##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended June 30, 2007
 o
    
    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: 001-08205
 Rand Capital Corporation
 (Exact Name of Registrant as specified in its Charter)
 New York
(State or Other Jurisdiction of Incorporation 
or organization)
    
    16-0961359
(IRS Employer
Identification No.)2200 Rand Building, Buffalo, NY
(Address of Principal executive offices)
    
    14203
(Zip Code)
 (716) 853-0802  (Registrants Telephone No. Including Area Code)
 þ o
  o o þ
 o þ




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##### Table of Contents



RAND CAPITAL CORPORATION  TABLE OF CONTENTS FOR FORM 10-Q
 PART I.  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements and Supplementary Data (Unaudited)Consolidated Statements of Financial Position as of June 30, 2007 and
December 31, 2006Condensed Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 2007 and 2006Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2007 and 2006Condensed Consolidated Statements of Changes in Net Assets for the Three
Months and Six Months Ended June 30, 2007 and 2006Condensed Consolidated Schedule of Portfolio Investments as of June 30,
2007Notes to the Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
OperationsItem 3.
    
    Quantitative and Qualitative Disclosures about Market RiskItem 4.
    
    Controls and ProceduresPART II  OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2




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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
As of June 30, 2007 and December 31, 2006
 June 30, 2007
    
    
    December 31,(Unaudited)
    
    
    2006ASSETSInvestments
at fair value (identified cost: 6/30/07 
$13,074,578; 12/31/06  $14,033,789)
    
    $
    22,809,724
    
    
    $
    23,649,814Cash and cash equivalents
    
    
    4,358,779
    
    
    
    4,299,852Interest
receivable (net of allowance: 6/30/07  $122,000; 12/31/06
 $122,000)
    
    
    548,258
    
    
    
    507,242Income tax receivable
    
    
    73,341
    
    
    
    Other assets
    
    
    1,065,674
    
    
    
    1,007,036Total assets
    
    $
    28,855,776
    
    
    $
    29,463,944LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    8,100,000
    
    
    $
    8,100,000Deferred income taxes
    
    
    3,124,000
    
    
    
    3,808,000Income tax payable
    
    
    
    
    
    
    410,575Accounts payable and accrued expenses
    
    
    217,749
    
    
    
    317,359Deferred revenue
    
    
    25,961
    
    
    
    45,605Total liabilities
    
    
    11,467,710
    
    
    
    12,681,539Stockholders equity (net assets):Common stock, $.10 par  shares authorized 10,000,000;
shares issued 5,763,034
    
    
    576,304
    
    
    
    576,304Capital in excess of par value
    
    
    6,973,454
    
    
    
    6,973,454Accumulated net investment (loss)
    
    
    (4,113,146
    )
    
    
    (6,253,128
    )Undistributed net realized gain on investments
    
    
    7,826,241
    
    
    
    9,763,366Net unrealized appreciation on investments
    
    
    6,172,419
    
    
    
    5,769,615Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share: 6/30/07$3.04 , 12/31/2006$2.93)
    
    
    17,388,066
    
    
    
    16,782,405Total liabilities and stockholders equity (net assets)
    
    $
    28,855,776
    
    
    $
    29,463,944




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2007
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2006Investment income:Interest from portfolio companies
    
    $
    134,479
    
    
    $
    180,438
    
    
    $
    334,196
    
    
    $
    352,458Interest from other investments
    
    
    46,243
    
    
    
    6,196
    
    
    
    92,290
    
    
    
    11,339Dividend and other investment income
    
    
    179,590
    
    
    
    15,103
    
    
    
    409,010
    
    
    
    28,238Other income
    
    
    15,416
    
    
    
    11,434
    
    
    
    20,644
    
    
    
    22,381375,728
    
    
    
    213,171
    
    
    
    856,140
    
    
    
    414,416Operating expenses:Salaries
    
    
    100,587
    
    
    
    95,624
    
    
    
    207,557
    
    
    
