<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 2005

[ ] 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
             (Exact Name of Registrant as specified in its Charter)

                       NEW YORK                                  16-0961359
       (State or Other Jurisdiction of Incorporation           (IRS Employer
                   or organization)                          Identification No.)

            2200 RAND BUILDING, BUFFALO, NY                         14203
       (Address of Principal executive offices)                   (Zip Code)

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

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 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes: [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act)   Yes: [ ] No [X]

Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date (May 5, 2005): 5,718,934

<PAGE>

RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q

PART I. - FINANCIAL INFORMATION

      ITEM  1. FINANCIAL STATEMENTS (Unaudited)

            Consolidated Statements of Financial Position as of March 31, 2005
            and December 31, 2004

            Consolidated Statements of Operations for the Three Months Ended
            March 31, 2005 and 2004

            Consolidated Statements of Cash Flows for the Three Months Ended
            March 31, 2005 and 2004

            Consolidated Statements of Changes in Net Assets for the Three
            Months Ended March 31, 2005 and 2004

            Consolidated Schedule of Portfolio Investments as of March 31, 2005

            Notes to Consolidated Financial Statements

      ITEM  2. Management's Discussion and Analysis of Financial Condition and
               Results of Operations

      ITEM  3. Quantitative and Qualitative Disclosures about Market Risk

      ITEM  4. Evaluation of Disclosure - Controls and Procedures

PART II - OTHER INFORMATION

      ITEM  1. Legal Proceedings

      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

      ITEM  6. Exhibits

<PAGE>

                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            RAND CAPITAL CORPORATION
                  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                   AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     MARCH 31,        DECEMBER 31,
                                                                       2005              2004
                                                                  --------------     --------------
<S>                                                               <C>                <C>
ASSETS
   Investments at fair value (identified cost:  at 3/31/05 -      $   11,829,463     $   11,035,806
        $12,078,330, at 12/31/04- $11,621,853)
   Cash and cash equivalents                                             355,858            626,744
   Interest receivable (net of allowance of $122,000 at
   3/31/05 and 12/31/04)                                                 331,477            260,490
   Deferred tax asset                                                    467,000            566,000
   Income tax receivable                                                  14,162             11,579
   Promissory notes receivable                                            29,680             36,195
   Other assets                                                          255,093            206,295
                                                                  --------------     --------------

   TOTAL ASSETS                                                   $   13,282,733     $   12,743,109
                                                                  ==============     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)
   LIABILITIES:
   Debentures guaranteed by the SBA                               $    4,000,000     $    3,500,000
   Accounts payable and accrued expenses                                  72,518            132,897
   Deferred revenue                                                       77,014             83,158
                                                                  --------------     --------------
        Total liabilities                                              4,149,532          3,716,055

   STOCKHOLDERS' EQUITY (NET ASSETS):
   Common stock, $.10 par - shares authorized
   10,000,000; shares issued 5,763,034                                   576,304            576,304
   Capital in excess of par value                                      6,973,454          6,973,454
   Accumulated net investment (loss)                                  (4,909,180)        (4,813,146)
   Undistributed net realized gain on investments                      6,689,278          6,689,277
   Net unrealized (depreciation) on investments                         (149,449)          (351,629)
   Treasury stock at cost, 44,100 shares at 3/31/05
        and 12/31/04                                                     (47,206)           (47,206)
                                                                  --------------     --------------
     Net assets (per share 3/31/2005-$1.60, 12/31/2004-$1.58)          9,133,201          9,027,054
                                                                  --------------     --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (NET ASSETS)           $   13,282,733     $   12,743,109
                                                                  ==============     ==============
</TABLE>

                             See accompanying notes

<PAGE>

                            RAND CAPITAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       MARCH 31, 2005     MARCH 31, 2004
                                                       --------------     --------------
<S>                                                    <C>                <C>
INVESTMENT INCOME:
       Interest from portfolio companies               $      145,920     $      172,797
       Interest from other investments                            839              1,405
       Dividend income                                              -              6,587
       Other income                                            10,894              5,405
                                                       --------------     --------------
                                                              157,653            186,194
                                                       --------------     --------------
OPERATING EXPENSES:
       Salaries                                               134,672            133,655
       Employee benefits                                       31,520             30,807
       Directors' fees                                          8,200             12,100
       Professional fees                                       15,063             13,431
       Shareholders and office                                 24,393             27,541
       Insurance                                               11,550             11,550
       Corporate development                                   11,213              8,507
       Other operating expenses                                 2,175              6,805
                                                       --------------     --------------
                                                              238,786            244,396
       Interest expense                                        50,973                  -
       Bad debt recovery                                            -           (122,914)
                                                       --------------     --------------
       Total expenses                                         289,759            121,482
                                                       --------------     --------------
INVESTMENT (LOSS) GAIN BEFORE INCOME TAXES                   (132,106)            64,712
       Income tax benefit (provision)                              73             (2,756)
       Deferred income tax benefit (provision))                36,000            (29,000)
                                                       --------------     --------------
NET INVESTMENT (LOSS) GAIN                                    (96,033)            32,956
                                                       --------------     --------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:

       Net gain on sales and dispositions                           -             32,956
                                                       --------------     --------------
Unrealized (depreciation) on investments:
       Beginning of period                                   (586,047)          (379,311)
       End of period                                         (248,867)          (390,346)
                                                       --------------     --------------
       Change in unrealized (depreciation) before
       income taxes                                           337,180            (11,035)
       Deferred income tax (provision) benefit               (135,000)             4,000
                                                       --------------     --------------

NET DECREASE (INCREASE) IN UNREALIZED DEPRECIATION            202,180             (7,035)
                                                       --------------     --------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
                                                              202,180             25,921
                                                       --------------     --------------
NET INCREASE IN NET ASSETS FROM OPERATIONS             $      106,147     $       58,877
                                                       ==============     ==============
               WEIGHTED AVERAGE SHARES OUTSTANDING          5,718,934          5,718,934
BASIC AND DILUTED NET INCREASE IN NET ASSETS FROM
OPERATIONS PER SHARE                                   $         0.02     $         0.01
</TABLE>

