##### 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, 2009
 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: 811-01825
 Rand Capital Corporation
  New York
    
    16-0961359(State or Other Jurisdiction of Incorporation 
or organization)
    
    (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
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ(Do not check if a smaller reporting
company)
    
    Smaller reporting company o
 o þ




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##### 



RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q
 PART I.  FINANCIAL INFORMATIONItem 1. Financial Statements and Supplementary Data (Unaudited)Condensed Consolidated Statements of Financial Position as of June 30,
2009 and December 31, 2008Condensed Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 2009 and 2008Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2009 and 2008Condensed Consolidated Statements of Changes in Net Assets for the Three
Months and Six Months Ended June 30, 2009 and 2008Condensed Consolidated Schedule of Portfolio Investments as of June 30,
2009Notes 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 4T. 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
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of June 30, 2009 and December 31, 2008
 June 30, 2009
    
    
    December 31,(Unaudited)
    
    
    2008ASSETSInvestments at fair value (identified cost: 6/30/09 -
$14,688,768; 12/31/08 - $14,386,451)
    
    $
    27,548,275
    
    
    $
    28,126,282Cash and cash equivalents
    
    
    1,875,944
    
    
    
    2,757,653Interest receivable (net of allowance: 6/30/09- $159,062;
12/31/08 - $122,817)
    
    
    1,175,593
    
    
    
    1,013,888Prepaid income taxes
    
    
    85,521
    
    
    
    Other assets
    
    
    211,508
    
    
    
    330,974Total assets
    
    $
    30,896,841
    
    
    $
    32,228,797LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    8,100,000
    
    
    $
    8,100,000Deferred tax liability
    
    
    2,964,000
    
    
    
    3,490,000Income taxes payable
    
    
    
    
    
    
    98,723Accounts payable and accrued expenses
    
    
    279,337
    
    
    
    292,731Deferred revenue
    
    
    5,195
    
    
    
    20,377Total liabilities
    
    
    11,348,532
    
    
    
    12,001,831Stockholders 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)
    
    
    (3,833,786
    )
    
    
    (3,743,908
    )Undistributed net realized gain on investments
    
    
    7,704,205
    
    
    
    7,735,477Net unrealized appreciation on investments
    
    
    8,175,338
    
    
    
    8,732,845Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share 6/30/09 - $3.42; 12/31/08 - $3.54)
    
    
    19,548,309
    
    
    
    20,226,966Total liabilities and stockholders equity (net assets)
    
    $
    30,896,841
    
    
    $
    32,228,797




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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, 2009 and 2008
(Unaudited)
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2009
    
    June 30, 2008
    
    June 30, 2009
    
    June 30, 2008Investment income:Interest from portfolio companies
    
    $
    152,007
    
    
    $
    110,017
    
    
    $
    287,523
    
    
    $
    361,781Interest from other investments
    
    
    3,160
    
    
    
    18,520
    
    
    
    12,294
    
    
    
    53,104Dividend and other investment income
    
    
    159,745
    
    
    
    349,647
    
    
    
    384,271
    
    
    
    434,581Other income
    
    
    6,083
    
    
    
    4,084
    
    
    
    15,166
    
    
    
    11,167320,995
    
    
    
    482,268
    
    
    
    699,254
    
    
    
    860,633Operating expenses:Salaries
    
    
    111,843
    
    
    
    106,682
    
    
    
    223,765
    
    
    
    215,066Employee benefits
    
    
    29,919
    
    
    
    27,081
    
    
    
    66,095
    
    
    
    70,711Directors fees
    
    
    44,000
    
    
    
    44,250
    
    
    
    54,500
    
    
    
    56,000Professional fees
    
    
    67,798
    
    
    
    59,347
    
    
    
    139,019
    
    
    
    119,637Stockholders and office operating
    
    
    51,491
    
    
    
    37,200
    
    
    
    85,896
    
    
    
    61,708Insurance
    
    
    10,550
    
    
    
    8,600
    
    
    
    25,428
    
    
    
    19,100Corporate development
    
    
    14,841
    
    
    
    18,603
    
    
    