    191,908Employee benefits
    
    
    23,076
    
    
    
    21,227
    
    
    
    65,389
    
    
    
    53,153Directors fees
    
    
    44,250
    
    
    
    23,250
    
    
    
    56,500
    
    
    
    36,750Professional fees
    
    
    65,584
    
    
    
    48,467
    
    
    
    97,262
    
    
    
    75,003Stockholders and office operating
    
    
    41,741
    
    
    
    41,640
    
    
    
    74,154
    
    
    
    67,868Insurance
    
    
    10,920
    
    
    
    10,920
    
    
    
    21,840
    
    
    
    21,840Corporate development
    
    
    17,675
    
    
    
    15,770
    
    
    
    32,465
    
    
    
    28,675Other operating
    
    
    3,062
    
    
    
    1,936
    
    
    
    5,541
    
    
    
    4,558306,895
    
    
    
    258,834
    
    
    
    560,708
    
    
    
    479,755Interest on SBA obligations
    
    
    125,765
    
    
    
    112,574
    
    
    
    251,531
    
    
    
    219,498Total expenses
    
    
    432,660
    
    
    
    371,408
    
    
    
    812,239
    
    
    
    699,253Investment (loss) gain before income taxes
    
    
    (56,932
    )
    
    
    (158,237
    )
    
    
    43,901
    
    
    
    (284,837
    )Current income tax expense
    
    
    (83,068
    )
    
    
    (5,000
    )
    
    
    (181,365
    )
    
    
    (10,000
    )Deferred income tax benefit
    
    
    291,465
    
    
    
    13,708
    
    
    
    390,133
    
    
    
    2,619Net investment gain (loss)
    
    
    151,465
    
    
    
    (149,529
    )
    
    
    252,669
    
    
    
    (292,218
    )Realized and unrealized gain (loss) on investments:Net gain (loss) on sales and dispositions
    
    
    440
    
    
    
    38,941
    
    
    
    (38,796
    )
    
    
    226,894Unrealized appreciation (depreciation) on
investments:Beginning of period
    
    
    9,725,646
    
    
    
    (94,751
    )
    
    
    9,616,025
    
    
    
    (342,028
    )End of period
    
    
    9,735,146
    
    
    
    487,020
    
    
    
    9,735,146
    
    
    
    487,020Change in unrealized appreciation
(depreciation) before income taxes
    
    
    9,500
    
    
    
    581,771
    
    
    
    119,121
    
    
    
    829,048Deferred income tax expense
    
    
    3,465
    
    
    
    232,708
    
    
    
    43,586
    
    
    
    331,619Net change in unrealized appreciation (depreciation) on investments
    
    
    6,035
    
    
    
    349,063
    
    
    
    75,535
    
    
    
    497,429Net realized and unrealized gain on investments
    
    
    6,475
    
    
    
    388,004
    
    
    
    36,739
    
    
    
    724,323Net increase in net assets from operations
    
    $
    157,940
    
    
    $
    238,475
    
    
    $
    289,408
    
    
    $
    432,105Weighted average shares outstanding
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934Basic and diluted net increase in net assets from operations
per share
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.08




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2007 and 2006
(Unaudited )
 June 30, 2007
    
    June 30, 2006Cash flows from operating activities:Net increase in net assets from operations
    
    $
    289,408
    
    
    $
    432,105Adjustments to reconcile net increase in net assets to net cash
used in operating activities:Depreciation and amortization
    
    
    16,991
    
    
    
    15,599Original issue discount accretion
    
    
    (62,333
    )
    
    
    Increase in unrealized appreciation of investments
    
    
    (119,121
    )
    
    
    (829,048
    )Deferred tax (benefit) expense
    
    
    (346,547
    )
    
    
    329,000Net realized loss (gain) on portfolio investments
    
    
    38,796
    
    
    
    (226,894
    )Non-cash conversion of debenture interest
    
    
    (50,000
    )
    
    
    (12,877
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (41,016
    )
    
