolio companies could be traded, liquidity within the United States financial markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties described under the caption Risk Factors contained in
Part II, Item 1A of this report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017. There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement
speaks only as of the date when it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and we cannot predict all of them. Overview We are an internally managed
investment company that lends to and invests in small companies often concurrently with other investors. We have elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the
1940 Act). As a BDC, we are required to comply with certain regulatory requirements. We have historically made the majority of our investments through our wholly-owned subsidiary, Rand Capital SBIC, Inc. (Rand SBIC), which
operates as a small business investment company (SBIC) and has been licensed by the U.S. Small Business Administration (SBA) since 2002. During 2017 we established a second SBIC subsidiary, Rand Capital SBIC II, L.P.
(Rand SBIC II) and began making investments through this SBIC subsidiary. During the first quarter of 2018, together with the SBA, we determined that the optimal structure was to revert back to investing in small businesses through our
original SBIC, Rand SBIC, and the assets of Rand SBIC II were transferred to Rand SBIC. Rand SBIC has applied for an additional $6 million in new SBA leverage commitments and is currently undergoing the review and approval process.  33




---

##### Table of Contents

Outlook At the end of the third quarter of 2018, we had approximately $4.4 million in cash and cash equivalents available for future investments
and expenses. We believe the combination of cash and cash equivalents on hand, proceeds from portfolio exits, anticipated additional SBA leverage, and prospective investment income provide sufficient capital for us to continue to add new investments
to our portfolio while reinvesting in existing portfolio companies that demonstrate continued growth potential. The following short and long-term trends provide us confidence in our ability to grow Rand:  

We expect that well run businesses will require capital to grow and should be able to compete effectively given
the strong macroeconomic environment and eager reception of new technologies and service concepts.  

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

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

We have sufficient cash to invest in new opportunities and to opportunistically repurchase shares. At the
end of the third quarter of 2018, we had authorization to repurchase an additional 458,954 shares of our common stock. However, our prioritized use of cash continues to be growing our portfolio.  

When our portfolio expands, we are able to better leverage our infrastructure. Critical Accounting Policies We prepare
our consolidated financial statements in accordance with United States generally accepted accounting principles (GAAP), which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. A summary of our
critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2017 under Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations.  34




---

##### Table of Contents

Financial Condition  September 30, 2018


December 31, 2017


Decrease


% DecreaseOverview:Total assets

$
38,658,226


$
40,133,913


($
1,475,687
)


(3.7
%)Total liabilities


8,070,550



8,215,228



(144,678
)


(1.8
%)Net assets

$
30,587,676


$
31,918,685


($
1,331,009
)


(4.2
%) Net asset value per share (NAV) was $4.84 at September 30, 2018 and $5.05 at December 31, 2017. Our gross outstanding SBA debentures at September 30, 2018 were $8,000,000 and will mature from 2022 through 2025. Cash and cash
equivalents approximated 14% of net assets at September 30, 2018, as compared to 20% at December 31, 2017. Composition of Our Investment
Portfolio Our financial condition is dependent on the success of our portfolio holdings. We have invested substantially all of our
assets in small to medium-sized companies. The following summarizes our investment portfolio at the dates indicated.  September 30, 2018


December 31, 2017


Increase(Decrease)


% Increase(Decrease)Investments, at cost

$
37,309,642


$
36,689,319


$
620,323



1.7
%Unrealized depreciation, net


(5,137,385
)


(4,405,257
)


(732,128
)


16.6
%Investments at fair value

$
32,172,257


$
32,284,062


($
111,805
)


(0.3
%) Our total investments at fair value, as estimated by management and approved by our Board of Directors,
approximated 105% of net assets at September 30, 2018 versus 101% of net assets at December 31, 2017. The change in investments
during the nine months ended September 30, 2018, at cost, is comprised of the following:  CostIncrease (Decrease)New investments:KnowledgeVision Systems, Inc. (Knowledgevision)