    24,375
    
    
    
    35,165Other operating
    
    
    2,276
    
    
    
    2,460
    
    
    
    4,729
    
    
    
    4,438332,718
    
    
    
    304,223
    
    
    
    623,807
    
    
    
    581,825Interest on SBA obligations
    
    
    125,065
    
    
    
    125,765
    
    
    
    243,424
    
    
    
    251,531Bad debt recovery
    
    
    (10,977
    )
    
    
    
    
    
    
    (10,977
    )
    
    
    Total expenses
    
    
    446,806
    
    
    
    429,988
    
    
    
    856,254
    
    
    
    833,356Investment (loss) gain before income taxes
    
    
    (125,811
    )
    
    
    52,280
    
    
    
    (157,000
    )
    
    
    27,277Current income tax expense
    
    
    34,012
    
    
    
    385,511
    
    
    
    136,062
    
    
    
    521,624Deferred income tax benefit
    
    
    (91,183
    )
    
    
    (357,853
    )
    
    
    (203,183
    )
    
    
    (510,666
    )Net investment (loss) gain
    
    
    (68,640
    )
    
    
    24,622
    
    
    
    (89,879
    )
    
    
    16,319Realized and unrealized gain (loss) on investments:Net loss on sales and dispositions
    
    
    (31,271
    )
    
    
    
    
    
    
    (31,271
    )
    
    
    Unrealized appreciation on investments:Beginning of period
    
    
    13,739,831
    
    
    
    13,008,146
    
    
    
    13,739,831
    
    
    
    13,137,846End of period
    
    
    12,859,507
    
    
    
    12,943,146
    
    
    
    12,859,507
    
    
    
    12,943,146Change in unrealized appreciation before
income taxes
    
    
    (880,324
    )
    
    
    (65,000
    )
    
    
    (880,324
    )
    
    
    (194,700
    )Deferred income tax benefit
    
    
    (322,817
    )
    
    
    (23,147
    )
    
    
    (322,817
    )
    
    
    (69,334
    )Net decrease in unrealized appreciation
    
    
    (557,507
    )
    
    
    (41,853
    )
    
    
    (557,507
    )
    
    
    (125,366
    )Net realized and unrealized loss on investments
    
    
    (588,778
    )
    
    
    (41,853
    )
    
    
    (588,778
    )
    
    
    (125,366
    )Net decrease in net assets from operations
    
    $
    (657,418
    )
    
    $
    (17,231
    )
    
    $
    (678,657
    )
    
    $
    (109,047
    )Weighted average shares outstanding
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934Basic and diluted net decrease in net assets from
operations per share
    
    $
    (0.11
    )
    
    $
    0.00
    
    
    $
    (0.12
    )
    
    $
    (0.02
    )




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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, 2009 and 2008
(Unaudited)
 June 30, 2009
    
    June 30, 2008Cash flows from operating activities:Net decrease in net assets from operations
    
    $
    (678,657
    )
    
    $
    (109,047
    )Adjustments to reconcile net decrease in net
assets to net cash used in operating activities:Depreciation and amortization
    
    
    17,891
    
    
    
    16,392Change in interest receivable allowance
    
    
    36,245
    
    
    
    Decrease in unrealized appreciation of investments
    
    
    880,324
    
    
    
    194,700Deferred tax benefit
    
    
    (526,000
    )
    
    
    (580,000
    )Net realized loss on portfolio investments
    
    
    31,271
    
    
    
    Payment in kind, interest accrued
    
    
    (18,137
    )
    
    
    Non-cash conversion of debenture interest
    
    
    (24,212
    )
    
    
    (41,783
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (197,950
    )
    
    
    (211,640
    )Decrease in other assets
    
    
    101,575
    
    
    
    662,800Increase in prepaid income taxes
    
    
    (85,521
    )
    
    
    Decrease in income taxes payable
    
    
    (98,723
    )
    
    
    (429,611
    )Decrease in accounts payable and accrued
expenses
    
    
    (13,394
    )
    
    
    (67,682
    )Decrease in deferred revenue
    
    
    (15,182
    )
    