                             See accompanying notes

<PAGE>

                            RAND CAPITAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            MARCH 31, 2005      MARCH 31, 2004
                                                            --------------      --------------
<S>                                                         <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations                  $      106,147      $       58,877
                                                            --------------      --------------

Adjustments to reconcile net increase in net assets
to net cash used in operating activities:
     Depreciation and amortization                                   4,897               2,165
     Bad debt recovery                                                   -            (122,914)
     Change in unrealized depreciation of investments             (337,180)             11,035
     Deferred tax provision                                         99,000              25,000
     Net realized gain on portfolio investments                          -             (32,956)
     Non-cash conversion of debentures                                   -             (51,918)
     Changes in operating assets and liabilities:
        (Increase) in interest receivable                          (70,987)            (56,231)
        (Increase) in other assets                                 (42,218)            (61,454)
        (Decrease) increase in deferred revenue                     (6,144)             38,594
        (Decrease) in accounts payable and other
           accrued liabilities                                     (60,379)            (23,041)
                                                            --------------      --------------

         Total adjustments                                        (413,011)           (271,720)
                                                            --------------      --------------

NET CASH USED IN OPERATING ACTIVITIES                             (306,864)           (212,843)
                                                            --------------      --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Investments originated                                       (485,000)         (1,860,000)
     Proceeds from sale of portfolio investments                         -              37,503
     Proceeds from loan repayments                                  35,038              29,135
     Capital expenditures                                           (1,560)                  -
                                                            --------------      --------------

         NET CASH USED IN INVESTING ACTIVITIES                    (451,522)         (1,793,362)
                                                            --------------      --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from SBA debentures                                  500,000           1,000,000
     Origination costs for SBA debenture loans                     (12,500)            (25,000)
                                                            --------------      --------------
         NET CASH PROVIDED BY FINANCING ACTIVITIES                 487,500             975,000
                                                            --------------      --------------

Net decrease in cash and cash equivalents                         (270,886)         (1,031,205)

Cash and cash equivalents:
     Beginning of period                                           626,744           1,251,546
                                                            --------------      --------------

     End of period                                          $      355,858      $      220,341
                                                            ==============      ==============
</TABLE>

                             See accompanying notes.

<PAGE>

                            RAND CAPITAL CORPORATION
           CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                MARCH 31, 2005      MARCH 31, 2004
                                                --------------      --------------
<S>                                             <C>                 <C>
NET ASSETS AT BEGINNING OF PERIOD               $    9,027,054      $    9,238,488

Operations:
  Net investment (loss)gain                            (96,033)             32,956

  Net realized gain on investments                           -              32,956

  Net decrease (increase) in unrealized
         appreciation of investments                   202,180              (7,035)
                                                --------------      --------------
Net increase in net assets from operations             106,147              58,877

NET ASSETS AT END OF PERIOD                     $    9,133,201      $    9,297,365
                                                ==============      ==============
</TABLE>

                             See accompanying notes
<PAGE>

                    RAND CAPITAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                 MARCH 31, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  DATE
                                                                                ACQUIRED   EQUITY                 VALUE
             COMPANY AND BUSINESS                     TYPE OF INVESTMENT           (b)      (c)       COST         (d)
---------------------------------------------   ------------------------------  --------   ------  ----------   ----------
<S>                                             <C>                             <C>        <C>     <C>          <C>
APF GROUP, INC. (e)(g)                          $500,000 Senior Subordinated      7/8/04     6%    $  500,000   $  500,000
Mount Vernon, NY.  Manufacturer of museum       note at 12.5% due July 1,
quality picture frames and framed mirrors for   2009.  Warrants to purchase
museums, art galleries, retail frame shops,     10.2941 shares common stock.
upscale designers and prominent collectors.
www.apfgroup.com

CAROLINA SKIFF  LLC (e)(g)                      $985,000 Class A preferred       1/30/04     5%     1,000,000    1,000,000
Waycross, GA.  Manufacturer of fresh water,     membership interest at 11%.
ocean fishing and pleasure boats.               Redeemable January 31,
www.carolinaskiff.com                           2010. 5% common membership
                                                interest.

CONTRACT STAFFING                               Preferred Stock Repurchase       11/8/99    10%       141,400      141,400
Buffalo, NY. PEO providing human resource       Agreement through March 31,
administration for small businesses.            2010 at 5%.
www.contract-staffing.com

GEMCOR II, LLC (e)(g)                           $250,000 note at 8% due June     6/28/04    31%       750,000      750,000
West Seneca, NY.  Designs and sells automatic   28, 2009 with warrant to
riveting machines used in the assembly of       purchase 6.25 membership
aircraft components.                            units.  25 membership units.
www.gemcor.com

G-TEC NATURAL GAS SYSTEMS                       41.67% Class A membership        8/31/99    42%       300,000      200,000
Buffalo, NY. Manufactures and distributes       interest.  8% cumulative
systems that allow natural gas to be used as    dividend.
an alternative fuel to gases.
www.gas-tec.com

INNOV-X SYSTEMS, INC. (e)(g)                    $350,000 Subordinated            9/27/04    10%       635,000      635,000
Woburn, MA.  Manufactures portable x-ray        Debenture at 8.5% due
fluorescence (XRF) analyzers used in            September 27, 2009 with
metals/alloy analysis.                          detachable warrants.  3,500
www.innovxsys.com                               Series A preferred stock.
                                                $250,000 Series B Secured
                                                Subordinated term note at 8.5%
                                                due March 1, 2010.

KIONIX, INC.(g)                                 2,862,091 shares Series A        5/17/02     2%     1,000,000    1,000,000
Ithaca, NY.  Develops innovative MEMS based     preferred stock.
technology applications.
www.kionix.com

MINRAD INTERNATIONAL, INC.                      677,981 common shares.            8/4/97     3%       919,422    1,186,000
(OTC: MNRD:OB)   (h)
Buffalo, NY. Developer of acute care devices
and anesthetics.
www.minrad.com

NEW MONARCH MACHINE TOOL, INC. (e)(g)**         $500,000 note at 12% due         9/24/03    12%       613,636      613,636
Cortland, NY.  Manufactures and services        September 24, 2006.  Warrant
vertical/horizontal machining centers.          for 11.59 shares of common
www.monarchmt.com                               stock.  $250,000 note at 14%
                                                due September 2, 2005.