$
775,000SciAps, Inc. (Sciaps)


250,000Centivo Corporation (Centivo)


200,000BeetNPath, LLC (Beetnpath)


140,000Total of new investments


1,365,000Other changes to investments:Empire Genomics, LLC (Empire Genomics) capitalized fee income and interest conversion


274,106Genicon Inc. (Genicon) interest conversion and OID amortization


153,548Microcision LLC (Microcision) interest conversion


14,392GoNoodle, Inc. (GoNoodle) interest conversion


7,740Centivo interest conversion


1,342Total of other changes to investments


451,128Investments repaid, sold or liquidated:Intrinsiq Material, Inc. (Intrinsiq) realized loss


(1,125,673
)Knoa Software Inc. (Knoa) repayment


(48,466
)Empire Genomics repayment


(21,666
)Total of investments repaid, sold or liquidated


(1,195,808
)Net change in investments, at cost

$
620,323  35




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##### Table of Contents

Results of Operations Our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow
from our debt instruments and pass-through equity instruments to fund expenses. Therefore, we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio. Comparison of the three months ended September 30, 2018 to the three months ended September 30, 2017 Investment Income  Three monthsendedSeptember 30, 2018


Three monthsendedSeptember 30, 2017


Increase


%IncreaseInterest from portfolio companies

$
450,289


$
309,922


$
140,367



45.3
%Interest from other investments


7,872



6,348



1,524



24.0
%Dividend and other investment income


48,856



76,813



(27,957
)


(36.4
%)Fee income


155,285



3,936



151,349



3,845.2
%Total investment income

$
662,302


$
397,019


$
265,283



66.8
% The total investment income that is received on a current basis for the three months ended September 30,
2018 is received from ten portfolio companies. This contrasts with the nine portfolio companies generating current income for the three months ended September 30, 2017. Interest from portfolio companies  Interest from portfolio companies was approximately 45% higher during the three months ended
September 30, 2018 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last year. The new debt instruments were originated from Genicon Inc. (Genicon), eHealth Global
Technologies, Inc. (eHealth) and several other portfolio companies. In addition, during the third quarter of 2018 the Empire Genomics loans were modified and resulted in a recording of interest that had previously not been accrued of approximately
$91,000. This amount was capitalized into the loan balance as part of the debt modification and is non-recurring. The following investments are on non-accrual status: G-TEC
Natural Gas Systems (G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc. (Oncore) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balances. Interest from other investmentsThe increase in interest from other investments is primarily due to higher interest rates during the three
months ended September 30, 2018 versus the same period in 2017. Dividend and other investment incomeDividend income is comprised of
cash distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the
LLCs profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact
of new investments or divestitures. The dividend distributions for the respective periods were:  Three months endedSeptember 30, 2018


Three months endedSeptember 30, 2017Carolina Skiff LLC (Carolina Skiff)

$
39,169


$
41,999Tilson Technology Management, Inc. (Tilson)


9,687



5,000New Monarch Machine Tool, Inc. (New Monarch)






27,409Empire Genomics LLC (Empire Genomics)






2,405Total dividend and other investment income

$
48,856


$
76,813  36




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##### Table of Contents

Fee incomeFee income consists of the revenue associated with the amortization of financing fees
charged to the portfolio companies upon successful closing of SBIC financings and income from portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized
fees are carried on the balance sheet under the line item Deferred revenue. The income associated with the amortization of
financing fees was $12,939 and $3,936 for the three months ended September 30, 2018 and 2017, respectively. In addition, we recorded
a one-time debt modification fee of approximately $142,000 during the three month ended September 30, 2018. We charged the fee to Empire Genomics and the fee was capitalized into the Empire Genomics loan
balances as part of the debt modification. The portion of total investment income that is received in cash, on a current basis, is
received from nine portfolio companies. Expenses  Three months endedSeptember 30, 2018