    
    (16,637
    )Total adjustments
    
    
    88,187
    
    
    
    (473,461
    )Net cash used in operating activities
    
    
    (590,470
    )
    
    
    (582,508
    )Cash flows from investing activities:Investments originated
    
    
    (381,756
    )
    
    
    (674,990
    )Proceeds from sale of portfolio investments
    
    
    57,479
    
    
    
    Proceeds from loan repayments
    
    
    33,038
    
    
    
    587,715Capital expenditures
    
    
    
    
    
    
    (962
    )Net cash used by investing activities
    
    
    (291,239
    )
    
    
    (88,237
    )Net decrease in cash and cash equivalents
    
    
    (881,709
    )
    
    
    (670,745
    )Cash and cash equivalents:Beginning of period
    
    
    2,757,653
    
    
    
    4,396,595End of period
    
    $
    1,875,944
    
    
    $
    3,725,850




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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, 2009 and 2008
(Unaudited)
 Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30, 2009
    
    June 30, 2008
    
    June 30, 2009
    
    June 30, 2008Net assets at beginning of period
    
    $
    20,205,727
    
    
    $
    19,726,007
    
    
    $
    20,226,966
    
    
    $
    19,817,823Net investment (loss) gain
    
    
    (68,640
    )
    
    
    24,622
    
    
    
    (89,879
    )
    
    
    16,319Net realized loss on investments
    
    
    (31,271
    )
    
    
    
    
    
    
    (31,271
    )
    
    
    Net change in unrealized appreciation
on investments
    
    
    (557,507
    )
    
    
    (41,853
    )
    
    
    (557,507
    )
    
    
    (125,366
    )Net decrease in net assets from operations
    
    
    (657,418
    )
    
    
    (17,231
    )
    
    
    (678,657
    )
    
    
    (109,047
    )Net assets at end of period
    
    $
    19,548,309
    
    
    $
    19,708,776
    
    
    $
    19,548,309
    
    
    $
    19,708,776




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2009
 (Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    (d)
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandNon-Control/Non-Affiliate Investments: (k)Adampluseve, Inc. (dba Adam) (g)
    
    Warrants to purchase 1,715 Series A
    
    7/14/06
    
    
    2
    %
    
    $
    68,000
    
    
    $
    68,000
    
    
    $
    .01New York, NY. Luxury sports wear designer for men
    
    preferred shares.and women. (Fashion Design)www.shopadam.comGridApp Systems, Inc. (e)(g)New York, NY. Provider of database automation software that helps businesses gain control of their heterogeneous database applications through a centralized software console. (Software) www.gridapp.com
    
    $660,000 term note at 4% simple interest, 8% deferred interest (PIK) due January  4, 2012. $6,667 convertible note at 4% due November 28, 2018.
    
    11/25/08
    
    
    3
    %
    
    
    684,804
    
    
    
    684,804
    
    
    
    .12Kionix, Inc.Ithaca, NY. Develops innovative MEMS based inertial sensors used in consumer electronics, automation and healthcare sectors. (Manufacturing) 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
    %
    
    
    1,506,044
    
    
    
    2,000,000
    
    
    
    .35Mezmeriz, Inc. (g)Ithaca, NY. Developer of micro mirror technology that replaces silicon with carbon fibers in micro-electronic mechanical systems (MEMS) enabling efficient, wide-angle, Pico projectors to be
embedded in mobile devices. (Electronics Developer)
www.mezmeriz.com
    
    $100,000 convertible note at 9% due January 9, 2010.
    
    1/9/08
    
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    .02Photonic Products Group,
    
    30,500 shares common stock.
    
    10/31/00
    
    
    <1
    %
    
    
    76,250
    
    
    
    42,700
    
    
    
    .01Inc (OTC:PHPG.OB) (a)(i)Northvale, NJ. Develops
and manufactures products
for laser photonics
industry.
(Manufacturing)
www.inrad.comSomerset Gas Transmission Company, LLC (e)
    
    26.5337 units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .14Columbus, OH. Natural
gas transportation
company. (Oil and Gas)
www.somersetgas.comSynacor Inc. (g)Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software) www.synacor.com
    
    234,558 Series A preferred shares. 600,000 Series B preferred shares. 240,378 Series C preferred shares. 897,438 common shares.
    