    
    (88,606
    )(Increase) decrease in other assets
    
    
    (74,280
    )
    
    
    47,348(Decrease) increase in accounts payable and accrued liabilities
    
    
    (604,726
    )
    
    
    42,496Decrease in deferred revenue
    
    
    (19,643
    )
    
    
    (12,588
    )Total adjustments
    
    
    (1,261,879
    )
    
    
    (735,570
    )Net cash used in operating activities
    
    
    (972,471
    )
    
    
    (303,465
    )Cash flows from investing activities:Investments originated
    
    
    (10
    )
    
    
    (820,000
    )Proceeds from sale of portfolio investments
    
    
    440
    
    
    
    950,885Proceeds from loan repayments
    
    
    1,032,318
    
    
    
    74,368Capital expenditures
    
    
    (1,350
    )
    
    
    (12,256
    )Net cash provided by investing activities
    
    
    1,031,398
    
    
    
    192,998Cash flows from financing activities:Proceeds from SBA debenture
    
    
    
    
    
    
    400,000Origination costs to SBA
    
    
    
    
    
    
    (7,250
    )Net cash provided by financing activities
    
    
    
    
    
    
    392,750Net increase in cash and cash equivalents
    
    
    58,927
    
    
    
    282,283Cash and cash equivalents:Beginning of period
    
    
    4,299,852
    
    
    
    1,209,839End of period
    
    $
    4,358,779
    
    
    $
    1,492,122




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Net Assets
For the Three Months and Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2007
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2006Net assets at beginning of period
    
    $
    17,230,126
    
    
    $
    8,809,564
    
    
    $
    16,782,405
    
    
    $
    8,615,934Cumulative effect adjustment for
uncertain tax positions  FIN 48
    
    
    
    
    
    
    
    
    
    
    316,253
    
    
    
    Net investment gain (loss)
    
    
    151,465
    
    
    
    (149,529
    )
    
    
    252,669
    
    
    
    (292,218
    )Net realized gain (loss) on investments
    
    
    440
    
    
    
    38,941
    
    
    
    (38,796
    )
    
    
    226,894Net change in unrealized appreciation
(depreciation) of investments
    
    
    6,035
    
    
    
    349,063
    
    
    
    75,535
    
    
    
    497,429Net increase in net assets from operations
    
    
    157,940
    
    
    
    238,475
    
    
    
    605,661
    
    
    
    432,105Net assets at end of period
    
    $
    17,388,066
    
    
    $
    9,048,039
    
    
    $
    17,388,066
    
    
    $
    9,048,039




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
June 30, 2007
(Unaudited)
 (b)Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandAdampluseve, Inc. (g)
New York, NY. Luxury sports wear
company for men and women.
www.adampluseve.com
    
    Warrants to purchase 1,715
Series A Convertible
Preferred shares.
    
    7/14/06
    
    
    3
    %
    
    $
    68,000
    
    
    $
    133,341
    
    
    
    .02APF Group, Inc. (g)(h)
Mount Vernon, NY. Manufacturer of museum
quality picture frames and framed
mirrors for museums, art
galleries, retail frame shops,
upscale designers and prominent collectors.
www.apfgroup.com
    
    $584,328 Consolidated Senior
Subordinated note at 13.99% due June
30, 2011. Warrants to purchase
10.2941 shares of commonstock.
    
    7/8/04
    
    
    6
    %
    
    
    566,504
    
    
    
    566,504
    
    
    
    .10Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh
water, ocean fishing and pleasure
boats.
www.carolinaskiff.com
    
    $985,000 Class A preferred membership
interest at 11%. Redeemable January
31, 2010. 5% common membership
interest.
    
    1/30/04
    
    
    5
    %
    
    
    1,000,000
    
    
    
    1,227,000
    
    
    
    .21Contract Staffing
Buffalo, NY. PEO providing human
resource administration for small
businesses.
www.contract-staffing.com
    
    Preferred Stock Repurchase Agreement
through March 31, 2010 at 5%.
    