PHOTONIC PRODUCTS GROUP, INC (OTC: PHPG.OB)*    100 shares convertible Series   10/31/00    <1%       135,000      116,380
(Formerly INRAD, Inc.) Northvale, NJ.           B preferred stock, 10%
Develops and manufactures products for laser    dividend.  14,000 shares
photonics industry.                             common stock.
www.inrad.com
</TABLE>

<PAGE>

                    RAND CAPITAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                                 MARCH 31, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  DATE
             COMPANY AND BUSINESS                     TYPE OF INVESTMENT        ACQUIRED   EQUITY     COST         VALUE
---------------------------------------------   -----------------------------   --------   ------  -----------  -----------
<S>                                             <C>                             <C>        <C>     <C>          <C>
RAMSCO (e)(g)                                   $916,947,23 notes at 13% due    11/19/02      13%      916,947      916,947
Albany, NY. Distributor of water, sanitary,     November 18, 2007.  Warrants
storm sewer and specialty construction          to purchase 12.5% of common
materials to the contractor, highway and        shares.
municipal markets.
www.ramsco.com

SOMERSET GAS TRANSMISSION COMPANY, LLC (e)      $500,000 convertible note at     7/10/02      <1%      700,000      818,000
Buffalo, NY.  Natural gas transportation        13% due on demand after July
company.                                        30, 2004. $200,000 note at 12%
www.somersetgas.com                             due December 31, 2005. 0.88
                                                membership units.

SYNACOR, INC. (e)(g)                            $350,000 convertible note at    11/18/02       4%      820,000      828,674
Buffalo, NY.  Develops provisioning platforms   10% due November 18, 2007.
for aggregation and delivery of content for     200,000 shares of Series B
broadband access providers.                     preferred stock. 59,828
www.synacor.com                                 Series A preferred shares.
                                                Warrants for 299,146 common
                                                shares.

TOPPS MEAT COMPANY LLC (e)(g)                   Preferred A and Class A           4/3/03       3%      259,000      259,000
Elizabeth, NJ - Producer and supplier of        common membership interest.
premium branded frozen hamburgers and portion
controlled meat products.
www.toppsmeat.com

ULTRA - SCAN CORPORATION                        536,596 common shares,          12/11/92       3%      938,164    1,276,174
Amherst, NY. Biometrics application             107,104 Series A-1 preferred
developer of ultrasonic fingerprint             shares. (g) 95,284 Series A
technology.                                     preferred shares.
www.ultra-scan.com

USTEC, INC. (e)                                 $100,000 note at 5% due          6/26/98      <1%      450,500      475,000
Victor, NY.  Markets digital wiring systems     February 2006.  50,000 common
for new home construction.                      shares.  Warrants for 139,395
www.ustecnet.com                                common shares.
                                                (g) $350,000 Senior
                                                Subordinated Convertible
                                                Debenture at 6% due February
                                                2, 2008.

VANGUARD MODULAR BUILDING SYSTEMS               2,673 preferred units with      12/16/99      <1%      270,000      270,000
Philadelphia, PA. Leases and sells high-end     warrants, 14% accrued
modular space solutions.                        distribution rate.
www.vanguardmodular.com

WINEISIT.COM, CORP. (g)                         $500,000 Senior Subordinated    12/18/02       2%      801,918      801,918
Amherst, NY.  Marketing company specializing    note at 10% due December 17,
in customer loyalty programs supporting the     2009.  $250,000 note at 10%
wine and spirit industry.                       due April 16, 2005.  Warrants
www.wineisit.com                                to purchase100,000 shares
                                                Class B common stock.

Other Investments                               Other                            Various               927,343       41,334

                                                Total portfolio investments                        $12,078,330  $11,829,463
                                                (f)                                                ===========  ===========
</TABLE>

                             See accompanying notes

<PAGE>

                    RAND CAPITAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
                           MARCH 31, 2005 (CONTINUED)

NOTES TO CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

(a)   Unrestricted securities (indicated by *) are freely marketable securities
      having readily available market quotations. All other securities are
      restricted securities, which are subject to one or more restrictions on
      resale and are not freely marketable. At March 31, 2005 restricted
      securities represented approximately 99% of the value of the investment
      portfolio. Freed Maxick & Battaglia, CPA's, PC has not examined the
      business descriptions of the portfolio companies.

(b)   The Date Acquired column indicates the year in which the Corporation
      acquired its first investment in the company or a predecessor company.

(c)   The equity percentages estimate the Corporation's ownership interest in
      the portfolio investment. The estimated ownership is calculated based on
      the percent of outstanding voting securities held by the Corporation or
      the potential percentage of voting securities held by the Corporation upon
      exercise of its warrants or conversion of debentures, or other available
      data. Freed Maxick & Battaglia, CPA's, PC has not audited the equity
      percentages of the portfolio companies. The symbol "<1%" indicates that
      the Company holds equity interest of less than one percent.

(d)   The Corporation has adopted the SBA's valuation guidelines for SBIC's
      which describe the policies and procedures used in valuing investments.
      Under the valuation policy of the Corporation, unrestricted securities are
      valued at the closing price for publicly held securities for the last
      three days of the month. Restricted securities, including securities of
      publicly-held companies, which are subject to restrictions on resale, are
      valued at fair value as determined by the Board of Directors. Fair value
      is considered to be the amount which the Corporation might reasonably
      expect to receive if the portfolio securities were sold on the valuation
      date. Valuations as of any particular date, however, are not necessarily
      indicative of amounts which may ultimately be realized as a result of
      future sales or other dispositions of securities and these favorable or
      unfavorable differences could be material. Among the factors considered by
      the Board of Directors in determining the fair value of restricted
      securities are the financial condition and operating results, projected
      operations, and other analytical data relating to the investment. Also
      considered are the market prices for unrestricted securities of the same
      class (if applicable) and other matters which may have an impact on the
      value of the portfolio company.

(e)   These investments are income producing. All other investments are
      non-income producing. Income producing investments have generated cash
      payments of interest or dividends within the last twelve months.