Three months endedSeptember 30, 2017


Increase


% IncreaseTotal expenses

$
447,800


$
439,048


$
8,752



2.0
% Expenses predominately consist of interest expense on outstanding SBA borrowings, compensation expense, and
general and administrative expenses, including stockholder and office operating expenses and professional fees. The increase in expenses
during the three months ended September 30, 2018 versus the same period in 2017 was primarily caused by a 69%, or $33,312, increase in professional fees. Professional fees are higher during the third quarter of 2018 because we continue to incur
expenses in connection with developing and implementing our long-term growth strategy. These expenses included external legal, tax consulting and other advisory expenses to support refinement of our strategy, which involved assessing options
relative to the complex regulatory environment in which we operate. This increase was offset by a $26,299 recovery of bad debt expense
associated with the Empire Genomics loan modification for the three months ended September 30, 2018. There was no bad debt expense (recovery) for the three months ended September 30, 2017. Realized Losses on Investments  Three months endedSeptember 30, 2018


Three months endedSeptember 30, 2017


ChangeRealized loss on investments before income taxes

($
1,125,673
)

$



($
1,125,673
) During the three months ended September 30, 2018, we recognized a loss on our investment in Intrinsiq
Material, Inc. (Intrinsiq) when the company was sold and we did not receive any proceeds. There were no realized gains or losses during the three months ended September 30, 2017.  37




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##### Table of Contents

Change in Unrealized Depreciation of Investments  Three months endedSeptember 30, 2018


Three months endedSeptember 30, 2017


ChangeChange in unrealized depreciation of investments before income taxes

$
475,802


$
111,000


$
364,802 The change in unrealized depreciation, before income taxes, for the three months ended September 30, 2018
was comprised of the following:  Three months endedSeptember 30,2018Empire Genomics, LLC (Empire Genomics)

($
249,871
)Intrinsiq Material, Inc. (Intrinsiq) realized loss


725,673Total change in net unrealized depreciation of investments before income taxes during the three
months ended September 30, 2018

$
475,802 The valuation of our investment in Empire Genomics was decreased after we reviewed the portfolio
companys operations and current and projected financial condition, after the debt modification, and determined that a valuation adjustment was necessary. Intrinsiq was sold during the third quarter of 2018 and a realized loss was recorded. The change in unrealized depreciation, before income taxes, for the three months ended September 30, 2017 was comprised of the following:  Three months endedSeptember 30,2017Athenex, Inc. (Athenex)

$
111,000Total change in net unrealized depreciation of investments before income taxes during the three
months ended September 30, 2017

$
111,000 Athenex completed an initial public offering (IPO) during the second quarter of 2017 and its shares of common
stock are now publicly traded on the NASDAQ Global Select Market under the symbol ATNX. At September 30, 2017 we held 46,296 shares of the common stock of Athenex and valued these shares using the average bid price for the last
three trading days of the reporting period, which was then discounted 10% due to restrictions on the sale of the shares. Subsequent to quarter end, the sale restrictions on our shares in Athenex common stock were removed and these shares became
freely tradable. All of these value adjustments resulted from a review by our management using the guidance set forth by ASC 820 and our
established valuation policy. Net (Decrease) Increase in Net Assets from Operations We account for our operations under GAAP for investment companies. The principal measure of our financial performance is net (decrease)
increase in net assets from operations on our consolidated statements of operations. For the three months ended September 30, 2018 and 2017, the net (decrease) increase in net assets from operations was ($179,302) and $57,931,
respectively.  38




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##### Table of Contents

Comparison of the nine months ended September 30, 2018 to the nine months ended
September 30, 2017 Investment Income  Nine months endedSeptember 30,2018


Nine months endedSeptember 30,2017


Increase(Decrease)


% Increase(Decrease)Interest from portfolio companies

$
1,063,337


$
833,653


$
229,684



27.6
%Interest from other investments


20,717



24,182



(3,465
)