    11/8/99
    
    
    10
    %
    
    
    141,400
    
    
    
    141,400
    
    
    
    .02EmergingMed.com, Inc. (g)
New York, NY. Cancer clinical trial
matching and referral service.
www.emergingmed.com
    
    $500,000 Senior subordinated note at
10% due December 19, 2010.
    
    12/19/05
    
    
    5
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .09Gemcor II, LLC (e)(g)(h)
West Seneca, NY. Designs and sells
automatic riveting machines used in the
assembly of aircraft components.
www.gemcor.com
    
    $250,000 Subordinated note at 8% due
June 28, 2010 with warrant to
purchase 6.25 membership units. 25
membership units.
    
    6/28/04
    
    
    31
    %
    
    
    694,765
    
    
    
    694,765
    
    
    
    .12G-TEC Natural Gas Systems
Buffalo, NY. Manufactures and
distributes systems that allow natural
gas to be used as an alternative fuel to
gases.
www.gas-tec.com
    
    33.057% Class A membership interest.
8% cumulative dividend.
    
    8/31/99
    
    
    33
    %
    
    
    400,000
    
    
    
    198,000
    
    
    
    .03Innov-X Systems, Inc. (g)
Woburn, MA. Manufactures portable x-ray
fluorescence (XRF) analyzers used in
metals/alloy analysis.
www.innovxsys.com
    
    2,642 Series A Convertible Preferred
stock. Warrants for 21,596 common
shares.
    
    9/27/04
    
    
    9
    %
    
    
    1,000,000
    
    
    
    8,761,700
    
    
    
    1.53Kionix, Inc.
Ithaca, NY. Develops innovative MEMS
based technology applications.
www.kionix.com
    
    30,241 shares Series B preferred
stock. 696,296 shares Series C
preferred stock.(g)2,862,091 shares Series A
preferred stock. 714,285 shares
Series B preferred stock.
    
    5/17/02
    
    
    2
    %
    
    
    1,506,043
    
    
    
    1,221,567
    
    
    
    .21New Monarch Machine Tool, Inc.
(e)(g)(h)
Cortland, NY. Manufactures and services
vertical/horizontal machining centers.
www.monarchmt.com
    
    $527,877 note at 12% due January 13,
2009. $300,000 note at 12% due
January 13, 2009. Warrants for 22.84
shares of common stock.
    
    9/24/03
    
    
    11
    %
    
    
    608,961
    
    
    
    608,961
    
    
    
    .11Niagara Dispensing Technologies, Inc. (g)
Tonawanda, NY. Beverage dispensing
technology development and products
manufacturer, specializing in beer
dispensing systems.
www.exactpour.com
    
    $500,000 Senior Subordinated note at
8% due March 7, 2011. Adjustable
warrant for 4% of common stock. 200
shares common stock.
    
    3/8/06
    
    
    4
    %
    
    
    540,010
    
    
    
    540,010
    
    
    
    .09




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Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
June 30, 2007 (Continued)
(Unaudited)
 (b)Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandPhotonic Products Group, Inc
(OTC:PHPG.OB) (i)
Northvale, NJ. Develops and
manufactures products for laser
photonics industry.
www.inrad.com
    
    100 shares convertible Series B
preferred stock, 10% dividend.
(a) 26,000 shares common stock.
    
    10/31/00
    
    <1%
    
    
    165,000
    
    
    
    158,000
    
    
    
    .03RAMSCO (e)(g)(h)
Albany, NY. Distributor of water,
sanitary, storm sewer and
specialty construction materials
to the contractor, highway and
municipal construction markets.
www.ramsco.com
    
    $916,947.23 notes at 13% due
November 18, 2007. Warrants to
purchase 12.5% of common shares.
    
    11/19/02
    
    
    13
    %
    
    
    793,644
    
    
    
    793,644
    
    
    
    .14Rocket Broadband Networks,
Inc. (g)
Rochester, NY. Communications
service provider of satellite TV,
broadband internet and VoIP
digital phone targeting multiple
dwelling units.
www.rocketbroadband.com
    
    533,827 Series A-1 Preferred shares.
    