    11/18/02
    
    
    4
    %
    
    
    1,349,479
    
    
    
    4,168,001
    
    
    
    .73Subtotal Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    $
    4,503,674
    
    
    $
    7,850,253
    
    
    $
    1.38Affiliate Investments: (l)APF Group, Inc. (e)(g)Yonkers, NY. Manufacturer of museum quality picture frames and framed mirrors for museums, art galleries, retail frame shops, upscale designers and prominent collectors. (Manufacturing) www.apfgroup.com
    
    $587,796 consolidated senior subordinated note at 8% due June 30, 2011. $13,514 senior subordinated note at 14% due June 30, 2011. Warrants to purchase 10.2941 shares of common stock.
    
    7/8/04
    
    
    6
    %
    
    $
    631,547
    
    
    $
    150,000
    
    
    $
    .03




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2009 (Continued)
(Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    (d)
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandAffiliate Investments: (l) (Continued)Associates Interactive, LLC (e)(g)
    
    $247,813 promissory note at 9% due December
    
    10/15/07
    
    
    22
    %
    
    
    293,518
    
    
    
    0
    
    
    
    .00Buffalo, NY.
Provider of training content and certifications used to train retail
sales associates.  (Education and Training)
www.associatesinteractive.com
    
    19, 2012. $43,518 secured note at
10% due December 19, 2012.  Investor units totaling 22.55% of company.Carolina Skiff LLC (e)(g)
    
    $985,000 Class A preferred membership
    
    1/30/04
    
    
    5
    %
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    .17Waycross,
GA. Manufacturer of fresh water, ocean fishing and pleasure boats.
(Manufacturing)
 www.carolinaskiff.com
    
    interest at 7.5%.  Redeemable
January 31, 2010. 5% common membership interest. (j)Interest receivable $700,536.EmergingMed.com, Inc. (g)
    
    $500,000 senior subordinated note
at 10%
    
    12/19/05
    
    
    7
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .09New York,
NY. Cancer clinical trial matching and referral service. (Software) 
www.emergingmed.com
    
    due December 19, 2010.  Warrants for
7.0% of common stock.(j)Interest receivable $176,667.Golden Goal LLC (g)
    
    191,811 Class C units at 4%. $38,237.98
    
    12/10/07
    
    
    6
    %
    
    
    675,652
    
    
    
    338,238
    
    
    
    .06Fort Ann,
NY. Youth soccer and lacrosse tournament park. (Sports and Entertainment)

www.goldengoalpark.com
    
    convertible promissory notes at 13%
due January 26, 2012.Innov-X Systems, Inc. (g)
    
    (e) $250,000 note at 11% due March 31, 2017.
    
    9/27/04
    
    
    9
    %
    
    
    1,250,000
    
    
    
    9,011,700
    
    
    
    1.58Woburn, MA.
Manufactures portable x-ray fluorescence (XRF) analyzers used in
metals/alloy analysis. (Manufacturing) 
www.innovxsys.com
    
    2,642 Series A preferred stock.
Warrants for 21,924 common shares. 8% cumulative dividend. (j)Interest receivable $204,855.Niagara Dispensing Technologies, Inc.
    
    202,081 Series B preferred stock.
    
    3/8/06
    
    
    14
    %
    
    
    1,331,783
    
    
    
    1,052,082
    
    
    
    .18Amherst, NY.
Beverage dispensing technology development and products manufacturer,
specializing in rapid pour beer dispensing systems for high volume stadium and concession
operations. 
(Manufacturing)

www.exactpour.com
    
    (g)463,691 Series A
preferred stock. 518,752 Series B preferred stock.   (e) $50,000 promissory note at 12% due June 1, 2010.RAMSCO (e)(g)  Albany, NY.
Distributor of water, sanitary, storm sewer and specialty construction materials to the
contractor, highway and municipal
construction markets. (Distributor)

www.ramsco.com
    
    $300,000 promissory notes at 9% due October 20, 2010.  Warrants for 5.99% of
common stock.
    