(14.3
%)Dividend and other investment income


181,963



197,403



(15,440
)


(7.8
%)Fee income


172,612



19,557



153,055



782.6
%Total investment income

$
1,438,629


$
1,074,795


$
363,834



33.9
% The total investment income that is received on a current basis for the nine months ended September 30,
2018 is received from ten portfolio companies. This contrasts with the nine portfolio companies generating current income for the nine months ended September 30, 2017. Interest from portfolio companies  Interest from portfolio companies was approximately 28% higher during the nine months ended September 30,
2018 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last year. These new debt instruments were originated from Genicon Inc. (Genicon), eHealth Global Technologies, Inc. and
several other portfolio companies. In addition, during the third quarter of 2018 the Empire Genomics loans were modified and resulted in a recording of interest that had previously not been accrued of approximately $91,000. This amount was
capitalized into the loan balance as part of the debt modification. The following investments are on
non-accrual status: G-TEC Natural Gas Systems (G-Tec), First Wave Products Group, LLC (First Wave), OnCore Golf Technology, Inc.
(Oncore) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balance. Interest from other investmentsThe
decrease in interest from other investments is primarily due to lower average cash balances during the nine months ended September 30, 2018 versus the same period in 2017. Dividend and other investment incomeThe dividend distributions for the respective periods were:  Nine months endedSeptember 30, 2018


Nine months endedSeptember 30, 2017Carolina Skiff LLC (Carolina Skiff)

$
119,433


$
141,372Tilson Technology Management, Inc. (Tilson)


29,063



15,000New Monarch Machine Tool, Inc. (New Monarch)


27,409



27,409Empire Genomics LLC (Empire Genomics)


6,058



7,598SOMS Technologies, LLC (SOMS)






6,024Total dividend and other investment income

$
181,963


$
197,403 Fee incomeThe income associated with the amortization of financing fees was $28,266 and $18,557 for the nine
months ended September 30, 2018 and 2017, respectively. The income from board fees was $2,000 and $1,000 for the nine months ended September 30, 2018 and 2017, respectively. In addition, we recorded a one-time debt modification fee of approximately $142,000 during the nine
month ended September 30, 2018. We charged the fee to Empire Genomics and the fee was capitalized into the Empire Genomics loan balances as part of the debt modification. Expenses  Nine months endedSeptember 30, 2018


Nine months endedSeptember 30, 2017


Decrease


% DecreaseTotal expenses

$
1,510,034


$
1,562,620


($
52,586
)


(3.4
%)  39




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##### Table of Contents

The decrease in expenses during the nine months ended September 30, 2018 is due to an
overall decrease of 29%, or $89,855, in professional fees as compared to the same period in 2017. This decrease was offset by a $50,342 charge to bad debt expense for the nine months ended September 30, 2018 while there was no bad debt expense
for the nine months ended September 30, 2017. Realized Losses on Investments  Nine months endedSeptember 30, 2018


Nine months endedSeptember 30, 2017


ChangeRealized loss on investments before income taxes

($
1,125,673
)

$



($
1,125,673
) During the nine months ended September 30, 2018, we recognized a loss on our investment in Intrinsiq
Material, Inc. (Intrinsiq) when the company was sold and we did not receive any proceeds. Change in Unrealized Depreciation of Investments  Nine months endedSeptember 30, 2018


Nine months endedSeptember 30, 2017


ChangeChange in unrealized depreciation of investments before income taxes

($
732,128
)

($
987,983
)

($
255,855
) The change in unrealized depreciation, before income taxes, for the nine months ended September 30, 2018
was comprised of the following:  Nine months endedSeptember 30, 2018Empire Genomics, LLC (Empire Genomics)

($
901,360
)SOMS Technologies, LLC (SOMS)


(498,348
)First Wave Products Group (First Wave)


(250,000
)GiveGab, Inc. (Givegab)