    12/20/05
    
    
    8
    %
    
    
    400,000
    
    
    
    400,000
    
    
    
    .07Somerset Gas Transmission Company,
LLC (e)
Columbus, OH. Natural gas
transportation company.
www.somersetgas.com
    
    26.5337 Units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .14Synacor Inc. (e)(g)
Buffalo, NY. Develops
provisioning platforms for
aggregation and delivery of
content for broadband access
providers.
www.synacor.com
    
    200,000 shares of Series B
preferred stock. 78,186 Series A
preferred shares. 80,126 Series C
preferred shares. Warrants for
299,146 common shares.
    
    11/18/02
    
    
    4
    %
    
    
    999,478
    
    
    
    3,818,000
    
    
    
    .67Topps Meat Company
LLC (e)(g)
Elizabeth, NJ. Producer and
supplier of premium branded frozen
hamburgers and other portion
controlled meat products.
www.toppsmeat.com
    
    Preferred A and Class A common
membership interest.
    
    4/3/03
    
    
    3
    %
    
    
    595,000
    
    
    
    927,000
    
    
    
    .16Ultra  Scan Corporation
Amherst, NY. Biometrics
application developer of
ultrasonic fingerprint technology.
www.ultra-scan.com
    
    536,596 common shares, 107,104
Series A-1 preferred shares.(g) 95,284 Series A-1 preferred
shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .21WineIsIt.com, Corp. (e)
Amherst, NY. Marketing company
specializing in customer loyalty
programs supporting the wine and
spirit industry.
www.wineisit.com
    
    $20,000 note at 12% due April 26,
2007.(g) $500,000 Senior Subordinated
note at 10% due December 17, 2009.
$250,000 note at 10% due April 16,
2005. Warrants to purchase 100,000
shares Class B common stock.
    
    12/18/02
    
    
    2
    %
    
    
    821,918
    
    
    
    100,000
    
    
    
    .02Other Investments
    
    Various
    
    
    
    
    
    
    
    
    616,594
    
    
    
    30,084
    
    
    
    .02Total portfolio investments
    
    
    
    
    
    
    
    $
    13,074,578
    
    
    $
    22,809,724
    
    
    $
    3.99




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
June 30, 2007 (Continued)
(Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments




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Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Note 1. ORGANIZATION
  Formation of SBIC Subsidiary




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##### Table of Contents




    
    a BDC (Rand) to operate a BDC/small business investment company (Rand SBIC) as its
wholly owned subsidiary in limited partnership form;
    
    Rand, Rand Management and Rand SBIC to engage in certain transactions that the
Corporation would otherwise be permitted to engage in as a BDC if its component parts
were organized as a single corporation;
    
    Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage
requirements for senior securities on a consolidated basis;
    
    Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports
on a consolidated basis as part of Rands reports.




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Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation 
  N-30-B2/ARS
    
    Quarterly & Annual Reports to ShareholdersN-54A
    
    Election to Adopt Business Development Company statusDEF-14A
    
    Definitive Proxy Statement submitted to shareholdersForm 10-K
    
    Annual Report on Form 10-K for the year ended December 31, 2006Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended March 31, 2007,
September 30, 2006 and June 30, 2006Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  Principles of Consolidation
 Investments




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Cash and Cash Equivalents
 Revenue Recognition  Interest Income
  Original Issue Discount
 Deferred Debenture Costs
 Net Assets per Share
 Supplemental Cash Flow Information
 Accounting Estimates
 Stockholders Equity (Net Assets) 




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Stock Option Plan 
 Uncertain Tax Positions 
    Subsequent Events 