(f)   Income Tax Information - As of March 31, 2005, the aggregate cost of
      investment securities approximated $12.1 million. Net unrealized
      depreciation aggregated approximately $249,000 of which $756,000 related
      to appreciated investment securities and $1,005,000 related to depreciated
      investment securities.

(g)   Rand Capital SBIC, L.P. investment

(h)   This is a publicly owned security. The Corporation's shares are restricted
      until December 2005 at which time they become tradable in the open market
      under Rule 144.

*     Publicly owned company

**    Reduction in cost and value reflects current principal repayment.

                             See accompanying notes.

<PAGE>

                            RAND CAPITAL CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                                   (UNAUDITED)

NOTE 1.     ORGANIZATION

      Rand Capital Corporation ("Rand") was incorporated under the laws of the
state of New York on February 24, 1969. From 1971 to August 16, 2001, Rand
operated as a publicly traded, closed-end, diversified management company that
was registered under Section 8(b) of the Investment Company Act of 1940 (the
"1940 Act"). On August 16, 2001, Rand filed an election to be treated as a
business development company ("BDC") under the 1940 Act, which became effective
on the date of filing. A BDC is a specialized type of investment company that is
primarily engaged in the business of furnishing capital and managerial expertise
to companies that do not have ready access to capital through conventional
finance channels. There was no impact on the corporate structure as a result of
the change to a BDC. Rand continues to operate as a publicly held venture
capital company, listed on the NASDAQ Small Cap Market under the symbol "RAND."

FORMATION OF SBIC SUBSIDIARY

      On January 16, 2002, Rand formed a wholly owned subsidiary, Rand Capital
SBIC, L.P., ("Rand SBIC") for the purpose of operating it as a small business
investment company. At the same time, Rand organized another wholly owned
subsidiary, Rand Capital Management, LLC ("Rand Management"), as a Delaware
limited liability company, to act as the general partner of Rand SBIC. Rand
transferred $5 million in cash to Rand SBIC to serve as "regulatory capital" in
January 2002 and on August 16, 2002, Rand received notification that its Small
Business Investment Company (SBIC) application had been approved and licensed by
the Small Business Administration (SBA). The approval allows Rand SBIC to obtain
loans up to two times its initial $5 million of "regulatory capital" from the
SBA for purposes of making new investments in portfolio companies.

      The following discussion will include the Rand, Rand SBIC and Rand
Management (collectively, the "Corporation").

      The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its
approved debenture leverage. The fees were paid in two installments of $50,000
each in July of 2003 and in August on 2004. These fees were 1% of the face
amount of the leverage reserved under the commitment. The fee represents a
partial prepayment of the SBA's nonrefundable 3% leverage fee. As of March 31,
2005, Rand Capital SBIC, L.P. had drawn $4,000,000 in leverage from the SBA.

      SBA debentures are issued with 10-year maturities. Interest only is
payable semi-annually until maturity. Ten-year SBA debentures may be prepaid
with a penalty during the first 5 years, and then are pre-payable without
penalty. Rand initially capitalized Rand SBIC with $5 million in Regulatory
Capital. Rand SBIC was approved to obtain SBA leverage at a 2:1 matching ratio,
resulting in a total capital pool eligible for investment of $15 million. The
Corporation expects to use Rand SBIC as its primary investment vehicle.

      The Corporation formed Rand SBIC as a subsidiary for the purpose of
causing it to be licensed as a SBIC under the Small Business Investment Act of
1958 (the "SBA Act") by the SBA, in order to have access to various forms of
leverage provided by the SBA to SBIC's.
<PAGE>

      On May 28, 2002, the Corporation filed an Exemption Application with the
Securities and Exchange Commission ("SEC") seeking an order under Sections 6(c),
12(d)(1)(J), 57(c), and 57(i) of, and Rule 17d-1 under, the 1940 Act for
exemptions from the application of Sections 2(a)(3), 2(a)(19), 12(d)(1), 18(a),
21(b), 57(a)(1), (2), (3), and (4), and 61(a) of the 1940 Act to certain aspects
of its operations. The application also seeks an order under Section 12(h) of
the Securities Exchange Act of 1934 Act (the "Exchange Act") for an exemption
from separate reporting requirements under Section 13(a) of the Exchange Act. In
general, the Corporation applications seek orders that would permit:

      -     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 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
            reports.

      The Corporation has not identified from among the similar exemption
applications on file with the SEC an example of a specific grouping of all of
the exemptions requested by the Corporation in its application, but the SEC has
commonly granted applications to other companies for orders applicable to each
of the exemptions requested and for orders applicable to various combinations of
those exemptions, and the Corporation's applications do not appear to raise any
specific policy issues that have not also been raised by applications for which
exemptions have been granted.

      Rand operates Rand SBIC through Rand Management for the same investment
purposes, and with investments in similar kinds of securities, as Rand. Rand
SBIC's operations are consolidated with those of Rand for both financial
reporting and tax purposes.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - In Management's opinion, the accompanying consolidated
financial statements include all adjustments necessary for a fair presentation
of the consolidated financial position, results of operations, and cash flows
for the interim periods presented. Certain information and note disclosures
normally included in audited annual financial statements prepared in accordance
with accounting principles generally accepted in the United States of America,
have been omitted; however, the Corporation believes that the disclosures made
are adequate to make the information presented not misleading. The interim
results for the period ending March 31, 2005 are not necessarily indicative of
the results for the full year.

      These statements should be read in conjunction with the financial
statements and the notes included in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2004. Information contained in this filing
should also be reviewed in conjunction with the Corporation's related filings
with the SEC during the period of time prior to the date of this report. Those
filings include, but are not limited to the following:

      N-30-B2/ARS       Quarterly & Annual Reports to Shareholders
      N-54A             Election to Adopt Business Development Company status
      DEF-14A           Definitive Proxy Statement submitted to shareholders

<PAGE>

      Form 10-K         Annual Report on Form 10-K for the year ended
                        December 31, 2004

      Form 10-Q         Quarterly Report on Form 10-Q for the quarters
                        ended September 30, 2004, June 30, 2004, and March 31,
                        2004

      Form N-23C-1      Reports by closed-end investment companies
                        of purchases of their own securities

      Our website is www.randcapital.com. We make available through our website:
our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current
reports on Form 8-K and other reports filed with the SEC.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Rand, Rand SBIC and Rand Management, collectively, the
"Corporation". All intercompany accounts and transactions have been eliminated
in consolidation.

