##### 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, 2011
 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, 2011 and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
    
    
    5Condensed Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2011 and 2010
    
    
    6Condensed Consolidated Schedule of Portfolio Investments as of March 31, 2011
    
    
    7Notes to the Consolidated Financial Statements
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults upon Senior Securities
    
    
    28Item 4. (Removed and Reserved)
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    29Exhibit 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, 2011 and December 31, 2010
 March 31,2011
    
    
    December 31,(Unaudited)
    
    
    2010ASSETSInvestments at fair value (identified cost: 3/31/11 
$13,285,297; 12/31/10  $13,573,041)
    
    $
    19,245,399
    
    
    $
    19,364,625Cash and cash equivalents
    
    
    11,069,896
    
    
    
    11,698,653Interest receivable (net of allowance  3/31/11  $122,000, 12/31/10  $158,245)
    
    
    1,154,332
    
    
    
    1,051,848Prepaid income taxes
    
    
    144,854
    
    
    
    414,745Other assets
    
    
    2,537,797
    
    
    
    2,561,389Total assets
    
    $
    34,152,278
    
    
    $
    35,091,260LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    10,000,000
    
    
    $
    10,000,000Deferred tax liability
    
    
    1,103,296
    
    
    
    1,044,315Accounts payable and accrued expenses
    
    
    214,949
    
    
    
    990,477Deferred revenue
    
    
    4,875
    
    
    
    5,650Total
liabilities
    
    
    11,323,120
    
    
    
    12,040,442Stockholders 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
    
    
    (7,712,646
    )
    
    
    (7,674,968
    )Undistributed net realized gain on investments
    
    
    15,566,613
    
    
    
    15,860,132Net unrealized appreciation on investments
    
    
    3,754,304
    
    
    
    3,644,767Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets
(per share 3/31/11  $3.35, 12/31/10  $3.38)
    
    
    22,829,158
    
    
    
    23,050,818Total liabilities and stockholders equity (net assets)
    
    $
    34,152,278
    
    
    $
    35,091,260
   3




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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended March 31, 2011 and 2010
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31, 2011
    
    
    March 31, 2010Investment income:Interest from portfolio companies
    
    $
    177,141
    
    
    $
    166,497Interest from other investments
    
    
    8,081
    
    
    
    5,184Dividend and other investment income
    
    
    41,114
    
    
    
    13,902Other income
    
    
    1,804
    
    
    
    2,803228,140
    
    
    
    188,386Operating expenses:Salaries
    
    
    118,750
    
    
    
    115,050Employee benefits
    
    
    42,450
    
    
    
    58,142Directors fees
    
    
    15,000
    
    
    
    10,955Professional fees
    
    
    50,917
    
    
    
    58,423Stockholders and office operating
    
    
    34,110
    
    
    
    26,023Insurance
    
    
    12,046
    
    
    
    10,165Corporate development
    
    
    15,696
    
    
    
    9,230Other operating
    
    
    7,626
    
    
    
    2,796296,595
    
    
    
    290,784Interest on SBA obligations
    
    
    147,559
    
    
    
    136,444Total expenses
    
    
    444,154
    
    
    
    427,228Investment loss before income taxes
    
    
    (216,014
    )
    
    
    (238,842
    )Current income tax benefit
    
    
    (75,604
    )
    
    
    (79,453
    )Net investment loss
    
    
    (140,410
    )
    
    
    (159,389
    )Realized and unrealized loss on investments:Realized loss on sales and dispositions, net
    
    
    (293,519
    )
    
    
    Income tax benefit
    
    
    (102,732
    )
    
    
    Net realized loss on investments
    
    
    (190,787
    )
    
    
    Unrealized appreciation on investments:Beginning of period
    
    
    5,791,584
    
    
    
    9,528,226End of period
    
    
    5,960,102
    
    
    
    8,728,226Change in unrealized appreciation before income
taxes
    
    
    168,518
    
    
    
    (800,000
    )Deferred income tax expense (benefit)
    
    
    58,981
    
    
    
    (280,124
    )Net increase
(decrease) in unrealized appreciation
    
    
    109,537
    
    
    
    (519,876
    )Net realized and unrealized loss on investments
    
    
    (81,250
    )
    
    
    (519,876
    )Net decrease in net assets from operations
    
    $
    (221,660
    )
    
    $
    (679,265
    )Weighted average shares outstanding
    
    
    6,818,934
    
    
    
    6,818,934Basic and diluted net decrease in net assets per share from operations
    
    $
    (0.03
    )
    
    $
    (0.10
    )
   4




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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months Ended March 31, 2011 and 2010
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31, 2011
    
    
    March 31, 2010Cash flows from operating activities:Net decrease in net assets from operations
    
    $
    (221,660
    )
    
    $
    (679,265
    )Adjustments to reconcile net decrease in net assets to net cash
used in operating activities:Depreciation and amortization
    
    
    10,122
    
    
    
    10,323Original issue discount amortization
    
    
    (2,467
    )
    
    
    Change in interest receivable allowance
    
    
    (36,245
    )
    
    
    (Increase) decrease in unrealized appreciation of
investments
    
    
    (168,518
    )
    
    
    800,000Deferred tax expense (benefit)
    
    
    58,981
    
    
    
    (359,577
    )Realized loss on portfolio investments, net
    
    
    293,519
    
    
    
    Non-cash conversion of debenture interest
    
    
    (23,736
    )
    
    
    (38,402
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (66,239
    )
    
    
    (95,445
    )Decrease (increase) in other assets
    
    
    13,469
    
    
    
    (75,225
    )Decrease in prepaid income taxes
    
    
    269,891
    
    
    
    Decrease in income taxes payable
    
    
    
    
    
    
    (994,620
    )Decrease in
accounts payable and accrued expenses
    
    
    (775,528
    )
    
    
    (282,185
    )Decrease in deferred revenue
    
    
    (774
    )
    
    
    (303
    )Total adjustments
    
    
    (427,525
    )
    
    
    (1,035,434
    )Net cash used in operating activities
    
    
    (649,185
    )
    
    
    (1,714,699
    )Cash flows from investing activities:Investments originated
    
    
    
    
    
    
    (1,055,000
    )Proceeds from loan repayments
    
    
    20,428
    
    
    
    35,310Capital expenditures
    
    
    
    
    
    
    (846
    )Net cash provided by (used in) investing activities
    
    
    20,428
    
    
    
    (1,020,536
    )Cash flows from financing activities:Proceeds from SBA debenture
    
    
    
    
    
    
    900,000Origination costs to SBA
    
    
    
    
    
    
    (21,825
    )Net cash provided by financing activities
    
    
    
    
    
    
    878,175Net decrease in cash and cash equivalents
    
    
    (628,757
    )
    
    
    (1,857,060
    )Cash and cash equivalents:Beginning of period
    
    
    11,698,653
    
    
    
    9,417,236End of period
    
    $
    11,069,896
    
    
    $
    7,560,176
   5




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RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 For the Three Months Ended March 31, 2011 and 2010
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31, 2011
    
    
    March 31, 2010Net assets at beginning of period
    
    $
    23,050,818
    
    
    $
    23,205,881Net investment loss
    
    
    (140,410
    )
    
    
    (159,389
    )Net realized loss on sales and
dispositions of investments
    
    
    (190,787
    )
    
    
    Net increase (decrease) in unrealized
appreciation
    
    
    109,537
    
    
    
    (519,876
    )Net decrease in net assets from operations
    
    
    (221,660
    )
    
    
    (679,265
    )Net assets at end of period
    
    $
    22,829,158
    
    
    $
    22,526,616
   6




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
 March 31, 2011
 (Unaudited)
 (a)
    
    
    
    (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: (j)Chequed.com, Inc. (g) 
Saratoga Springs, NY. Predictive employee selection
and development software. (Software)
www.chequed.com
    
    $250,000 convertible promissory
note at 8% due December 31, 2012.
    
    11/18/10
    
    
    0
    %
    
    $
    250,000
    
    
    $
    250,000
    
    
    $
    .04Liazon Corporation (e)(g)
Buffalo, NY. Employee benefits solution company.
(Health Benefits Provider) 
www.liazon.com
    
    $500,000 secured promissory note
at 8% due November 9, 2015.
120,000 Series C-1 preferred
stock.
    
    11/9/10
    
    
    1
    %
    
    
    503,667
    
    
    
    503,667
    
    
    
    .07Mezmeriz, Inc. (g)
Ithaca, NY. Developer of micro mirror technology that
replaces silicon with carbon fibers in
micro-electronic mechanical systems (MEMS) enabling
efficient, wide-angle, Pico projectors to be embedded
in mobile devices. (Electronics Developer)
www.mezmeriz.com
    
    141,125 Series A preferred shares.
    
    1/9/08
    
    
    4
    %
    
    
    121,509
    
    
    
    121,509
    
    
    
    .02Rheonix, Inc.
Ithaca, 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
    
    9,676 common shares. (g)694,015 Series A preferred
shares. 
50,593 common shares.
    
    10/29/09
    
    
    4
    %
    
    
    753,000
    
    
    
    889,000
    
    
    
    .12Somerset Gas Transmission
Company, LLC (e)
Columbus, OH. Natural gas
transportation company.
(Oil and Gas)
www.somersetgas.com
    
    26.5337 units.
    
    7/10/02
    
    
    3
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .12Synacor Inc. (g)
Buffalo, NY. Develops
provisioning platforms for
aggregation and delivery of
content and services across
multiple digital devices.
(Software)
www.synacor.com
    
    234,558 Series A preferred shares. 

600,000 Series B preferred shares. 

240,378 Series C preferred shares. 

897,438 common shares.
    
    11/18/02
    
    
    4
    %
    
    
    1,349,479
    
    
    
    4,168,001
    
    
    
    .61Subtotal
Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    $
    3,696,752
    
    
    $
    6,718,925
    
    
    $
    .98Affiliate Investments: (k)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 December
23, 2012. $500,000 subordinated
promissory note at 14% due December 31,
2016. 6.0825% class A common membership
interest. (i)Interest receivable $1,107,082
    
    1/30/04
    
    
    7
    %
    
    $
    1,500,000
    
    
    $
    1,500,000
    
    
    $
    .22EmergingMed.com, Inc. (e)(g)
New York, NY. Cancer
clinical trial matching and
referral service.
(Software)
www.emergingmed.com
    
    $675,045 senior subordinated note
at 8% due January 19, 2013.
Warrants for 8% of common stock.
    
    12/19/05
    
    
    8
    %
    
    
    675,045
    
    
    
    675,045
    
    
    
    .10
  7




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2011 (Continued)
(Unaudited)
 (a)
    
    
    
    (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    
    (d)(f)
    
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    
    Cost
    
    
    Value
    
    
    of RandMicrocision LLC (e)(g)
Philadelphia, PA. Custom
manufacturer of medical and
dental implants.
(Manufacturing).
www.microcision.com
    
    $1,500,000 subordinated promissory
note at 5%, 6% deferred interest
due December 31, 2013. 15% class A
common membership interest.
    
    9/24/09
    
    
    15
    %
    
    
    1,606,017
    
    
    
    1,606,017
    
    
    
    .24Mid America Brick &
Structural Clay Products,
LLC(g)
Mexico, MO. Manufacturer of
face brick for residential
and commercial construction.
(Manufacturing).
www.midamericabrick.com
    
    19.524 membership units.
    
    6/1/10
    
    
    19
    %
    
    
    800,000
    
    
    
    800,000
    
    
    
    .12SOMS Technologies, LLC (g)
Valhalla, NY. Produces and
markets the microGreen
Extended Performance Oil
Filter. (Auto Parts
Developer)
www.microgreenfilter.com
    
    4,808,224 Series B membership units.
    
    12/2/08
    
    
    12
    %
    
    
    370,687
    
    
    
    426,403
    
    
    
    .06Ultra  Scan Corporation
Amherst, NY. Biometrics
application developer of
ultrasonic fingerprint
technology. (Electronics
Hardware/Software)
www.ultra-scan.com
    
    536,596 common shares. 107,104
Series A-1 preferred shares.(g) 95,284 Series A-1 preferred
shares.
    
    12/11/92
    
    
    2
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .18Subtotal Affiliate Investments
    
    
    
    
    
    
    
    
    
    $
    5,889,913
    
    
    $
    6,210,465
    
    
    $
    .92Control Investments: (l)Advantage 24/7 LLC (g)
Williamsville, NY. Marketing
program for wine and spirits
dealers. (Marketing Company)
    
    50% Membership interest.
    
    12/30/10
    
    
    50
    %
    
    $
    100,000
    
    
    $
    100,000
    
    
    $
    .02Gemcor 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
    
    $500,000 subordinated promissory
note at 15% due December 1, 2014.
25 membership units. Warrant to
purchase 6.25 membership units.
    
    6/28/04
    
    
    31
    %
    
    
    893,168
    
    
    
    6,093,168
    
    
    
    .89G-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
    
    21.6% Class A membership interest.
8% cumulative dividend.
    
    8/31/99
    
    
    22
    %
    
    
    400,000
    
    
    
    100,000
    
    
    
    .01Subtotal Control Investments
    
    
    
    
    
    
    
    
    
    $
    1,393,168
    
    
    $
    6,293,168
    
    
    $
    .92Other Investments
    
    Various
    
    
    
    
    
    
    
    $
    2,305,464
    
    
    $
    22,841
    
    
    $
    0Total portfolio investments
    
    
    
    
    
    
    
    $
    13,285,297
    
    
    $
    19,245,399
    
    
    $
    2.82
  8




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RAND CAPITAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2011 (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, 2011 and 2010
 (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 
  11




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##### Table of Contents



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, 2010Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended September 30, 2010, June 30, 2010 and March 31, 2010Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  Principles of Consolidation
 Reclassification
 Cash and Cash Equivalents
 Revenue Recognition  Interest Income
  Revenue Recognition  Dividend Income 
 Original Issue Discount
  12




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Deferred Debenture Costs
 SBA Leverage 
 Net Assets per Share
 Supplemental Cash Flow Information
 Accounting Estimates
 Stockholders Equity (Net Assets) 
  Profit Sharing and Stock Option Plan 
   13




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Income Taxes 
    Concentration of Credit Risk 
 Subsequent Events 
 Note 3. INVESTMENTS
   14




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
    
    Loan and debt securities are generally valued at the price the security would
command in order to provide a yield to maturity equivalent to the current yield of
similar debt securities. A debt instrument may be reduced in value if it is judged
to be of poor quality and collection is in doubt. A debt security may also be valued
based on the estimated proceeds from the sale of a portfolio company at its
estimated fair value.
 
    
    Equity securities may be valued using the market approach or income 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. Additionally, the
Corporation adjusts valuations if a subsequent significant equity financing has
occurred that includes a meaningful portion of the financing by a sophisticated,
unrelated new investor. The income approach employs a cash flow and discounting
methodology to value an investment.
          15




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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
    
    2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loan investments
    
    $
    393,168
    
    
    
    
    
    
    
    
    
    
    $
    393,168Debt investments
    
    
    3,496,529
    
    
    
    
    
    
    
    
    
    
    
    3,496,529Equity investments
    
    
    15,355,702
    
    
    
    
    
    
    
    
    
    
    
    15,355,702Total Venture
Capital Investments
    
    $
    19,245,399
    
    
    $
    0
    
    
    $
    0
    
    
    $
    19,245,399
  Fair Value Measurements at Reported Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Loan investments
    
    $
    413,596
    
    
    
    
    
    
    
    
    
    
    $
    413,596Debt investments
    
    
    3,595,327
    
    
    
    
    
    
    
    
    
    
    
    3,595,327Equity investments
    
    
    15,355,702
    
    
    
    
    
    
    
    
    
    
    
    15,355,702Total Venture
Capital Investments
    
    $
    19,364,625
    
    
    $
    0
    
    
    $
    0
    
    
    $
    19,364,625
  16




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##### Table of Contents



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, 2010, of
Level 3 Assets
    
    $
    413,596
    
    
    $
    3,595,327
    
    
    $
    15,355,702
    
    
    $
    19,364,625Realized Gains or Losses included in net
change in net assets from operationsAssociates Interactive (Associates)
    
    
    
    
    
    
    
    
    
    
    (293,519
    )
    
    
    (293,519
    )Total Realized Losses
    
    
    
    
    
    
    
    
    
    
    (293,519
    )
    
    
    (293,519
    )Unrealized gains or losses included in
net change in net assets from operationsAssociates
    
    
    
    
    
    
    
    
    
    
    293,519
    
    
    
    293,519Niagara
Dispensing Technologies, Inc.
(Niagara Dispensing)
    
    
    
    
    
    
    (125,001
    )
    
    
    
    
    
    
    (125,001
    )Total Unrealized Gains and Losses
    
    
    
    
    
    
    (125,001
    )
    
    
    293,519
    
    
    
    168,518Purchases/Changes to Securities (Note a.)Microcision LLC (Microcision)
    
    
    
    
    
    
    23,736
    
    
    
    
    
    
    
    23,736Liazon Corporation (Liazon)
    
    
    
    
    
    
    2,467
    
    
    
    
    
    
    
    2,467Total Purchases/Changes
to Securities
    
    
    
    
    
    
    26,203
    
    
    
    
    
    
    
    26,203Repayments of SecuritiesGemcor II, LLC (Gemcor)
    
    
    (20,428
    )
    
    
    
    
    
    
    
    
    
    
    (20,428
    )Total Repayments of
Securities
    
    
    (20,428
    )
    
    
    
    
    
    
    
    
    
    
    (20,428
    )Transfers within Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfers in or out of Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending Balance, March 31, 2011, of Level
3 Assets
    
    $
    393,168
    
    
    $
    3,496,529
    
    
    $
    15,355,702
    
    
    $
    19,245,399
 Amount of total gains or losses for the period included in changes in net assets attributable
to the change in unrealized gains or losses relating to assets still held at the reporting date and
reported within the net realized and unrealized gains or losses on investments in the
Condensed Consolidated Statement of Operations
    
    $
    168,518Amount of realized losses included in changes in net assets from operations for the
period reported above within the net realized and unrealized gains or losses on investments in the
Condensed Consolidated Statement of Operations
    
    
    (293,519
    )Change in unrealized gains or losses relating to assets still held at reporting date
    
    $
    (125,001
    )
  17




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##### Table of Contents



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
    )Total Unrealized Gains and Losses
    
    
    
    
    
    
    
    
    
    
    (800,000
    )
    
    
    (800,000
    )Purchases/Changes to Securities (Note a.)GridApp 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
    
    
    
    
    
    
    
    8,870Total Purchases/Changes to
Securities
    
    
    
    
    
    
    340,119
    
    
    
    753,281
    
    
    
    1,093,400Repayments of SecuritiesGemcor II, LLC (Gemcor)
    
    
    (17,598
    )
    
    
    (17,711
    )
    
    
    
    
    
    
    (35,309
    )Total Repayments of Securities
    
    
    (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
    
    
    $
    24,523,738
 The 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
    )
 Note a.
  18




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##### Table of Contents



Note 4. FINANCIAL HIGHLIGHTS
  Three monthsended March 31,
    
    
    Year ended2011
    
    
    December 31,(Unaudited)
    
    
    2010Income from investment operations (1):Investment income
    
    $
    0.03
    
    
    $
    0.12Expenses
    
    
    0.06
    
    
    
    0.34Investment loss before income taxes
    
    
    (0.03
    )
    
    
    (0.22
    )Income tax benefit
    
    
    (0.01
    )
    
    
    (0.08
    )Net investment loss
    
    
    (0.02
    )
    
    
    (0.14
    )Net realized and unrealized (loss) gain on investments
    
    
    (0.01
    )
    
    
    0.12Decrease in net asset value
    
    
    (0.03
    )
    
    
    (0.02
    )Net asset value, beginning of period, based on weighted average
shares
    
    
    3.38
    
    
    
    3.40Net asset value, end of period, based on weighted average shares
    
    $
    3.35
    
    
    $
    3.38Per share market price, end of period
    
    $
    2.95
    
    
    $
    3.23Total return based on market value
    
    
    (8.67
    )%
    
    
    (18.84
    %)Total return based on net asset value
    
    
    (0.96
    )%
    
    
    (0.67
    )%Supplemental data:Ratio of expenses before income taxes to average net assets
    
    
    1.94
    %
    
    
    10.24
    %Ratio of expenses including taxes to average net assets
    
    
    (1.61
    )%
    
    
    7.87
    %Ratio of net investment loss to average net assets
    
    
    (0.61
    )%
    
    
    (4.21
    )%Portfolio turnover
    
    
    0.0
    %
    
    
    16.5
    %Net assets, end of period
    
    $
    22,829,158
    
    
    $
    23,050,818Weighted average shares outstanding, end of period
    
    
    6,818,934
    
    
    
    6,818,934
 
 (1)
    
    Per share data are based on weighted average shares outstanding and the results are
rounded   19




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
 Statements included in this Managements Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this document that do not relate to present or
historical conditions are forward-looking statements within the meaning of that term in Section
27A of the Securities Act of 1933, and in Section 21F of the Securities Exchange Act of 1934.
Additional oral or written forward-looking statements may be made by the Corporation from time to
time and those statements may be included in documents that are filed with the Securities and
Exchange Commission. Such forward-looking statements involve risks and uncertainties that could
cause results or outcomes to differ materially from those expressed in the forward-looking
statements. Forward-looking statements may include, without limitation, statements relating to the
Corporations plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as believes, forecasts, intends, possible, expects, estimates,
anticipates, or plans and similar expressions are intended to identify forward-looking
statements. Among the important factors on which such statements are based are assumptions
concerning the state of the national economy and the local markets in which the Corporations
portfolio companies operate, the state of the securities markets in which the securities of the
Corporations portfolio companies trade or could be traded, liquidity within the national financial
markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described in Part II, Item 1A of this report, the text of which is incorporated herein by
reference.
 There may be other factors that we have not identified that affect the likelihood that the
forward-looking statements may prove to be accurate. Further, any forward-looking statement speaks
only as of the date it is made and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which it is made
or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors
emerge from time to time that may cause our business not to develop as we expect, and we cannot
predict all of them.
 Overview
    20




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##### Table of Contents



Business Developments
  Critical Accounting Policies
   21




---



##### Table of Contents



Financial Condition
  3/31/11
    
    
    12/31/10
    
    
    Decrease
    
    
    % DecreaseTotal assets
    
    $
    34,152,278
    
    
    $
    35,091,260
    
    
    $
    (938,982
    )
    
    
    (2.7
    %)Total liabilities
    
    
    11,323,120
    
    
    
    12,040,442
    
    
    
    (717,322
    )
    
    
    (6.0
    %)Net assets
    
    $
    22,829,158
    
    
    $
    23,050,818
    
    
    $
    (221,660
    )
    
    
    (1.0
    %)
  (Decrease)
    
    
    % (Decrease)3/31/11
    
    
    12/31/10
    
    
    Increase
    
    
    IncreaseInvestments, at cost
    
    $
    13,285,297
    
    
    $
    13,573,041
    
    
    $
    (287,744
    )
    
    
    (2.1
    %)Unrealized appreciation, net
    
    
    5,960,102
    
    
    
    5,791,584
    
    
    
    168,518
    
    
    
    2.9
    %Investments at fair value
    
    $
    19,245,399
    
    
    $
    19,364,625
    
    
    $
    (119,226
    )
    
    
    (0.6
    %)
  AmountChanges to Investments:Microcision LLC (Microcision) interest conversion
    
    $
    23,736Liazon Corporation (Liazon) interest conversion
    
    
    2,467Total of changes to investments during the three
months ended March 31, 2011
    
    $
    26,203Investment Repaid/Sold or Liquidated:Associates Interactive (Associates)
    
    $
    (293,519
    )Gemcor II, LLC (Gemcor)
    
    
    (20,428
    )Total of investments repaid, sold or liquidated during
the three months ended March 31, 2011
    
    $
    (313,947
    )Total change in investments, at cost,
during the three months ended March 31, 2011
    
    $
    (287,744
    )
     22




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the three months ended March 31, 2011 to the three months ended March 31, 2010
 March 31,
    
    
    March 31,
    
    
    Increase
    
    
    % Increase2011
    
    
    2010
    
    
    (Decrease)
    
    
    (Decrease)Interest from portfolio companies
    
    $
    177,141
    
    
    $
    166,497
    
    
    $
    10,644
    
    
    
    6.4
    %Interest from other investments
    
    
    8,081
    
    
    
    5,184
    
    
    
    2,897
    
    
    
    55.9
    %Dividend and other investment
income
    
    
    41,114
    
    
    
    13,902
    
    
    
    27,212
    
    
    
    195.7
    %Other income
    
    
    1,804
    
    
    
    2,803
    
    
    
    (999
    )
    
    
    (35.6
    %)Total investment income
    
    $
    228,140
    
    
    $
    188,386
    
    
    $
    39,754
    
    
    
    21.1
    %
 Interest from portfolio companies
   Interest
    
    
    Investment
    
    
    Year that InterestCompany
    
    Rate
    
    
    Cost
    
    
    Accrual CeasedG-Tec Natural Gas Systems (G-Tec)
    
    
    8
    %
    
    $
    400,000
    
    
    
    2004Niagara Dispensing Technologies,
Inc. (Niagara Dispensing)
    
    
    14
    %
    
    
    547,328
    
    
    
    2010
 Interest from other investments
 Dividend and other investment income
   23




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##### Table of Contents



Other income
   Operating Expenses
 Comparison of the three months ended March 31, 2011 to the three months ended March 31, 2010
 March 31, 2011
    
    
    March 31, 2010
    
    
    Increase
    
    
    % IncreaseTotal Expenses
    
    $
    444,154
    
    
    $
    427,228
    
    
    $
    16,926
    
    
    
    4.0
    %
   Net Realized Gains and Losses on Investments
   Net Change in Unrealized Appreciation of Investments
   24




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##### Table of Contents



March 31, 2011Reclass Associates to a realized loss
    
    $
    293,519Niagara Dispensing
    
    
    (125,001
    )Total change in net unrealized appreciation
during the three months ended March 31, 2011
    
    $
    (168,518
    )
   March 31, 2010Innov-X Systems Inc (Innovex)
    
    $
    (800,000
    )Total change in net unrealized appreciation
during the three months ended March 31, 2010
    
    $
    (800,000
    )
   Net Decrease in Net Assets from Operations
  Liquidity and Capital Resources
     25




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4.
    
    Controls and Procedures
 Management report on Internal Control Over Financial Reporting
     26




---



##### Table of Contents



Changes in Internal Control over Financial Reporting.
   27




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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.
    
    (Removed and Reserved)
 
 Item 5.
    
    Other Information
   28




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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.*(10.2
    )
    
    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.(10.3
    )
    
    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.(10.4
    )
    
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital
Management, LLC into Rand Merger Corporation, as filed by the NY
Department of State on 12/18/08  incorporated by reference to Exhibit
1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
SBIC, Inc. filed with the SEC on 2/6/09.(10.5
    )
    
    Rand Capital Corporation Amended and Restated Profit Sharing Plan
applicable to Rand Capital SBIC, Inc.  incorporated by reference to
Exhibit 7 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.*(31.1
    )
    
    Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended,
filed herewith(31.2
    )
    
    Certification of Chief Financial Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended,
filed herewith(32.1
    )
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Rand Capital Corporation  furnished herewith(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.  29




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##### Table of Contents



Signatures
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
  RAND CAPITAL CORPORATIONBy:
    /s/ Allen F. GrumAllen F. Grum, President By:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer RAND CAPITAL SBIC, INC.By:
    /s/ Allen F. GrumAllen F. Grum, President By:
    /s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer  30