191,907Intrinsiq Material, Inc. (Intrinsiq) realized loss


725,673Total change in net unrealized depreciation of investments before income taxes during the nine
months ended September 30, 2018

($
732,128
) The valuations of our investments in Empire Genomics and SOMS were decreased after we reviewed each of the
portfolio companys operations and current and projected financial condition and determined that a valuation adjustment was necessary. Our valuation of First Wave was decreased to reflect an anticipated round of financing expected to be completed by First Wave in the fourth
quarter of 2018. Givegabs value was increased to the cost basis of the investment after a financial analysis of the portfolio
company indicating continued improved performance. Intrinsiq was sold during the third quarter of 2018 and a realized loss was recorded. The change in unrealized depreciation, before income taxes, for the nine months ended September 30, 2017 was comprised of the following:  Nine months endedSeptember 30, 2017City Dining Cards, Inc. (Loupe)

($
500,000
)Teleservices Solutions Holdings, LLC (Teleservices)


(395,398
)SciAps, Inc. (Sciaps)


(300,000
)Mercantile Adjustment Bureau, LLC (Mercantile)


(250,000
)Athenex, Inc. (Athenex)


308,336ACV Auctions, Inc. (ACV)


119,356BeetNPath, LLC (Beetnpath)


29,723Total change in net unrealized depreciation of investments before income taxes during the nine
months ended September 30, 2017

($
987,983
)  40




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##### Table of Contents

The valuations of our investments in Loupe, Mercantile and Teleservices were decreased after
we reviewed each portfolio company and its current and projected financial condition and determined that a valuation adjustment was necessary. The valuation of Sciaps was decreased to revalue our equity holdings based upon the liquidation preferences of our securities as compared to
the most recent equity round of financing completed by Sciaps. In accordance with our valuation policy, we increased the value of our
investments in ACV and Beetnpath based on a significant equity financing by a new non-strategic outside entity. Athenex completed an initial public offering (IPO) during the second quarter of 2017 and its shares of common stock were publicly traded on
the NASDAQ Global Select Market under the symbol ATNX. At September 30 2017 we held 46,296 shares of the common stock of Athenex and valued the shares using the average bid price for the last three trading days of the reporting
period, which was then discounted due to restrictions on the sale of the shares. All of these value adjustments resulted from a review by
our management using the guidance set forth by ASC 820 and our established valuation policy. Net Decrease in Net Assets from Operations We account for our operations under GAAP for investment companies. The principal measure of our financial performance is net decrease in
net assets from operations on our consolidated statements of operations. For the nine months ended September 30, 2018 and 2017, the net decrease in net assets from operations was ($1,331,009) and ($936,887), respectively. Liquidity and Capital Resources Our
principal long-term objective is to achieve growth in net asset value per share through capital appreciation. Therefore, a significant portion of our investment portfolio is structured to maximize the potential for capital appreciation, and certain
portfolio investments may be structured to provide little or no current yield in the form of dividends or interest payments. As of
September 30, 2018, our total liquidity consisted of approximately $4.4 million in cash and cash equivalents on hand. Net cash
used by operating activities has averaged approximately $626,000 over the last three years. The average cash used for investment in portfolio companies over the last three years was approximately $3,700,000. Our cash flow from operations may
fluctuate based on the timing of the receipt of dividend income and realized gains and the associated income taxes paid. We will generally use cash to fund our operating expenses and also to invest in companies, as we seek to build our portfolio
utilizing our available cash and proceeds from liquidations of portfolio investments. We anticipate that we will continue to exit investments. However, the timing of liquidation events within the portfolio is difficult to project with any certainty.
As of September 30, 2018, we did not have any outstanding commitments to borrow funds from the SBA. Starting in 2022, our SBA debt begins to reach maturity, and this will require us to identify sources of future funding if liquidation of
investments is not sufficient to fund operations and repay the SBA debt obligation.  41