INVESTMENTS - Investments are stated at fair value, as determined in good faith
by the Board of Directors, as described in the Notes to Consolidated Schedule of
Portfolio Investments. Certain investment valuations have been determined by the
Board of Directors in the absence of readily ascertainable fair values. The
estimated valuations 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.

      Amounts reported as realized gains and losses are measured by the
difference between the proceeds of sale or exchange and the cost basis of the
investment without regard to unrealized gains or losses reported in prior
periods. The cost of securities that have, in the Board of Directors' judgment,
become worthless, are written off and reported as realized losses.

CASH AND CASH EQUIVALENTS - Temporary cash investments having a maturity of
three months or less when purchased are considered to be cash equivalents.

REVENUE RECOGNITION - INTEREST INCOME - Interest income generally 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.

      The Rand SBIC interest accrual is regulated by the SBA's "Accounting
Standards and Financial Reporting Requirements for Small Business Investments
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 the loan is in default more
than 120 days. Management also utilizes other qualitative and quantitative
measures to determine the value of a portfolio investment and the collectability
of any accrued interest.

DEFERRED DEBENTURE COSTS - SBA debenture origination and commitment costs, which
are included in other assets, will be amortized ratably over the terms of the
SBA debentures. Amortization expense was $ 3,095 for the three months ended
March 31, 2005.

NET ASSETS PER SHARE - Net assets per share are based on the number of shares of
common stock outstanding. There are no common stock equivalents.

ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

STOCKHOLDERS EQUITY (NET ASSETS) - At March 31, 2005 and December 31, 2004,
there were 500,000 shares of $10.00 par value preferred stock authorized and
unissued.

<PAGE>

      On October 18, 2001 the Board of Directors authorized the repurchase of up
to 5% of the Corporation's outstanding stock through purchases on the open
market, which was extended through October 28, 2005. During the years ended
December 31, 2003 and 2002 the Corporation purchased a total of 44,100 treasury
shares at a total cost of $47,206.

STOCK OPTION PLAN - In July 2001, the shareholders of the Corporation authorized
the establishment of an Employee Stock Option Plan (the "Plan"). The Plan
provides for an award of options to purchase up to 200,000 common shares to
eligible employees. In 2002, the Corporation placed the Plan on inactive status
as it developed a new profit sharing plan for the Corporation's employees in
connection with the establishment of its SBIC subsidiary. As of March 31, 2005,
no stock options had been awarded under the 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 options will be granted under the Plan while any
profit sharing plan is in effect with respect to the Corporation.

SUBSEQUENT EVENT - Subsequent to the quarter end of March 31, 2005, the
Corporation drew down $1,000,000 from the SBA.

<PAGE>

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 our financial statements
and related notes included elsewhere in this report.

FORWARD LOOKING STATEMENTS

      STATEMENTS INCLUDED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND ELSEWHERE IN THIS DOCUMENT
THAT DO NOT RELATE TO PRESENT OR HISTORICAL CONDITIONS ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THAT TERM IN SECTION 27A OF THE SECURITIES ACT
OF 1933, AND IN SECTION 21F OF THE SECURITIES EXCHANGE ACT OF 1934. ADDITIONAL
ORAL OR WRITTEN FORWARD-LOOKING STATEMENTS MAY BE MADE BY THE CORPORATION FROM
TIME TO TIME AND THOSE STATEMENTS MAY BE INCLUDED IN DOCUMENTS THAT ARE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE RESULTS OR OUTCOMES TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS MAY INCLUDE, WITHOUT LIMITATION, STATEMENTS RELATING
TO THE CORPORATION'S PLANS, STRATEGIES, OBJECTIVES, EXPECTATIONS AND INTENTIONS
AND ARE INTENDED TO BE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WORDS SUCH AS "BELIEVES,"
"FORECASTS," "INTENDS," "POSSIBLE," "EXPECTS," "ESTIMATES," "ANTICIPATES," OR
"PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. AMONG THE IMPORTANT FACTORS ON WHICH SUCH STATEMENTS ARE BASED ARE
ASSUMPTIONS CONCERNING THE STATE OF THE NATIONAL ECONOMY AND THE LOCAL MARKETS
IN WHICH THE CORPORATION'S PORTFOLIO COMPANIES OPERATE, THE STATE OF THE
SECURITIES MARKETS IN WHICH THE SECURITIES OF THE CORPORATION'S PORTFOLIO
COMPANY TRADE OR COULD BE TRADED, LIQUIDITY WITHIN THE NATIONAL FINANCIAL
MARKETS, AND INFLATION. FORWARD-LOOKING STATEMENTS ARE ALSO SUBJECT TO THE RISKS
AND UNCERTAINTIES DESCRIBED UNDER THE CAPTION "RISK FACTORS AND OTHER
CONSIDERATIONS" BELOW.

OVERVIEW

      The following discussion will include Rand Capital Corporation ("Rand"),
Rand Capital SBIC, L.P., (Rand SBIC), and Rand Capital Management, LLC ("Rand
Management"), (collectively, the "Corporation") financial position and results
of operations.

      Rand is incorporated under the law of New York and is regulated under the
1940 Act as a business development company ("BDC"). In addition, a wholly-owned
subsidiary, Rand Capital SBIC, L.P. is operated as a small business investment
company (SBIC) that is regulated by the Small Business Administration ("SBA").
The Corporation anticipates that most, if not all, of its investments in the
next year will be originated through the SBIC subsidiary.

CRITICAL ACCOUNTING POLICIES

      We prepare our financial statements in accordance with accounting
principles generally accepted in the United States of America (GAAP) which
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities. For a summary of certain of our significant
accounting policies see Note 2 of the consolidated financial statements. A
summary of our critical accounting policies can be found in the December 31,
2004 Form 10-K in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

<PAGE>

FINANCIAL CONDITION

Overview:

<TABLE>
<CAPTION>
                          3/31/05         12/31/04       INCREASE
                        ------------    ------------    ---------
<S>                     <C>             <C>             <C>
Total Assets            $ 13,282,733    $ 12,743,109    $ 539,624
Total Liabilities          4,149,532       3,716,055      433,477
Net Assets                 9,133,201       9,027,054      106,147
</TABLE>

      The Corporation's financial condition is dependent on the success of its
portfolio holdings. It has invested a substantial portion of its assets in small
to medium sized private companies. The following summarizes the Corporation's
investment portfolio at the period-ends indicated.

<TABLE>
<CAPTION>
                                  MARCH  31, 2005      DECEMBER 31, 2004
                                  ---------------      -----------------
<S>                               <C>                  <C>
Investments at cost               $    12,078,330      $      11,621,853
Unrealized (depreciation), net           (248,867)              (586,047)
                                  ---------------      -----------------
Investments at fair value         $    11,829,463      $      11,035,806
                                  ===============      =================
</TABLE>

      The increase in investments is due to the effect of Rand SBIC's new
investments during the three months ended March 31, 2005 in the following
portfolio companies:

<TABLE>
<CAPTION>
NEW INVESTMENTS                                                  AMOUNT
---------------                                                  ------
<S>                                                           <C>
Innov-X Systems, Inc.                                         $  285,000
Ultra-Scan Corporation (Ultra-Scan)                              200,000
                                                              ----------

TOTAL OF INVESTMENT MADE DURING THE THREE MONTHS
                            ENDED MARCH 31, 2005              $  485,000
                                                              ==========
</TABLE>

      The unrealized depreciation decreased in the three months ended March 31,
2005 by $337,180. See the section below labeled "Net Change in Unrealized
Appreciation/Depreciation of Investments" for an explanation of this change.

      Net asset value per share (NAV) was $1.60/share at March 31, 2005 versus
$1.58/share at December 31, 2004.

      The Corporation's total investments at fair value, whose fair value have
been estimated by the Board of Directors, approximated 130% of net assets at
March 31, 2005 and 122% of net assets at December 31, 2004.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2005 TO THE THREE MONTHS ENDED
MARCH 31, 2004

INVESTMENT INCOME

      The Corporation's investment objective is to achieve long-term capital
appreciation on its equity investments while maintaining a current cash flow
from its debenture instruments. Therefore, the Corporation will invest in a
mixture of debenture and equity instruments, which will provide a current return
on a portion of the portfolio. The equity features contained in our investment
portfolio are structured to realize capital appreciation over the long-term and
may not

<PAGE>

necessarily generate current income in the form of dividends or
interest. In addition, the Corporation earns interest income from investing its
idle funds in money market instruments.

<TABLE>
<CAPTION>
                                                                                  %
                              3/31/05     3/31/04    INCREASE(DECREASE)   INCREASE(DECREASE)
                             ---------   ---------   ------------------   ------------------
<S>                          <C>         <C>         <C>                  <C>
Portfolio Interest Income    $ 145,920   $ 172,797     ($    26,877)          (15.6%)
Other Interest Income              839       1,405             (566)          (40.3%)

Dividend Income                      -       6,587           (6,587)         (100.0%)
Other Income                    10,894       5,405            5,489           101.6%
                             ---------   ---------     ------------          ------
Total Investment Income      $ 157,653   $ 186,194     $    (28,541)          (15.3%)
</TABLE>

Portfolio Interest Income - Portfolio interest income decreased $26,877 as
compared to the first quarter of the prior year, which is attributable to the
fact that the Corporation ceased accruing interest on two debt instruments for
Wineisit.com (Wineisit) in January of 2005 in anticipation of a restructuring of
the portfolio company's balance sheet. These two notes are technically in
default due to nonpayment of principal and interest. The restructuring will
include a debt conversion for which the Corporation will convert its two
outstanding debt instruments and all interest that would have been recognized
from January 1, 2005 through the closing date to an equity instrument. The
conversion is projected to occur in the second quarter of 2005. The current
period decrease in portfolio income can also be attributed to the fact that the
portfolio income for the three months ended March 31, 2004 included seven months
of interest on a Somerset Gas Transmission (Somerset) debenture. This interest
amounted to $62,705 of income on a $900,000 convertible note from Somerset Gas
Transmission (Somerset). This note had stopped accruing interest in September
2003 because it was in default and the Corporation had established a 100%
reserve for the total accrued interest of $122,914. In April 2004 Somerset
became current on the note and the Corporation, therefore, recognized all past
due interest in the first quarter of 2004.

Other Interest Income - The reduction is primarily due to the redeployment of
cash from idle cash money market accounts into investment instruments. This,
coupled with lower short term interest rates, accounted for the decrease in the
interest income from idle cash balances category.

Dividend Income - Dividend income is comprised of distributions from Limited
Liability Companies (LLC's) that the Corporation has invested in. The
Corporation's investment agreements with certain LLC companies require the
entities to distribute funds to the Corporation for payment of income taxes on
its allocable share of the entities' profits. These dividends will fluctuate
based upon the profitability of the entities and the timing of the
distributions. This income decreased in the current quarter due to the fact that
the Corporation had not received its first quarter LLC distributions by March
31, 2005. The LLC investment income for the three months ended March 31, 2004
was comprised of distributions from Topps Meat Company LLC (Topps) for $6,587.

Other Income - Other income consists of the revenue associated with the
amortization of financing fees charged to the portfolio companies upon
successful closing of Rand SBIC financing. The SBA regulations limit the amount
of fees that can be charged to a portfolio company and the Corporation typically
charges 1% to 3% to the portfolio concerns. These fees are amortized ratably
over the life of the instrument associated with the fees. The unamortized fees
are carried on the balance sheet under Deferred Revenue. The increase in other
income for the three months ended March 31, 2005 can be attributable to the fact
that the Corporation is generating more investments through Rand SBIC in 2004
and 2005 and therefore more closing fees are being collected.

<PAGE>

OPERATING EXPENSES

<TABLE>
<CAPTION>
                              3/31/05     3/31/04    INCREASE    % INCREASE
                             ---------   ---------   ---------   ----------
<S>                          <C>         <C>         <C>         <C>
Total Expenses               $ 289,759   $ 121,482   $ 168,277    138.5%
</TABLE>

      The operating expenses for the three months ended March 31, 2004 included
$122,914 in a bad debt recovery. Without the bad debt recovery the increase in
total expenses for the three months ended March 31, 2005 compared to 2004 would
have been $45,363 or 18.6%. The operating expenses predominately consist of
employee compensation and benefits, director fees, shareholder related costs,
office expenses, professional fees, expenses related to identifying and
reviewing investment opportunities, interest expense and bad debt expense
(recovery). Absent the effect of the bad debt recovery, the increase in
operating expenses during the three months ended March 31, 2005 can be primarily
attributed to the increase in SBA interest expense. The SBA interest expense was
$50,973 for the three months ended March 31, 2005 and $0 for the three months
ended March 31, 2004. This interest is paid on a semi-annual basis to the SBA
and will continue increasing as outstanding borrowings increase to fund future
investments and operations.

NET REALIZED GAINS AND LOSSES ON INVESTMENTS

      During the three months ended March 31, 2005, the Corporation did not
realize any gain or loss on investments. During the three months ended March 31,
2004 the Corporation realized a $32,956 gain on the sale of the remaining
Advanced Digital Information Corporation (ADIC) stock.

NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS

      The Corporation recorded a net change in unrealized appreciation
(depreciation) on investments of $337,180 during the three months ended March
31, 2005, as compared to ($11,035) during the prior year three month period. The
increase in unrealized appreciation on investments of $337,180 is due primarily
to the Corporation's valuation change of Minrad International, Inc. (Minrad).
The Corporation recognized appreciation of $339,000 on its 667,981 shares of
Minrad to reflect the recent Private Placement pricing of $1.75/share of
Minrad's securities as disclosed in Minrad's Proxy Statement and its public
listing. Minrad is traded under the symbol MNRD.OB and the closing price at
March 31, 2005 was $4.30. The Corporation's shares are restricted in nature, and
cannot be sold until December 2005. This adjustment was done in accordance with
the Corporation's established valuation policy.

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

      The Corporation accounts for its operations under accounting principles
generally accepted in the United States of America for investment companies. The
principal measure of its financial performance is "net increase (decrease) in
net assets from operations" on its consolidated statements of operations. For
the three months ended March 31, 2005, the net increase in net assets from
operations was $106,147 as compared to a net increase in net assets from
operations of $58,877 for the same three month period in 2004.

LIQUIDITY AND CAPITAL RESOURCES

      The Corporation's principal objective is to achieve capital appreciation.
Therefore, a significant portion of the investment portfolio is structured to
maximize the potential for capital appreciation and certain of the Corporation's
portfolio investments may be structured to provide little or no current yield in
the form of dividends or interest payments. The Corporation does earn interest
income on idle cash balances and has historically relied on and continues to
rely to a

<PAGE>

large extent upon proceeds from sales of investments rather than investment
income to defray a significant portion of its operating expenses. Because such
sales cannot be predicted with certainty, the Corporation attempts to maintain
adequate working capital necessary for short-term needs.

      As of March 31, 2005 and 2004, the Corporation's total liquidity,
consisting of cash and cash equivalents, was $355,858 and $220,341 respectively.

      During 2003 and 2004 the Corporation paid an aggregate of $100,000 to the
SBA to reserve its approved $10,000,000 leverage. It had drawn down $4,000,000
of this leverage as of March 31, 2005.

      Management expects that it will be necessary to continue to draw down SBA
leverage in the current fiscal year in order to fund operations and new
investments. Net cash used in operating activities has averaged $479,000 over
the last three years and management anticipates this amount will continue at
similar levels. The cash flow may fluctuate based on possible expenses
associated with compliance with potential new regulatory rules. Management
believes that the cash and cash equivalents at March 31, 2005 coupled with the
anticipated additional SBIC leverage draw downs and interest and dividend
payments on its portfolio investments will provide the Corporation with the
liquidity necessary to fund operations over the next twelve months.

RISK FACTORS AND OTHER CONSIDERATIONS

INVESTING IN THE CORPORATION'S STOCK IS HIGHLY SPECULATIVE AND AN INVESTOR COULD
LOSE SOME OR ALL OF THE AMOUNT INVESTED

      The value of the Corporation's common stock may decline and may be
affected by numerous market conditions, which could result in the loss of some
or the entire amount invested in the Corporation's shares. The securities
markets frequently experience extreme price and volume fluctuations, which
affect market prices for securities of companies generally, and technology and
very small capitalization companies in particular. General economic conditions,
and general conditions in the Internet and information technology, life
sciences, material sciences and other high technology industries, will also
affect the Corporation's stock price.

INVESTING IN THE CORPORATION'S SHARES MAY BE INAPPROPRIATE FOR THE INVESTOR'S
RISK TOLERANCE

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

COMPETITION

      The Corporation faces competition in its investing activities from many
entities including other SBIC's, private venture capital funds, investment
affiliates of large companies, wealthy individuals and other domestic or foreign
investors. The competition is not limited to entities that operate in the same
geographical area as the Corporation. As a regulated BDC, the Corporation is
required to disclose quarterly and annually the name and business description of
portfolio companies and the value of its portfolio securities. Most of its
competitors are not subject to this disclosure requirement. The Corporation's
obligation to disclose this information could hinder its ability to invest in
certain portfolio companies. Additionally, other regulations, current and

<PAGE>

future, may make the Corporation less attractive as a potential investor to a
given portfolio company than a private venture capital fund.

THE CORPORATION IS SUBJECT TO RISKS CREATED BY ITS REGULATED ENVIRONMENT

      Rand and Rand SBIC are subject to regulation as BDC's, and Rand SBIC is
also subject to regulation as an SBIC. The loans and other investments that the
Corporation makes, or is expected to make, in small business concerns are
extremely speculative. Substantially all of these concerns are and will be
privately held. Even if a public market for their securities later develops, the
debt obligations and other securities purchased by the Corporation are likely to
be restricted from sale or other transfer for significant periods of time. These
securities will be very illiquid.

      The Corporation's leverageable capital may include large amounts of debt
securities issued through the SBA, and all of the debentures will have fixed
interest rates. Until and unless the Corporation is able to invest substantially
all of the proceeds from debentures at annualized interest or other rates of
return that substantially exceed annualized interest rates that Rand SBIC must
pay the SBA, the Corporation's operating results may be adversely affected which
may, in turn, depress the market price of the Corporation's common stock.

THE CORPORATION IS DEPENDENT UPON KEY MANAGEMENT PERSONNEL FOR FUTURE SUCCESS

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

INVESTMENT IN SMALL, PRIVATE COMPANIES

      There are significant risks inherent in the venture capital business. The
Corporation typically invests in private companies. These private businesses
tend to be thinly capitalized, small companies that may have higher risk
attributes including risky technologies; lack of management depth; lack of
profitability; or short history of operations. Because of the speculative nature
and the lack of a public market for these investments, there is a significantly
greater risk of loss than is the case with traditional investment securities.
The Corporation expects that some of its venture capital investments may be a
complete loss, or unprofitable, and that some which appear to be likely to
become successful may never realize their potential due to numerous operational
and external market factors. In addition, the accrued interest (if any)
associated with the Corporations portfolio investments may also become
uncollectible, due to both gradual shifts and sometimes sudden changes in the
marketplace, affecting the portfolio companies ability to execute on its
business plan. The Corporation has been risk seeking, rather than risk averse,
in its approach to venture capital and other investments. Neither the
Corporation's investments nor an investment in the Corporation is intended to
constitute a balanced investment program.

ILLIQUIDITY OF PORTFOLIO INVESTMENTS

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

<PAGE>

      Even if the Corporation's portfolio companies are able to develop
commercially viable products, the market for new products and services is highly
competitive and rapidly changing. Commercial success is difficult to predict and
the marketing efforts of the portfolio companies may not be successful.

VALUATION OF PORTFOLIO INVESTMENTS

      There is typically no public market for equity securities of the small
privately held companies in which the Corporation invests. As a result, the
valuation of the equity securities in the portfolio are stated at fair value as
determined by the good faith estimate of the Board of Directors in accordance
with the Corporation's established valuation policies. In the absence of a
readily ascertainable market value, the estimated value of the portfolio of
securities may differ significantly, favorably or unfavorably, from the values
that would be placed on the portfolio if a ready market for the equity
securities existed. Any changes in valuation are recorded in the Corporation's
statement of operations as "Net decrease (increase) in unrealized depreciation."

FLUCTUATIONS OF QUARTERLY RESULTS

      The Corporation's quarterly operating results could fluctuate as a result
of a number of factors. These factors include, among others, variations in and
the timing of the recognition of realized and unrealized gains or losses, the
degree to which portfolio companies encounter competition in their markets and
general economic conditions. As a result of these factors, results for any one
quarter should not be relied upon as being indicative of performance in future
quarters.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Corporation's investment activities contain elements of risk. The
portion of the Corporation's investment portfolio consisting of equity and
equity-linked debt securities in private companies is subject to valuation risk.
Because there is typically no public market for the equity and equity-linked
debt securities in which it invests, the valuation of the equity interests in
the portfolio is stated at "fair value" as determined in good faith by the Board
of Directors in accordance with the Corporation's investment valuation policy.
(The discussion of valuation policy contained in Item 1 "Financial Statements"
in the "Notes to Schedule of Portfolio Investments" and is hereby incorporated
herein by reference.) In the absence of a readily ascertainable market value,
the estimated value of the Corporation's 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 in the Corporation's
consolidated statement of operations as "Net unrealized appreciation
(depreciation) on investments."

      At times a portion of the Corporation's portfolio may include marketable
securities traded in the over-the-counter market. In addition, there may be a
portion of the Corporation's portfolio for which no regular trading market
exists. In order to realize the full value of a security, the market must trade
in an orderly fashion or a willing purchaser must be available when a sale is to
be made. Should an economic or other event occur that would not allow the
markets to trade in an orderly fashion, the Corporation may not be able to
realize the fair value of its marketable investments or other investments in a
timely manner.

      As of March 31, 2005 the Corporation did not have any off-balance sheet
investments or hedging investments.

ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

<PAGE>

      Evaluation of Disclosure Controls and Procedures. Our management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on such evaluation,
our principal executive officer and principal financial officer have concluded
that as of such date, our disclosure controls and procedures were designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms and were
effective.

      Changes in Internal Control Over Financial Reporting. There was no change
in the Corporation's internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Securities Exchange Act of 1934 that occurred during the
Corporation's last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Corporation's internal control over financial
reporting

<PAGE>

                                    PART II.
                                OTHER INFORMATION

ITEM  1.   LEGAL PROCEEDINGS

           None

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

           None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           None

ITEM 5.    OTHER INFORMATION

           None

<PAGE>

ITEM 6.  EXHIBITS

            (a)   EXHIBITS

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

                  (3)(i)  Certificate of Incorporation of the Corporation,
                          incorporated by reference to Exhibit (a)(1) of Form
                          N-2 filed with the Securities Exchange Commission on
                          April 22, 1997.

                  (3)(ii) By-laws of the Corporation incorporated by reference
                          to Exhibit (b) of Form N-2 filed with the Securities
                          Exchange Commission on April 22, 1997.

                  (4)     Specimen certificate of common stock certificate,
                          incorporated by reference to Exhibit (b) of Form N-2
                          filed with the Securities Exchange Commission on April
                          22, 1997.

                  (10.1)  Employee Stock Option Plan - incorporated by reference
                          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 of Chief Executive Officer
                          Pursuant to Rules 13a-14(a)/15d- 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.

<PAGE>

                                   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.

Dated:  May 11, 2005

                                         RAND CAPITAL CORPORATION

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

                                            By:  /s/ Daniel P. Penberthy
                                                 -----------------------
                                                 Daniel P. Penberthy, Treasurer

                                         RAND CAPITAL SBIC, L.P.

                                         By: RAND CAPITAL MANAGEMENT LLC
                                              General Partner
                                         By: RAND CAPITAL CORPORATION
                                              Member

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

                                            By: /s/ Daniel P. Penberthy
                                                ------------------------
                                                Daniel P. Penberthy, Treasurer