    11/19/02
    
    
    6
    %
    
    
    300,000
    
    
    
    300,000
    
    
    
    .05SOMS Technologies, LLC (g)
    
    $250,000 secured convertible note at 10% due
    
    12/2/08
    
    
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    .04Valhalla, NY. Produces and markets
    
    December 2, 2010.the microGreen Extended Performance
Oil Filter. (Auto Parts Developer)

www.microgreenfilter.comUltra  Scan Corporation Amherst, NY.
Biometrics application developer of ultrasonic fingerprint technology. (Electronics
Hardware/Software)
www.ultra-scan.com
    
    536,596 common shares. 107,104 Series A-1 preferred shares. (g) 95,284 Series A-1 preferred shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .21Subtotal Affiliate Investments
    
    
    
    
    
    
    
    
    
    $
    7,170,664
    
    
    $
    13,805,020
    
    
    $
    2.41




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2009 (Continued)
(Unaudited)
 (b)Company, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandControl Investments (m)Gemcor II, LLC (e)(g)(h)
    
    $250,000 subordinated note at 8%
    
    6/28/04
    
    
    31
    %
    
    $
    570,161
    
    
    $
    5,770,161
    
    
    $
    1.01West Seneca, NY. Designs
    
    due June 28, 2010 with warrant toand sells automatic
    
    purchase 6.25 membership units.riveting machines used in
    
    25 membership units.the assembly of aircraft
components.
(Manufacturing)
www.gemcor.comG-TEC Natural Gas Systems
    
    28.925% Class A membership
    
    8/31/99
    
    
    29
    %
    
    
    400,000
    
    
    
    100,000
    
    
    
    .02Buffalo, NY. Manufactures
    
    interest. 8% cumulative dividend.and distributes systems
that allow natural gas to
be used as an alternative
fuel to gases.
(Manufacturing)
www.gas-tec.comSubtotal Control Investments
    
    
    
    
    
    
    
    
    
    $
    970,161
    
    
    $
    5,870,161
    
    
    $
    1.03Other Investments
    
    Various
    
    
    
    
    
    
    
    
    2,044,269
    
    
    
    22,841
    
    
    
    .00Total portfolio investments
    
    
    
    
    
    
    
    $
    14,688,768
    
    
    $
    27,548,275
    
    
    $
    4.82




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2009 (Continued)
(Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
 Note 1. ORGANIZATION
   SBIC Subsidiary




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##### Table of Contents



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




---



##### Table of Contents



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, 2008Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended March 31, 2009, September 30, 2008 and June 30, 2008Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  Principles of Consolidation
 Cash and Cash Equivalents
 Revenue Recognition  Interest Income




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##### Table of Contents



Original Issue Discount
 Deferred Debenture Costs
 Net Assets per Share
 Supplemental Cash Flow Information
 Accounting Estimates
 Stockholders Equity (Net Assets) 
  Profit Sharing and Stock Option Plan 




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##### Table of Contents



Income Taxes 
    Concentration of Credit Risk 
 Fair Value of Financial Instruments 
 Subsequent Events 
 Note 3. INVESTMENTS




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##### Table of Contents



Assets Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reported Date UsingQuoted Prices in
    
    
    Significant
    
    
    Other SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Venture Capital
Investments
    
    $
    27,548,275
    
    
    $
    42,700
    
    
    $
    0
    
    
    $
    27,505,575
 Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
 Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsBeginning Balance, December 31, 2008, of Level 3 Assets
    
    
    
    
    
    $
    28,014,282Realized Gains or Losses included in net change in net assets from operations
    
    
    
    
    
    
    Unrealized gains or losses included in net change in net assets from operations
    
    
    
    
    
    
    Associates Interactive, LLC (Associates)
    
    $
    (293,518
    )APF Group, Inc. (APF)
    
    $
    (174,213
    )Adampluseve, Inc.(Adampluseve)
    
    $
    (65,341
    )Golden Goal LLC (Golden Goal)
    