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
 Statements included in this Managements Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this document that do not relate to present or
historical conditions are forward-looking statements within the meaning of that term in Section
27A of the Securities Act of 1933, and in Section 21F of the Securities Exchange Act of 1934.
Additional oral or written forward-looking statements may be made by the Corporation from time to
time and those statements may be included in documents that are filed with the Securities and
Exchange Commission. Such forward-looking statements involve risks and uncertainties that could
cause results or outcomes to differ materially from those expressed in the forward-looking
statements. Forward-looking statements may include, without limitation, statements relating to the
Corporations plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as believes, forecasts, intends, possible, expects, estimates,
anticipates, or plans and similar expressions are intended to identify forward-looking
statements. Among the important factors on which such statements are based are assumptions
concerning the state of the national economy and the local markets in which the Corporations
portfolio companies operate, the state of the securities markets in which the securities of the
Corporations portfolio companies trade or could be traded, liquidity within the national financial
markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described in Part II, Item 1A of this report, the text of which is incorporated herein by
reference.
 There may be other factors that we have not identified that affect the likelihood that the
forward-looking statements may prove to be accurate. Further, any forward-looking statement speaks
only as of the date it is made and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which it is made
or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors
emerge from time to time that may cause our business not to develop as we expect, and we cannot
predict all of them.
 Overview
   Critical Accounting Policies




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##### Table of Contents



Financial Condition
  Increase
    
    % Increase6/30/07
    
    12/31/06
    
    (Decrease)
    
    (Decrease)Total assets
    
    $
    28,855,776
    
    
    $
    29,463,944
    
    
    
    ($608,168
    )
    
    
    (2.1
    %)Total liabilities
    
    
    11,467,710
    
    
    
    12,681,539
    
    
    
    (1,213,829
    )
    
    
    (9.6
    %)Net assets
    
    $
    17,388,066
    
    
    $
    16,782,405
    
    
    $
    605,661
    
    
    
    3.6
    %
  Increase
    
    % Increase6/30/07
    
    12/31/06
    
    (Decrease)
    
    (Decrease)Investments, at cost
    
    $
    13,074,578
    
    
    $
    14,033,789
    
    
    
    ($959,211
    )
    
    
    (6.8
    %)Unrealized appreciation, net
    
    
    9,735,146
    
    
    
    9,616,025
    
    
    
    119,121
    
    
    
    1.2
    %Investments at fair value
    
    $
    22,809,724
    
    
    $
    23,649,814
    
    
    
    ($840,090
    )
    
    
    (3.6
    %)
  AmountChanges to investments:Adampluseve, Inc. (Adampluseve) warrant accretion
    
    $
    62,333Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
interest conversion and warrant exercise
    
    
    40,010Photonics interest conversion
    
    
    10,000Total of changes to investments during the six months
ended June 30, 2007
    
    $
    112,343Sales/Investment RepaymentsAdampluseve
    
    
    (561,000
    )UStec, Inc. (UStec)
    
    
    (350,000
    )New Monarch Machine Tool, Inc. (Monarch)
    
    
    (83,702
    )Ramsco
    
    
    (25,784
    )APF Group, Inc. (APF)
    
    
    (19,984
    )Gemcor II, LLC (Gemcor)
    
    
    (28,168
    )Takeform
    
    
    (2,916
    )Total of sales and investment repayments
during the six months ended June 30, 2007
    
    
    (1,071,554
    )Total change in investment balance, at cost
during the six months ended June 30, 2007
    
    
    ($959,211
    )




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the six months ended June 30, 2007 to the six months ended June 30, 2006
 Increase
    
    % IncreaseJune 30, 2007
    
    June 30, 2006
    
    (Decrease)
    
    (Decrease)Interest from portfolio companies
    
    $
    334,196
    
    
    $
    352,458
    
    
    
    ($18,262
    )
    
    
    (5.2
    %)Interest from other investments
    
    
    92,290
    
    
    
    11,339
    
    
    
    80,951
    
    
    
    713.9
    %Dividend and other investment income
    
    
    409,010
    
    
    
    28,238
    
    
    
    380,772
    
    
    
    1,348.4
    %Other income
    
    
    20,644
    
    
    
    22,381
    
    
    