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##### Table of Contents

We believe that the cash on hand at September 30, 2018, the scheduled interest payments
on our portfolio investments and the anticipated additional SBA leverage will be sufficient to meet our cash needs for the next twelve months. We continue to seek potential exits from portfolio companies to increase the amount of liquidity available
for new investments, operating activities and future SBA debenture repayment obligations.  Item 3.
Quantitative and Qualitative Disclosures about Market Risk Our investment activities contain elements of risk. Our investment portfolio consists of equity and debt securities in private companies and is
subject to valuation risk. Because there is typically no public market for the equity and debt securities in which we invest, the valuation of the equity interests in the portfolio is stated at fair value as determined in good faith by
our management and approved by our Board of Directors. This is in accordance with our investment valuation policy (see the discussion of valuation policy contained in Note 3. Investments in the consolidated financial statements contained
in Item 1 of this report, which is hereby incorporated herein by reference.) In the absence of readily ascertainable market values, the estimated value of the portfolio may differ significantly from the values that would be placed on the portfolio
if a ready market for the investments existed. Any changes in valuation are recorded on the consolidated statement of operations as Net change in unrealized depreciation on investments. At times, a portion of our portfolio may include marketable securities traded in the over-the-counter market. In addition, there may be a portion of the portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly
fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow markets to trade in an orderly fashion, we may not be able to realize the fair value of our marketable
investments or other investments in a timely manner. As of September 30, 2018 we did not have any
off-balance sheet arrangements or hedging or similar derivative financial instrument investments.  Item 4.
Controls and Procedures Disclosure Controls and Procedures.The Corporation maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that this
information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the Chief
Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as September 30, 2018. Based on the evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Corporations controls and procedures were effective as of September 30, 2018. Changes in Internal Control over Financial Reporting.There have been no changes in our internal control over financial reporting
during the Corporations most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.  42




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##### Table of Contents

PART II. OTHER INFORMATION  Item 1.
Legal Proceedings None.  Item 1A.
Risk Factors See Part I, Item 1A, Risk Factors, of the Annual Report on Form 10-K for the year
ended December 31, 2017.  Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds  Issuer Purchases of Equity SecuritiesPeriod

Total number ofshares purchased(1)


Average price paidper share (2)


Total number of sharespurchased as part ofpubliclyannounced plan (3)


Maximum number ofshares that may yet bepurchased under the sharerepurchase program7/1/2018  7/31/2018














458,9548/1/2018  8/31/18














458,9549/1/2018  9/30/2018














458,954  (1)
There were no shares repurchased during the third quarter of 2018. (2)
The average price paid per share is calculated on a settlement basis and includes commission. (3)
On October 25, 2018, the Board of Directors extended the repurchase authorization of up to 1,000,000
shares of the Corporations common stock on the open market at prices no greater than the then current net asset value through October 25, 2019.  Item 3.
Defaults upon Senior Securities None.  Item 4.
Mine Safety Disclosures Not Applicable.  Item 5.
Other Information None.  43




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##### Table of Contents

Item 6.
Exhibits  (a)

ExhibitsThe following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b-32 under the Securities Exchange Act of 1934.(3.1)(i)

Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of Form N-2 filed with
 the Securities Exchange Commission on April 22, 1997. (File No. 333-25617).(3.1)(ii)

By-laws of the Corporation, incorporated by reference to Exhibit 3(ii) to the Corporations Quarterly
 Report on Form 10-Q for the period ended September 30, 2016 filed with the Securities Exchange Commission on November 2, 2016. (File No. 814-00235).(4)

Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) 
of Form N-2 filed with the Securities Exchange Commission on April 22, 1997. (File No. 333-25617).(31.1)

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

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
 amended  filed herewith.(32.1)

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Rand Capital Corporation  filed herewith.  44




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##### Table of Contents

Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized. Dated: November 7, 2018  RAND CAPITAL CORPORATION
 By:

/s/ Allen F. GrumAllen F. Grum, President
  By:

/s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer
  45