    $
    (100,000
    )G-TEC Natural Gas Systems (G-Tec)
    
    $
    (98,000
    )




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##### Table of Contents



Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsNiagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    $
    (168,702
    )
    
    $
    (899,774
    )Purchases of SecuritiesAssociates
    
    $
    43,518APF
    
    $
    24,212Golden Goal
    
    $
    38,238GridApp Systems Inc. (GridApp)
    
    $
    18,137Innov-X Systems, Inc. (Innovex)
    
    $
    250,000Niagara Dispensing
    
    $
    50,000
    
    
    $
    424,105Repayments of SecuritiesGemcor II, LLC (Gemcor)
    
    $
    (33,038
    )
    
    $
    (33,038
    )Transfers in or out of Level 3
    
    
    
    
    
    
    Ending Balance, June 30, 2009, of Level 3 Assets
    
    
    
    
    
    $
    27,505,575The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized gains
or losses relating to assets still held at the reporting date
    
    
    
    
    
    $
    (899,774
    )Gains and losses (realized and unrealized) included in Net decrease
in net assets from operations for the period above are reported as follows:Net Gain (Loss) on Sales and Dispositions
    
    
    
    
    
    $
    0Change in unrealized gains or losses relating to assets still held at reporting date
    
    
    
    
    
    $
    (899,774
    )




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##### Table of Contents



Note 4. FINANCIAL HIGHLIGHTS
  Six monthsended June 30,
    
    Year ended2009
    
    December 31,(Unaudited)
    
    2008Income from investment operations (1):Investment income
    
    $
    0.12
    
    
    $
    0.31Expenses
    
    
    0.15
    
    
    
    0.30Investment (loss) before income taxes
    
    
    (0.03
    )
    
    
    0.01Income tax expense (benefit)
    
    
    0.01
    
    
    
    (0.01
    )Net investment (loss)
    
    
    (0.02
    )
    
    
    0.02Net realized and unrealized (loss) gain on investments
    
    
    (0.10
    )
    
    
    0.05(Decrease) in net asset value
    
    
    (0.12
    )
    
    
    0.07Net asset value, beginning of period
    
    
    3.54
    
    
    
    3.47Net asset value, end of period
    
    $
    3.42
    
    
    $
    3.54Per share market price, end of period
    
    $
    3.51
    
    
    $
    3.50Total return based on market value
    
    
    0.29
    %
    
    
    (2.78
    )%Total return based on net asset value
    
    
    (3.36
    )%
    
    
    2.10
    %Supplemental data:Ratio of expenses before income taxes to average net
assets
    
    
    4.31
    %
    
    
    8.60
    %Ratio of expenses including taxes to average net assets
    
    
    3.97
    %
    
    
    9.10
    %Ratio of net investment (loss) gain to average net assets
    
    
    (0.45
    )%
    
    
    0.68
    %Portfolio turnover
    
    
    1.37
    %
    
    
    6.00
    %Net assets, end of period
    
    $
    19,548,309
    
    
    $
    20,226,966Weighted average shares outstanding, end of period
    
    
    5,718,934
    
    
    
    5,718,934
 
 (1)
    
    Per share data are based on weighted average shares outstanding and the results are
rounded




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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.
 Corporate Structure
   Business Developments




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##### Table of Contents




    
    The ability of the Corporations portfolio companies to obtain
necessary credit financing for their operations may be impaired.
    
    The Corporations portfolio companies may experience greater
difficulty in obtaining equity financing to continue to fund their
operations.
    
    The slowdown in capital goods spending may impact the goods and
services that the portfolio companies sell.
    
    The Corporation may find it more difficult to exit its investments as
access to public markets and the merger and acquisition industry
become impaired.
    
    The Corporations diversified portfolio of investments may experience
unexpected growth despite these market uncertainties based on their
own capitalization, industry niche, and current market acceptance for
their products/services.
    
    The Corporations SBA leverage commitment expired September 30, 2008,
and the SBAs interest in approving Rand SBICs $1.9 million in
undrawn leverage may be adversely affected by the status of the
financial markets.
  Critical Accounting Policies




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##### Table of Contents



Financial Condition
  6/30/09
    
    12/31/08
    
    Decrease
    
    %  DecreaseTotal assets
    
    $
    30,896,841
    
    
    $
    32,228,797
    
    
    $
    (1,331,956
    )
    
    
    (4.1
    %)Total liabilities
    
    
    11,348,532
    
    
    
    12,001,831
    
    
    
    (653,299
    )
    
    
    (5.4
    %)Net assets
    
    $
    19,548,309
    
    
    $
    20,226,966
    
    
    $
    (678,657
    )
    
    
    (3.4
    %)
  %Increase
    
    Increase6/30/09
    
    12/31/08
    
    (Decrease)
    
    (Decrease)Investments, at cost
    
    $
    14,688,768
    
    
    $
    14,386,451
    
    
    $
    302,317
    
    
    
    2.1
    %Unrealized appreciation, net
    
    
    12,859,507
    
    
    
    13,739,831
    
    
    
    (880,324
    )
    
    
    (6.4
    %)Investments at fair value
    
    $
    27,548,275
    
    
    $
    28,126,282
    
    
    $
    (578,007
    )
    
    
    (2.1
    %)
  AmountNew Investments:Innov-X Systems, Inc. (Innovex)
    
    $
    250,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    50,000Associates Interactive, LLC (Associates Interactive)
    
    
    43,518Golden Goal, LLC (Golden Goal)
    
    
    38,238Total of new investments made during the six months
ended June 30, 2009
    
    $
    381,756Changes to Investments:APF Group, Inc (APF) interest conversion
    
    $
    24,212GridApp Systems, Inc. (GridApp)
    
    
    18,137Total of changes to investments made during the six months
ended June 30, 2009
    
    $
    42,349Sales/Investment Repayments:Photonic Products Group, Inc. (Photonics)
    
    $
    (88,750
    )Gemcor II, LLC (Gemcor)
    
    
    (33,038
    )Total of sales and investment repayments during
the six months ended June 30, 2009
    
    $
    (121,788
    )Total change in investment balance, at cost,
during the six months ended June 30, 2009
    
    $
    302,317




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the six months ended June 30, 2009 to the six months ended June 30, 2008
 Increase
    
    % IncreaseJune 30, 2009
    
    June 30, 2008
    
    (Decrease)
    
    (Decrease)Interest from portfolio companies
    
    $
    287,523
    
    
    $
    361,781
    
    
    $
    (74,258
    )
    
    
    (20.5
    )%Interest from other investments
    
    
    12,294
    
    
    
    53,104
    
    
    
    (40,810
    )
    
    
    (76.8
    %)Dividend and other investment income
    
    
    384,271
    
    
    
    434,581
    
    
    
    (50,310
    )
    
    
    (11.6
    %)Other income
    
    
    15,166
    
    
    
    11,167
    
    
    
    3,999
    
    
    
    35.8
    %Total investment income
    
    $
    699,254
    
    
    $
    860,633
    
    
    $
    (161,379
    )
    
    
    (18.8
    %)
 Interest from portfolio companies
  Year thatInterest
    
    Investment
    
    InterestCompany
    
    Rate
    
    Cost
    
    Accrual CeasedAssociates Interactive, LLC
(Associates)
    
    9% and 10
    %
    
    $
    293,518
    
    
    
    2009G-Tec Natural Gas Systems
    
    
    8
    %
    
    $
    400,000
    
    
    
    2004Rocket Broadband Networks, Inc.
    
    
    11.25
    %
    
    
    35,000
    
    
    
    2008UStec, Inc.
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com (Wineisit)
    
    
    10
    %
    
    
    801,918
    
    
    
    2005
 Interest from other investments
 Dividend and other investment income




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##### Table of Contents



Other income
   Operating Expenses
 Comparison of the six months ended June 30, 2009 to the six months ended June 30, 2008
 June 30, 2009
    
    June 30, 2008
    
    Increase
    
    % IncreaseTotal Expenses
    
    $
    856,254
    
    
    $
    833,356
    
    
    $
    22,898
    
    
    
    2.7
    %
   Net Realized Gains and Losses on Investments




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##### Table of Contents



Net Change in Unrealized Appreciation of Investments
   June 30, 2009Photonic
    
    $
    19,450Associates Interactive
    
    
    (293,518
    )APF Group, Inc. (APF)
    
    
    (174,213
    )Niagara Dispensing
    
    
    (168,702
    )Golden Goal LLC (Golden Goal)
    
    
    (100,000
    )G-TEC Natural Gas Systems (G-Tec)
    
    
    (98,000
    )Adampluseve, Inc. (Adampluseve)
    
    
    (65,341
    )Total change in net unrealized appreciation
during the six months ended June 30, 2009
    
    $
    (880,324
    )
      June 30, 2008Niagara Dispensing
    
    $
    (111,000
    )Photonic
    
    
    (55,700
    )Bioworks
    
    
    (28,000
    )Total change in net unrealized appreciation
during the six months ended June 30, 2008
    
    $
    (194,700
    )




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##### Table of Contents



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




---



##### Table of Contents



Item 4T. Controls and Procedures
 Management report on Internal Control Over Financial Reporting




---



##### Table of Contents



Changes in Internal Control over Financial Reporting.




---



##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Fluctuations of Quarterly Results
  
 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
 th
  VOTES FOR
    
    VOTES WITHHELDAllen F. Grum
    
    
    4,824,616
    
    
    
    21,584Erland E. Kailbourne
    
    
    4,796,781
    
    
    
    49,419Ross B. Kenzie
    
    
    4,804,071
    
    
    
    42,129Willis S. McLeese
    
    
    4,822,603
    
    
    
    23,597Reginald B. Newman II
    
    
    4,824,616
    
    
    
    21,584Jayne K. Rand
    
    
    4,789,906
    
    
    
    56,294Robert M. Zak
    
    
    4,806,620
    
    
    
    39,580
 2.
    
    VOTE ON SALE OF COMMON STOCK UNDER CERTAIN CONDITIONS DURING ONE YEAR PERIOD AT PRICES BELOW
THE THEN CURRENT NET ASSET VALUE PER SHARE.
 a.
    
    Approval by vote of majority of total outstanding shares:




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##### Table of Contents



Total Shares
    
    
    
    Votes AgainstOutstanding
    
    Votes For
    
    or Abstained
    
    % Approved5,718,934
    
    3,339,036
    
    212,732
    
    58.4%
 b.
    
    Approval by vote of majority, of outstanding non-affiliated shares:Affiliated shares not counted: McLeese, Grum, Rand, Kenzie, Kailbourne,
Penberthy = 1,572,241
 Total Non-
    
    Non-Affiliate
    
    Total Non-Affiliate VotesAffiliated Shares
    
    Votes For
    
    Against or Abstained
    
    % Approved4,146,693
    
    2,319,208
    
    112,732
    
    55.9%
 
 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 Formation of Rand Capital SBIC, L.P.  incorporated by
reference to Exhibit 10.4 to the Corporations Form10-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)
    
    Certificate of Incorporation of Rand Merger Corporation as filed by the
NY Department of State on 12/18/08  incorporated by reference to
Exhibit 1(a) to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.(10.8)
    
    By-laws of Rand Capital SBIC, Inc.  incorporated by reference to
Exhibit 2 to Registration Statement No. 811-22276 on 
Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.(10.9)
    
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital
Management, LLC into Rand Merger Corporation, as filed by the NY
Department of State on 12/18/08  incorporated by reference to Exhibit
1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
SBIC, Inc. filed with the SEC on 2/6/09.(10.10)
    
    Rand Capital Corporation Amended and Restated Profit Sharing Plan
applicable to Rand Capital SBIC, Inc.  incorporated by reference to
Exhibit 7 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.*(31.1)
    
    Certification of 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  furnished herewith




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##### Table of Contents



(32.2)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Rand Capital SBIC, Inc.  furnished herewith
 
 *
    
    Management contract or compensatory plan.




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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.
  RAND CAPITAL CORPORATION By:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer
 RAND CAPITAL SBIC, INC. By:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer