##### 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 March 31, 2010
 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: 814-00235
 Rand Capital Corporation
 (Exact Name of Registrant as specified in its Charter)
 New York
    
    16-0961359(State or Other Jurisdiction of Incorporation or organization)
    
    (IRS Employer Identification No.)2200 Rand Building, Buffalo, NY
    
    14203(Address of Principal executive offices)
    
    (Zip Code)
 (716) 853-0802
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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)
    
    
    3Condensed Consolidated Statements of Financial Position as of March 31, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2010 and 2009
    
    
    6Condensed Consolidated Schedule of Portfolio Investments as of March 31, 2010
    
    
    7Notes to the Consolidated Financial Statements
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4T. Controls and Procedures
    
    
    24PART II  OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.Defaults upon Senior Securities
    
    
    25Item 4.Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.Other Information
    
    
    25Item 6.Exhibits
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements and Supplementary Data
 RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 As of March 31, 2010 and December 31, 2009
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSInvestments at fair value (identified cost: 3/31/10 
$15,826,011; 12/31/09  $14,767,920)
    
    $
    24,554,236
    
    
    $
    24,296,145Cash and cash equivalents
    
    
    7,560,176
    
    
    
    9,417,236Interest receivable (net of allowance  $209,089)
    
    
    1,287,563
    
    
    
    1,192,118Other assets
    
    
    813,446
    
    
    
    725,872Total assets
    
    $
    34,215,421
    
    
    $
    35,631,371LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    10,000,000
    
    
    $
    9,100,000Deferred tax liability
    
    
    1,449,423
    
    
    
    1,809,000Income taxes payable
    
    
    88,026
    
    
    
    1,082,646Accounts payable and accrued expenses
    
    
    149,048
    
    
    
    431,233Deferred revenue
    
    
    2,308
    
    
    
    2,611Total liabilities
    
    
    11,688,805
    
    
    
    12,425,490Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034
    
    
    686,304
    
    
    
    686,304Capital in excess of par value
    
    
    10,581,789
    
    
    
    10,581,789Accumulated net investment (loss)
    
    
    (5,121,114
    )
    
    
    (4,961,725
    )Undistributed net realized gain on investments
    
    
    10,897,390
    
    
    
    10,897,390Net unrealized appreciation on investments
    
    
    5,529,453
    
    
    
    6,049,329Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share 3/31/10  $3.30 , 12/31/09  $3.40)
    
    
    22,526,616
    
    
    
    23,205,881Total liabilities and stockholders equity (net assets)
    
    $
    34,215,421
    
    
    $
    35,631,371
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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2010
    
    
    2009Investment income:Interest from portfolio companies
    
    $
    166,497
    
    
    $
    135,516Interest from other investments
    
    
    5,184
    
    
    
    9,134Dividend and other investment income
    
    
    13,902
    
    
    
    224,526Other income
    
    
    2,803
    
    
    
    9,083188,386
    
    
    
    378,259Operating expenses:Salaries
    
    
    115,050
    
    
    
    111,922Employee benefits
    
    
    58,142
    
    
    
    36,176Directors fees
    
    
    10,955
    
    
    
    10,500Professional fees
    
    
    58,423
    
    
    
    71,221Stockholders and office operating
    
    
    26,023
    
    
    
    34,405Insurance
    
    
    10,165
    
    
    
    14,878Corporate development
    
    
    9,230
    
    
    
    9,534Other operating
    
    
    2,796
    
    
    
    2,453290,784
    
    
    
    291,089Interest on SBA obligations
    
    
    136,444
    
    
    
    118,359Total expenses
    
    
    427,228
    
    
    
    409,448Investment (loss) before income taxes
    
    
    (238,842
    )
    
    
    (31,189
    )Current income tax expense
    
    
    
    
    
    
    102,050Deferred income tax benefit
    
    
    (79,453
    )
    
    
    (112,000
    )Net investment (loss)
    
    
    (159,389
    )
    
    
    (21,239
    )Realized and unrealized loss on investments:Unrealized appreciation on investments:Beginning of period
    
    
    9,528,226
    
    
    
    13,739,831End of period
    
    
    8,728,226
    
    
    
    13,739,831Change in unrealized appreciation before
income taxes
    
    
    (800,000
    )
    
    
    Deferred income tax benefit
    
    
    (280,124
    )
    
    
    Net decrease in unrealized appreciation
    
    
    (519,876
    )
    
    
    Net realized and unrealized loss on investments
    
    
    (519,876
    )
    
    
    Net decrease in net assets from operations
    
    $
    (679,265
    )
    
    $
    (21,239
    )Weighted average shares outstanding
    
    
    6,818,934
    
    
    
    5,718,934Basic and diluted net decrease in net assets per share
from operations
    
    $
    (0.10
    )
    
    $
    (0.00
    )
   4




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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 March 31,
    
    
    March 31,2010
    
    
    2009Cash flows from operating activities:Net decrease in net assets from operations
    
    $
    (679,265
    )
    
    $
    (21,239
    )Adjustments to reconcile net decrease in net assets
to net cash used in operating activities:Depreciation and amortization
    
    
    10,323
    
    
    
    8,945Decrease in unrealized appreciation of
investments
    
    
    800,000
    
    
    
    Deferred tax benefit
    
    
    (359,577
    )
    
    
    (112,000
    )Non-cash conversion of debenture interest
    
    
    (38,402
    )
    
    
    (16,758
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (95,445
    )
    
    
    (96,070
    )Increase in other assets
    
    
    (75,225
    )
    
    
    (275,256
    )Decrease in income taxes payable
    
    
    (994,620
    )
    
    
    (39,506
    )Decrease in accounts payable and accrued
expenses
    
    
    (282,185
    )
    
    
    (164,387
    )Decrease in deferred revenue
    
    
    (303
    )
    
    
    (8,318
    )Total adjustments
    
    
    (1,035,434
    )
    
    
    (703,350
    )Net cash used in operating activities
    
    
    (1,714,699
    )
    
    
    (724,589
    )Cash flows from investing activities:Investments originated
    
    
    (1,055,000
    )
    
    
    (81,756
    )Proceeds from loan repayments
    
    
    35,310
    
    
    
    16,355Capital expenditures
    
    
    (846
    )
    
    
    Net cash used in investing activities
    
    
    (1,020,536
    )
    
    
    (65,401
    )Cash flows from financing activities:Proceeds from SBA debenture
    
    
    900,000
    
    
    
    Origination costs to SBA
    
    
    (21,825
    )
    
    
    Net cash provided by financing activities
    
    
    878,175
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (1,857,060
    )
    
    
    (789,990
    )Cash and cash equivalents:Beginning of period
    
    
    9,417,236
    
    
    
    2,757,653End of period
    
    $
    7,560,176
    
    
    $
    1,967,663
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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 For the Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
 2010
    
    
    March 31,
 2009Net assets at beginning of period
    
    $
    23,205,881
    
    
    $
    20,226,966Net investment loss
    
    
    (159,389
    )
    
    
    (21,239
    )Decrease in unrealized appreciation of
investments (net of tax benefit of 
$280,124)
    
    
    (519,876
    )
    
    
    Net decrease in net assets from operations
    
    
    (679,265
    )
    
    
    (21,239
    )Net assets at end of period
    
    $
    22,526,616
    
    
    $
    20,205,727
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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
 March 31, 2010
 (Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    
    (d)(f)
    
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    
    Cost
    
    
    Value
    
    
    of RandNon-Control/Non-Affiliate Investments: (k)Mezmeriz, Inc. (g)
    
    141,334 Series A preferred shares.
    
    1/9/08
    
    
    4
    %
    
    $
    121,509
    
    
    $
    121,509
    
    
    $
    0.02Ithaca, 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.comRheonix, Inc.
    
    9,676 common shares.
    
    10/29/09
    
    
    3
    %
    
    
    503,000
    
    
    
    639,000
    
    
    
    .09Ithaca, NY. Developer of microfluidic testing devices including channels, pumps, reaction vessels, & diagnostic chambers, for testing of small volumes of chemicals and biological fluids. (Manufacturing)

www.rheonix.com
    
    (g)481,430 Series A preferred shares.
50,593 common shares.Somerset Gas Transmission Company, LLC (e)
    
    26.5337 units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .12Columbus, OH. Natural gas transportation company. (Oil and Gas)
www.somersetgas.comSynacor Inc. (g)
    
    234,558 Series A preferred shares.
    
    11/18/02
    
    
    4
    %
    
    
    1,349,479
    
    
    
    4,168,001
    
    
    
    .61Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software)
www.synacor.com
    
    600,000 Series B preferred shares.

240,378 Series C preferred shares.
897,438 common shares.Subtotal Non-Control/Non-Affiliate Investments
    
    
    
    
    
    
    
    
    
    $
    2,693,085
    
    
    $
    5,715,258
    
    
    $
    0.84Affiliate Investments: (l)Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing)
www.carolinaskiff.com
    
    $985,000 Class A preferred membership interest at 14%.  Redeemable January 31, 2010.  $500,000 subordinated promissory note at 14% due December 31, 2016.  6.0825% Class A common membership interest.(j)Interest receivable $773,856.
    
    1/30/04
    
    
    6
    %
    
    $
    1,500,000
    
    
    $
    1,500,000
    
    
    $
    0.22EmergingMed.com, Inc. (g)(h)
New York, NY. Cancer clinical trial matching and referral service. (Software)
www.emergingmed.com
    
    $500,000 senior subordinated note at 10% due December 19, 2010.  Warrants for 7.0% of common stock.(j)Interest receivable $213,125.
    
    12/19/05
    
    
    7
    %
    
    
    458,333
    
    
    
    458,333
    
    
    
    .07GridApp Systems, Inc. (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
    
    1,309,375 Series A-1 preferred shares.  584,480 common shares.  8% cumulative dividend.
    
    11/25/08
    
    
    14
    %
    
    
    1,577,708
    
    
    
    1,281,773
    
    
    
    .19Innov-X Systems, Inc. (g)


Woburn, MA. Manufactures portable x-ray fluorescence (XRF) analyzers used in metals/alloy analysis. (Manufacturing)
www.innovxsys.com
    
    (e)$250,000 note at 11% due March 31, 2017.  2,642 Series A preferred stock.  8% cumulative dividend. Warrants for 21,924 common shares.
(j) Interest receivable $262,411.
    
    9/27/04
    
    
    9
    %
    
    
    1,250,000
    
    
    
    5,500,000
    
    
    
    .81
  7




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
 March 31, 2010 (Continued)
 (Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    
    (d)(f)
    
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    
    Cost
    
    
    Value
    
    
    of RandMicrocision LLC (g)
Philadelphia, PA. Custom manufacturer of medical and dental implants. (Manufacturing).

www.microcision.com
    
    $775,000 subordinated promissory note at 5%, 6% deferred interest (PIK) due December 31, 2013.  7.5% class A common membership interest.
    
    9/24/09
    
    
    7.5
    %
    
    
    783,808
    
    
    
    783,808
    
    
    
    .11Niagara Dispensing Technologies, Inc.
    
    202,081 Series B preferred stock.
    
    3/8/06
    
    
    14
    %
    
    
    1,798,443
    
    
    
    1,319,491
    
    
    
    .19Amherst, NY. Beverage dispensing technology development and products manufacturer, specializing in rapid pour beer dispensing systems for high volume stadium and concession operations. (Manufacturing)
www.niagaradispensing.com
    
    (g)463,691 Series A preferred stock.  518,752 Series B preferred stock.     (e)$300,000 promissory note at 6%, 8% deferred interest (PIK) due July 30, 2011.  $200,000 secured convertible note at 14% due February 19, 2012.  Warrants for 190,561 class A common stock.SOMS Technologies, LLC (g)

Valhalla, NY. Produces and markets the microGreen Extended Performance Oil Filter. (Auto Parts Developer)
www.microgreenfilter.com
    
    $250,000 secured convertible note at 10% due December 2, 2010.  $75,000 secured convertible note at 10% due October 29, 2011.
    
    12/2/08
    
    
    
    
    
    
    363,661
    
    
    
    363,661
    
    
    
    .05Ultra  Scan Corporation
    
    536,596 common shares.  107,104 Series A-1 preferred shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .18Amherst, NY. Biometrics application developer of ultrasonic fingerprint technology. (Electronics Hardware/Software)
www.ultra-scan.com
    
    (g) 95,284 Series A-1 preferred shares.Subtotal Affiliate Investments
    
    
    
    
    
    
    
    
    
    $
    8,670,117
    
    
    $
    12,410,066
    
    
    $
    1.82Control Investments (m)Gemcor II, LLC (e)(g)(h)

West Seneca, NY. Designs and sells automatic riveting machines used in the assembly of aircraft components. (Manufacturing)

www.gemcor.com
    
    $250,000 subordinated note at 8% due June 28, 2010 with warrant to purchase 6.25 membership units.  $500,000 subordinated promissory note at 15% due December 1, 2014.                       25 membership units.
    
    6/28/04
    
    
    31
    %
    
    $
    988,573
    
    
    $
    6,188,573
    
    
    $
    0.91G-TEC
Natural Gas Systems
Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)

www.gas-tec.com
    
    28.925% Class A membership interest.  8% cumulative dividend.
    
    8/31/99
    
    
    29
    %
    
    
    400,000
    
    
    
    100,000
    
    
    
    .01Subtotal Control Investments
    
    
    
    
    
    
    
    
    
    $
    1,388,573
    
    
    $
    6,288,573
    
    
    $
    0.92Other Investments (a)(i)
    
    Various
    
    
    
    
    
    
    
    $
    3,074,236
    
    
    $
    140,339
    
    
    $
    0.02Total portfolio investments
    
    
    
    
    
    
    
    $
    15,826,011
    
    
    $
    24,554,236
    
    
    $
    3.60
  8




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RAND CAPITAL CORPORATION AND SUBSIDIARY
 CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
 March 31, 2010 (Continued)
 (Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments
               9




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Rand Capital Corporation and Subsidiary
 
 Notes to the Consolidated Financial Statements
 For the Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 Note 1. ORGANIZATION
   SBIC Subsidiary
      10




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
    
    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.
  Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation 
  N-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, 2009Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended September 30, 2009, June 30, 2009 and March 31, 2009Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  11




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Principles of Consolidation
 Cash and Cash Equivalents
 Revenue Recognition  Interest Income
  Deferred Debenture Costs
 SBA Leverage  .
 Net Assets per Share
 Supplemental Cash Flow Information
 Accounting Estimates
  12




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Stockholders Equity (Net Assets) 
  Profit Sharing and Stock Option Plan 
  Income Taxes 
    13




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Concentration of Credit Risk 
 Subsequent Events 
 Note 3. INVESTMENTS
    
    
    Market approach  The market approach uses observable prices and other relevant
information generated by similar market transactions. It may include the use of
market multiples derived from a set of comparables to assist in pricing the
investment.
 
    
    Income approach  The income approach employs a cash flow and discounting
methodology to value an investment.
 
    
    The Corporation adjusts valuations if a subsequent significant equity financing
has occurred that includes a meaningful portion of the financing by a sophisticated,
unrelated new investor.
  14




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Assets Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reported Date UsingQuoted Prices in
    
    
    Significant
    
    
    Other SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loan investments
    
    $
    470,506
    
    
    
    
    
    
    
    
    
    
    $
    470,506Debt investments
    
    
    2,909,528
    
    
    
    
    
    
    
    
    
    
    
    2,909,528Equity investments
    
    
    21,174,202
    
    
    $
    30,498
    
    
    
    
    
    
    
    21,143,704Total Venture Capital Investments
    
    $
    24,554,236
    
    
    $
    30,498
    
    
    $
    0
    
    
    $
    24,523,738Quoted Prices in
    
    
    Significant
    
    
    Other SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Venture Capital Investments
    
    $
    24,296,145
    
    
    $
    30,498
    
    
    $
    0
    
    
    $
    24,265,647
  15




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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 InvestmentsLoan
    
    
    Debt
    
    
    EquityDescription
    
    Investments
    
    
    Investments
    
    
    Investments
    
    
    TotalBeginning Balance, December 31, 2009, of Level 3
Assets
    
    $
    488,104
    
    
    $
    3,487,120
    
    
    $
    20,290,423
    
    
    $
    24,265,647Realized Gains or Losses included in net change
in net assets from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains or losses included in net
change in net assets from operationsInnov-X Systems, Inc. (Innovex)
    
    
    
    
    
    
    
    
    
    
    (800,000
    )
    
    
    (800,000
    )Purchases of SecuritiesGridApp Systems Inc. (GridApp)
    
    
    
    
    
    
    
    
    
    
    481,772
    
    
    
    481,772Rheonix, Inc. (Rheonix)
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000Niagara Dispensing Technologies, Inc 
(Niagara Dispensing)
    
    
    
    
    
    
    206,249
    
    
    
    
    
    
    
    206,249Microcision LLC (Microcision)
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    125,000Mezmeriz, Inc.
    
    
    
    
    
    
    
    
    
    
    21,509
    
    
    
    21,509SOMS Technologies, LLC (SOMS)
    
    
    
    
    
    
    8,870
    
    
    
    
    
    
    
    8,870Repayments of SecuritiesGemcor II, LLC (Gemcor)
    
    
    (17,598
    )
    
    
    (17,711
    )
    
    
    
    
    
    
    (35,309
    )Transfers within Level 3
    
    
    
    
    
    
    (900,000
    )
    
    
    900,000
    
    
    
    Transfers in or out of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending Balance, March 31, 2010, of Level 3 Assets
    
    $
    470,506
    
    
    $
    2,909,528
    
    
    $
    21,143,704
    
    
    $
    24,523,738The 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.
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (800,000
    )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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gains or
losses relating to assets still
held at reporting date
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (800,000
    )
 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
    
    
    
    
    
    
    Purchases of SecuritiesAssociates Interactive, LLC
    
    $
    43,518Golden Goal LLC
    
    $
    38,238APF Group, Inc
    
    $
    11,917GridApp Systems Inc.
    
    $
    4,840
    
    
    $
    98,513Repayments of SecuritiesGemcor II, LLC
    
    $
    (16,354
    )
    
    $
    (16,354
    )Transfers in or out of Level 3
    
    
    
    
    
    
    Ending Balance, March 31,
2009, of Level 3 Assets
    
    
    
    
    
    $
    28,096,441The 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.
    
    
    
    
    
    
    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
    
    
    
    
    
    $
    Change in unrealized gains or losses
relating to assets still held at reporting date
    
    
    
    
    
    $
    
  16




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##### Table of Contents



Note 4. FINANCIAL HIGHLIGHTS
  Three months
    
    
    Year endedended March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)Income from investment operations (1):Investment income
    
    $
    0.03
    
    
    $
    0.28Expenses
    
    
    0.06
    
    
    
    0.30Investment (loss) before income taxes
    
    
    (0.03
    )
    
    
    (0.02
    )Income tax (benefit)
    
    
    (0.01
    )
    
    
    (0.01
    )Net investment (loss)
    
    
    (0.02
    )
    
    
    (0.01
    )Issuance of common stock
    
    
    
    
    
    
    0.61Net realized and unrealized (loss) on investments
    
    
    (0.08
    )
    
    
    (0.11
    )(Decrease) increase in net asset value
    
    
    (0.10
    )
    
    
    0.49Net asset value, beginning of period, based on weighted average
shares
    
    
    3.40
    
    
    
    3.54Net asset value, end of period, based on weighted average shares
    
    $
    3.30
    
    
    $
    4.03Per share market price, end of period
    
    $
    3.72
    
    
    $
    3.98Total return based on market value
    
    
    (6.53
    )%
    
    
    13.71
    %Total return based on net asset value
    
    
    (2.93
    )%
    
    
    (3.74
    )%Supplemental data:Ratio of expenses before income taxes to average net assets
    
    
    1.87
    %
    
    
    8.52
    %Ratio of expenses including taxes to average net assets
    
    
    1.52
    %
    
    
    8.35
    %Ratio of net investment (loss) gain to average net assets
    
    
    (0.70
    )%
    
    
    (0.29
    )%Portfolio turnover
    
    
    4.4
    %
    
    
    11.3
    %Net assets, end of period
    
    $
    22,526,616
    
    
    $
    23,205,881Weighted average shares outstanding, end of period
    
    
    6,818,934
    
    
    
    6,115,081
 (1)
    
    Per share data are based on weighted average shares outstanding and the results are
rounded   17




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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
    18




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Business Developments
  Critical Accounting Policies
   19




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##### Table of Contents



Financial Condition
  3/31/10
    
    
    12/31/09
    
    
    Decrease
    
    
    % DecreaseTotal assets
    
    $
    34,215,421
    
    
    $
    35,631,371
    
    
    $
    (1,415,950
    )
    
    
    (4.0
    %)Total liabilities
    
    
    11,688,805
    
    
    
    12,425,490
    
    
    
    (736,685
    )
    
    
    (5.9
    %)Net assets
    
    $
    22,526,616
    
    
    $
    23,205,881
    
    
    $
    (679,265
    )
    
    
    (2.9
    %)
  Increase
    
    
    %  Increase3/31/10
    
    
    12/31/09
    
    
    (Decrease)
    
    
    (Decrease)Investments, at cost
    
    $
    15,826,011
    
    
    $
    14,767,920
    
    
    $
    1,058,091
    
    
    
    7.2
    %Unrealized appreciation, net
    
    
    8,728,225
    
    
    
    9,528,225
    
    
    
    (800,000
    )
    
    
    (8.4
    %)Investments at fair value
    
    $
    24,554,236
    
    
    $
    24,296,145
    
    
    $
    258,091
    
    
    
    1.1
    %
  AmountNew Investments:GridApp Systems, Inc. (GridApp)
    
    $
    480,000Rheonix, Inc. (Rheonix)
    
    
    250,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    200,000Microcision LLC (Microcision)
    
    
    125,000Total of new investments made during the three months
ended March 31, 2010
    
    $
    1,055,000Changes to Investments:Mezmeriz, Inc (Mezmeriz) interest conversion
    
    $
    21,509SOMS Technologies, LLC (SOMS) interest conversion
    
    
    8,870Niagara Dispensing interest conversion
    
    
    6,248GridApp interest conversion
    
    
    1,774Total of changes to investments made during the three months
ended March 31, 2010
    
    $
    38,401Investment Repayments:Gemcor II, LLC (Gemcor)
    
    
    (35,310
    )Total of investment repayments during the three months
ended March 31, 2010
    
    
    (35,310
    )Total change in investments, at cost,
during the three months ended March 31, 2010
    
    $
    1,058,091
     20




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the three months ended March 31, 2010 to the three months ended March 31, 2009
 Increase
    
    
    % IncreaseMarch 31, 2010
    
    
    March 31, 2009
    
    
    (Decrease)
    
    
    (Decrease)Interest from portfolio companies
    
    $
    166,497
    
    
    $
    135,516
    
    
    $
    30,981
    
    
    
    22.9
    %Interest from other investments
    
    
    5,184
    
    
    
    9,134
    
    
    
    (3,950
    )
    
    
    (43.2
    %)Dividend and other investment income
    
    
    13,902
    
    
    
    224,526
    
    
    
    (210,624
    )
    
    
    (93.8
    %)Other income
    
    
    2,803
    
    
    
    9,083
    
    
    
    (6,280
    )
    
    
    (69.1
    )%Total investment income
    
    $
    188,386
    
    
    $
    378,259
    
    
    $
    (189,873
    )
    
    
    (50.2
    %)
 Interest from portfolio companies
  Interest
    
    
    Investment
    
    
    Year that InterestCompany
    
    Rate
    
    
    Cost
    
    
    Accrual CeasedAPF
    
    
    8
    %
    
    $
    631,547
    
    
    
    2009Associates Interactive LLC (Associates)
    
    
    8
    %
    
    $
    293,518
    
    
    
    2009Golden Goal LLC
    
    
    13
    %
    
    $
    675,652
    
    
    
    2009G-Tec Natural Gas Systems (G-Tec)
    
    
    8
    %
    
    $
    400,000
    
    
    
    2004UStec, Inc. (Ustec)
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com (Wineisit)
    
    
    10
    %
    
    
    801,918
    
    
    
    2005
 Interest from other investments
 Dividend and other investment income
   21




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##### Table of Contents



Other income
   Operating Expenses
 Comparison of the three months ended March 31, 2010 to the three months ended March 31, 2009
 March 31, 2010
    
    
    March 31, 2009
    
    
    Increase
    
    
    % IncreaseTotal Expenses
    
    $
    427,228
    
    
    $
    409,448
    
    
    $
    17,780
    
    
    
    4.3
    %
   Net Realized Gains and Losses on Investments
  Net Change in Unrealized Appreciation of Investments
  March 31, 2010Innovex
    
    $
    (800,000
    )Total change in net unrealized appreciation during the
three months ended March 31, 2010
    
    $
    (800,000
    )
    22




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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
   23




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##### Table of Contents



Item 4T.
    
    Controls and Procedures
 Management report on Internal Control Over Financial Reporting
      Changes in Internal Control over Financial Reporting.
   24




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##### 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
  
 Item 5.
    
    Other Information
   25




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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.
  26




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##### Table of Contents



(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.*(10.11
    )
    
    Form of Subscription Agreement used by Rand Capital Corporation in
connection with a private offering of 1,100,000 shares of common stock
that was completed on September 4, 2009  incorporated by reference to
Exhibit 99.1 to the Corporations Form 8-K report filed on August 13,
2009.(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(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.  27




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##### Table of Contents



Signatures
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
 Dated:  May 13, 2010RAND CAPITAL CORPORATIONBy:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, TreasurerRAND CAPITAL SBIC, INC.By:
    /s/ Allen F. GrumAllen F. Grum, PresidentBy:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer  28