    (1,737
    )
    
    
    (7.8
    %)Total investment income
    
    $
    856,140
    
    
    $
    414,416
    
    
    $
    441,724
    
    
    
    106.6
    %
 Interest from portfolio companies
   Year that InterestCompany
    
    Interest Rate
    
    Investment Cost
    
    Accrual CeasedContract Staffing
    
    
    5
    %
    
    $
    141,400
    
    
    
    2006G-Tec
    
    
    8
    %
    
    
    400,000
    
    
    
    2004Ustec
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com
    
    
    10
    %
    
    
    821,918
    
    
    
    2005




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##### Table of Contents



Interest from other investments
 Dividend and other investment income
 Other income
  Operating Expenses
 Comparison of the six months ended June 30, 2007 to the six months ended June 30, 2006
 June 30, 2007
    
    June 30, 2006
    
    Increase
    
    % IncreaseTotal Expenses
    
    $
    812,239
    
    
    $
    699,253
    
    
    $
    112,986
    
    
    
    16
    %




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##### Table of Contents



Net Realized Gains and Losses on Investments
   Net Change in Unrealized Appreciation (Depreciation) of Investments
  June 30, 2007Adampluseve warrants
    
    $
    65,341Reclass UStec to realized loss
    
    
    39,000Photonics valuation to market
    
    
    14,780Total increase in net unrealized appreciation
during the six months ended June 30, 2007
    
    $
    119,121
    June 30, 2006Minrad valuation to market
    
    $
    834,310Vanguard Sale
    
    
    135,000Photonics valuation to market
    
    
    (4,400
    )Minrad stock sales
    
    
    (135,862
    )Total increase in net unrealized appreciation
during the six months ended June 30, 2006
    
    $
    829,048




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##### Table of Contents



Net Increase in Net Assets from Operations
  Liquidity and Capital Resources
     
 Item 3. Quantitative and Qualitative Disclosures about Market Risk




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
  The Corporations Portfolio Investments are Illiquid
  Investing in Private Companies involves a High Degree of Risk




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##### Table of Contents



Investing in The Corporations Shares May be Inappropriate for the Investors Risk Tolerance
  The Corporation is Subject to Risks Created by its Regulated Environment
  The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
  The Corporation is Dependent Upon Key Management Personnel for Future Success
  The Corporation Operates in a Competitive Market for Investment Opportunities
  Fluctuations of Quarterly Results




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information




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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)(i)
    
    Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997.(3)(ii)
    
    By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.(4)
    
    Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997.(10.1)
    
    Employee Stock Option Plan  incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.*(10.3)
    
    Agreement of Limited Partnership for Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.3 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.4)
    
    Certificate of Limited Partnership of Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.4 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.5)
    
    Limited Liability Corporation Agreement of Rand Capital Management, LLC
 incorporated by reference to Exhibit 10.5 to the Corporations Form
10-K Report filed for the year ended December 31, 2001.(10.6)
    
    Certificate of Formation of Rand Capital Management, LLC incorporated
by reference to Exhibit 10.6 to the Corporations Form 10-K Report filed
for the year ended December 31, 2001.(10.7)
    
    N/A(10.8)
    
    Profit Sharing Plan  incorporated by reference to Exhibit 10.8 to the
Corporations Form 10-K Report filed for the year ended December 31,
2002.*(21)
    
    Subsidiaries of the Corporation  incorporated by
reference to Exhibit 21 to the Corporations Form 10-K Report filed for
the year ended December 31, 2001.(31.1)
    
    Certification of the Chief 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 Chief 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(32.2)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Rand Capital SBIC, L.P.  filed herewith
 
 *
    
    Management contract or compensatory plan.




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##### Table of Contents



Signatures
 Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
  RAND CAPITAL CORPORATIONBy:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer RAND CAPITAL SBIC, L.P.By:
    RAND CAPITAL MANAGEMENT LLCGeneral PartnerBy:
    RAND CAPITAL CORPORATIONMemberBy:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer