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 quarterly period ended September 30, 2016



| ̈ | 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

(Registrants telephone number, including area code)

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
of 1934 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  þ    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | þ  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes   ̈    No  þ

As of November 2, 2016, there were 6,321,988 shares of the registrants common stock outstanding.



---

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-Q



|                            |  |                                                                                                                                     |  |  |    | 
|--------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|                            |  | PART I.  FINANCIAL INFORMATION                                                                                                     |  |  |    | 
|                            |  |                                                                                                                                    
|Item 1.                     |  | Financial Statements and Supplementary Data                                                                                         |  |  | 3  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Statements of Financial Position as of September 
30, 2016 (Unaudited) and December 31, 2015                           |  |  | 3  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Statements of Operations for the Three Months and Nine Months Ended
 September 30, 2016 and 2015 (Unaudited)           |  |  | 4  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Statements of Changes in Net Assets for the Three Months and Nine
Months Ended September 30, 2016 and 2015 (Unaudited) |  |  | 5  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
 2016 and 2015 (Unaudited)                            |  |  | 6  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Schedule of Portfolio Investments as of September 
30, 2016 (Unaudited)                                                |  |  | 7  | 
|                            |  |                                                                                                                                    
|                            |  | Consolidated Schedule of Portfolio Investments as of December 
31, 2015                                                             |  |  | 15 | 
|                            |  |                                                                                                                                    
|                            |  | Notes to the Consolidated Financial Statements (Unaudited)                                                                          |  |  | 23 | 
|                            |  |                                                                                                                                    
|Item 2.                     |  | Managements Discussion and Analysis of Financial Condition and Results
 of Operations                                              |  |  | 35 | 
|                            |  |                                                                                                                                    
|Item 3.                     |  | Quantitative and Qualitative Disclosures about Market Risk                                                                          |  |  | 42 | 
|                            |  |                                                                                                                                    
|Item 4.                     |  | Controls and Procedures                                                                                                             |  |  | 42 | 
|                            | 
|PART II  OTHER INFORMATION |  |                                                                                                                                     |  | 
|                            |  |                                                                                                                                    
|Item 1.                     |  | Legal Proceedings                                                                                                                   |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 1A.                    |  | Risk Factors                                                                                                                        |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 2.                     |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                         |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 3.                     |  | Defaults upon Senior Securities                                                                                                     |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 4.                     |  | Mine Safety Disclosures                                                                                                             |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 5.                     |  | Other Information                                                                                                                   |  |  | 43 | 
|                            |  |                                                                                                                                    
|Item 6.                     |  | Exhibits                                                                                                                            |  |  | 44 | 



2



---

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of September 30, 2016 and December 31, 2015



|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                          |  | September 30,2016(Unaudited) |            |   | December 31,2015 |  
|ASSETS                                                                                                                                                    |  |                              |            |   |                  |   |            |  
|Investments at fair value:                                                                                                                                |  |                              |            |   |                  |   |            |  
|Control investments (cost of $99,500 and $1,141,472, respectively)                                                                                        |  | $                            | 99,500     |   |                  | $ | 13,916,472 |  
|Affiliate investments (cost of $18,239,623 and $17,663,217, respectively)                                                                                 |  |                              | 13,688,814 |   |                  |   | 14,662,219 |  
|Non-Control/Non-Affiliate investments (cost of $13,936,867 and $8,606,053, respectively)                                                                  |  |                              | 13,789,967 |   |                  |   | 8,253,709  |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|Total investments, at fair value (cost of $32,275,990 and $27,410,742, respectively)                                                                      |  |                              | 27,578,281 |   |                  |   | 36,832,400 |  
|Cash                                                                                                                                                      |  |                              | 11,708,164 |   |                  |   | 5,844,795  |  
|Interest receivable (net of allowance: $122,000 at 9/30/16 and 12/31/15)                                                                                  |  |                              | 312,523    |   |                  |   | 215,224    |  
|Deferred tax asset                                                                                                                                        |  |                              | 1,087,252  |   |                  |   |           |  
|Prepaid income taxes                                                                                                                                      |  |                              |           |   |                  |   | 65,228     |  
|Other assets                                                                                                                                              |  |                              | 2,607,195  |   |                  |   | 1,604,413  |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|Total assets                                                                                                                                              |  | $                            | 43,293,415 |   |                  | $ | 44,562,060 |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)                                                                                                         |  |                              |            |   |                  |   |            |  
|Liabilities:                                                                                                                                              |  |                              |            |   |                  |   |            |  
|Debentures guaranteed by the SBA (net of debt issuance costs)                                                                                             |  | $                            | 7,820,923  |   |                  | $ | 7,800,373  |  
|Income tax payable                                                                                                                                        |  |                              | 826,983    |   |                  |   |           |  
|Deferred tax liability                                                                                                                                    |  |                              |           |   |                  |   | 2,361,186  |  
|Profit sharing and bonus payable                                                                                                                          |  |                              | 1,593,659  |   |                  |   | 282,000    |  
|Accounts payable and accrued expenses                                                                                                                     |  |                              | 153,233    |   |                  |   | 238,911    |  
|Deferred revenue                                                                                                                                          |  |                              | 53,483     |   |                  |   | 25,930     |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|Total liabilities                                                                                                                                         |  |                              | 10,448,281 |   |                  |   | 10,708,400 |  
|Commitments and contingencies (See Note 5)                                                                                                                |  |                              |            |   |                  |   |            |  
|Stockholders equity (net assets):                                                                                                                        |  |                              |            |   |                  |   |            |  
|Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding
of 6,321,988 as of 9/30/16 and 6,328,538 as of 12/31/15 |  |                              | 686,304    |   |                  |   | 686,304    |  
|Capital in excess of par value                                                                                                                            |  |                              | 10,581,789 |   |                  |   | 10,581,789 |  
|Accumulated net investment loss                                                                                                                           |  |                              | (1,375,832 | ) |                  |   | (24,580    | )
|Undistributed net realized gain on investments                                                                                                            |  |                              | 27,515,011 |   |                  |   | 18,262,401 |  
|Net unrealized (depreciation) appreciation on investments                                                                                                 |  |                              | (3,093,033 | ) |                  |   | 5,795,237  |  
|Treasury stock, at cost; 541,046 shares as of 9/30/16 and 534,496 as of 12/31/15                                                                          |  |                              | (1,469,105 | ) |                  |   | (1,447,491 | )
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|Total stockholders equity (net assets) (per share 9/30/16: $5.20, 12/31/15: $5.35)                                                                       |  |                              | 32,845,134 |   |                  |   | 33,853,660 |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  
|Total liabilities and stockholders equity                                                                                                                |  | $                            | 43,293,415 |   |                  | $ | 44,562,060 |  
|                                                                                                                                                          |  |                              |            |   |                  |   |            |  

See accompanying notes



3



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and the Nine Months Ended September 30, 2016 and 2015

(Unaudited)



|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|---------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | --------- | --------------------------------- |  | -- | --------------------------------- | - |  | - | --------- | -
|                                                                                   |  | Three monthsendedSeptember 30,2016 |            |   | Three monthsendedSeptember 30,2015 |   |           | Nine monthsendedSeptember 30,2016 |  |    | Nine monthsendedSeptember 30,2015 |  
|Investment income:                                                                 |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Interest from portfolio companies:                                                 |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Control investments                                                                |  | $                                  |           |   |                                    | $ | 18,336    |                                   |  | $  | 11,828                            |   |  | $ | 60,756    |  
|Affiliate investments                                                              |  |                                    | 113,643    |   |                                    |   | 100,678   |                                   |  |    | 273,218                           |   |  |   | 312,329   |  
|Non-Control/Non-Affiliate investments                                              |  |                                    | 110,395    |   |                                    |   | 61,312    |                                   |  |    | 240,027                           |   |  |   | 176,534   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total interest from portfolio companies                                            |  |                                    | 224,038    |   |                                    |   | 180,326   |                                   |  |    | 525,073                           |   |  |   | 549,619   |  
|Interest from other investments:                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Non-Control/Non-Affiliate investments                                              |  |                                    | 11,974     |   |                                    |   | 3,529     |                                   |  |    | 33,683                            |   |  |   | 18,719    |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total interest from other investments                                              |  |                                    | 11,974     |   |                                    |   | 3,529     |                                   |  |    | 33,683                            |   |  |   | 18,719    |  
|Dividend and other investment income:                                              |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Control investments                                                                |  |                                    |           |   |                                    |   | 460,947   |                                   |  |    |                                  |   |  |   | 1,364,306 |  
|Affiliate investments                                                              |  |                                    | 69,010     |   |                                    |   | 65,810    |                                   |  |    | 149,807                           |   |  |   | 124,239   |  
|Non-Control/Non-Affiliate investments                                              |  |                                    | 3,011      |   |                                    |   |          |                                   |  |    | 3,011                             |   |  |   |          |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total dividend and other investment income                                         |  |                                    | 72,021     |   |                                    |   | 526,757   |                                   |  |    | 152,818                           |   |  |   | 1,488,545 |  
|Fee income:                                                                        |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Control investments                                                                |  |                                    |           |   |                                    |   | 2,000     |                                   |  |    | 2,000                             |   |  |   | 6,000     |  
|Affiliate investments                                                              |  |                                    | 2,083      |   |                                    |   | 1,417     |                                   |  |    | 3,945                             |   |  |   | 3,250     |  
|Non-Control/Non-Affiliate investments                                              |  |                                    | 5,770      |   |                                    |   | 4,250     |                                   |  |    | 13,004                            |   |  |   | 12,417    |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total fee income                                                                   |  |                                    | 7,853      |   |                                    |   | 7,667     |                                   |  |    | 18,949                            |   |  |   | 21,667    |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total investment income                                                            |  |                                    | 315,886    |   |                                    |   | 718,279   |                                   |  |    | 730,523                           |   |  |   | 2,078,550 |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Operating expenses:                                                                |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Salaries                                                                           |  |                                    | 155,437    |   |                                    |   | 149,555   |                                   |  |    | 466,312                           |   |  |   | 448,665   |  
|Bonus and profit sharing                                                           |  |                                    |           |   |                                    |   |          |                                   |  |    | 1,411,659                         |   |  |   |          |  
|Employee benefits                                                                  |  |                                    | 38,730     |   |                                    |   | 27,745    |                                   |  |    | 164,952                           |   |  |   | 87,546    |  
|Directors fees                                                                    |  |                                    | 47,380     |   |                                    |   | 37,950    |                                   |  |    | 142,135                           |   |  |   | 89,000    |  
|Professional fees                                                                  |  |                                    | 86,938     |   |                                    |   | 33,702    |                                   |  |    | 237,986                           |   |  |   | 127,204   |  
|Stockholders and office operating                                                  |  |                                    | 50,846     |   |                                    |   | 41,716    |                                   |  |    | 174,882                           |   |  |   | 156,830   |  
|Insurance                                                                          |  |                                    | 8,358      |   |                                    |   | 8,400     |                                   |  |    | 25,876                            |   |  |   | 25,954    |  
|Corporate development                                                              |  |                                    | 17,794     |   |                                    |   | 16,982    |                                   |  |    | 49,319                            |   |  |   | 48,363    |  
|Other operating                                                                    |  |                                    | 3,495      |   |                                    |   | 3,099     |                                   |  |    | 9,470                             |   |  |   | 8,973     |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|                                                                                   |  |                                    | 408,978    |   |                                    |   | 319,149   |                                   |  |    | 2,682,591                         |   |  |   | 992,535   |  
|Interest on SBA obligations                                                        |  |                                    | 77,570     |   |                                    |   | 77,569    |                                   |  |    | 232,709                           |   |  |   | 229,460   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Total operating expenses                                                           |  |                                    | 486,548    |   |                                    |   | 396,718   |                                   |  |    | 2,915,300                         |   |  |   | 1,221,995 |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net investment (loss) income before income taxes                                   |  |                                    | (170,662   | ) |                                    |   | 321,561   |                                   |  |    | (2,184,777                        | ) |  |   | 856,555   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Income tax (benefit) expense                                                       |  |                                    | (55,934    | ) |                                    |   | 88,298    |                                   |  |    | (833,525                          | ) |  |   | 262,285   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net investment (loss) income                                                       |  |                                    | (114,728   | ) |                                    |   | 233,263   |                                   |  |    | (1,351,252                        | ) |  |   | 594,270   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net realized gain on investments:                                                  |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Control investments                                                                |  |                                    | 1,412,500  |   |                                    |   |          |                                   |  |    | 14,588,813                        |   |  |   |          |  
|Non-Control/Non-Affiliate investments                                              |  |                                    |           |   |                                    |   |          |                                   |  |    | 168,140                           |   |  |   | 262,925   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net realized gain before income taxes                                              |  |                                    | 1,412,500  |   |                                    |   |          |                                   |  |    | 14,756,953                        |   |  |   | 262,925   |  
|Income tax expense                                                                 |  |                                    | 526,862    |   |                                    |   |          |                                   |  |    | 5,504,343                         |   |  |   | 89,742    |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net realized gain on investments                                                   |  |                                    | 885,638    |   |                                    |   |          |                                   |  |    | 9,252,610                         |   |  |   | 173,183   |  
|Net change in unrealized depreciation or appreciation on investments:              |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |  
|Control investments                                                                |  |                                    | (1,412,500 | ) |                                    |   |          |                                   |  |    | (12,775,000                       | ) |  |   |          |  
|Affiliate investments                                                              |  |                                    | (666,011   | ) |                                    |   | (250,000  | )                                 |  |    | (1,413,811                        | ) |  |   | (443,436  | )
|Non-Control/Non-Affiliate investments                                              |  |                                    |           |   |                                    |   | 321,300   |                                   |  |    | 69,444                            |   |  |   | 193,572   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Change in unrealized depreciation or appreciation before income taxes              |  |                                    | (2,078,511 | ) |                                    |   | 71,300    |                                   |  |    | (14,119,367                       | ) |  |   | (249,864  | )
|Deferred income tax (benefit) expense                                              |  |                                    | (736,301   | ) |                                    |   | 18,066    |                                   |  |    | (5,231,097                        | ) |  |   | (91,552   | )
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net (decrease) increase in unrealized depreciation or appreciation on investments  |  |                                    | (1,342,210 | ) |                                    |   | 53,234    |                                   |  |    | (8,888,270                        | ) |  |   | (158,312  | )
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net realized and unrealized (loss) gain on investments                             |  |                                    | (456,572   | ) |                                    |   | 53,234    |                                   |  |    | 364,340                           |   |  |   | 14,871    |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Net (decrease) increase in net assets from operations                              |  | ($                                 | 571,300    | ) |                                    | $ | 286,497   |                                   |  | ($ | 986,912                           | ) |  | $ | 609,141   |  
|                                                                                   |  |                                    |            |   |                                    |   |           |                                   |  |    |                                   |   |  |   |           |  
|Weighted average shares outstanding                                                |  |                                    | 6,325,299  |   |                                    |   | 6,328,538 |                                   |  |    | 6,327,074                         |   |  |   | 6,328,538 |  
|Basic and diluted net (decrease) increase in net assets from operations, per share |  | ($                                 | 0.09       | ) |                                    | $ | 0.05      |                                   |  | ($ | 0.16                              | ) |  | $ | 0.10      |  

See accompanying notes



4



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

For the Three Months and the Nine Months Ended September 30, 2016 and 2015

(Unaudited)



|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  
|--------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | -- | ---------- | --------------------------------- |  | -- | --------------------------------- | - |  | -- | ---------- | -
|                                                                                  |  | Three monthsendedSeptember 30,2016 |            |   | Three monthsendedSeptember 30,2015 |    |            | Nine monthsendedSeptember 30,2016 |  |    | Nine monthsendedSeptember 30,2015 |  
|Net assets at beginning of period                                                 |  | $                                  | 33,438,048 |   |                                    | $  | 32,676,085 |                                   |  | $  | 33,853,660                        |   |  | $  | 32,353,441 |  
|Net investment (loss) income                                                      |  |                                    | (114,728   | ) |                                    |    | 233,263    |                                   |  |    | (1,351,252                        | ) |  |    | 594,270    |  
|Net realized gain on investments                                                  |  |                                    | 885,638    |   |                                    |    |           |                                   |  |    | 9,252,610                         |   |  |    | 173,183    |  
|Net (decrease) increase in unrealized depreciation or appreciation on investments |  |                                    | (1,342,210 | ) |                                    |    | 53,234     |                                   |  |    | (8,888,270                        | ) |  |    | (158,312   | )
|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  
|Net (decrease) increase in net assets from operations                             |  |                                    | (571,300   | ) |                                    |    | 286,497    |                                   |  |    | (986,912                          | ) |  |    | 609,141    |  
|Purchase of treasury stock                                                        |  |                                    | (21,614    | ) |                                    |    |           |                                   |  |    | (21,614                           | ) |  |    |           |  
|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  
|Total (decrease) increase in net assets                                           |  |                                    | (592,914   | ) |                                    |    | 286,497    |                                   |  |    | (1,008,526                        | ) |  |    | 609,141    |  
|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  
|Net assets at end of period                                                       |  | $                                  | 32,845,134 |   |                                    | $  | 32,962,582 |                                   |  | $  | 32,845,134                        |   |  | $  | 32,962,582 |  
|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  
|Accumulated net investment loss                                                   |  | ($                                 | 1,375,832  | ) |                                    | ($ | 273,212    | )                                 |  | ($ | 1,375,832                         | ) |  | ($ | 273,212    | )
|                                                                                  |  |                                    |            |   |                                    |    |            |                                   |  |    |                                   |   |  |    |            |  

See accompanying notes



5



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)



|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----------- | - | --------------------------------- | - | ---------- | -
|                                                                                                                       |  | Nine monthsendedSeptember 30,2016 |             |   | Nine monthsendedSeptember 30,2015 |  
|Cash flows from operating activities:                                                                                  |  |                                   |             |   |                                   |   |            |  
|Net (decrease) increase in net assets from operations                                                                  |  | ($                                | 986,912     | ) |                                   | $ | 609,141    |  
|Adjustments to reconcile net (decrease) increase in net assets to net cash provided by (used in)
operating activities: |  |                                   |             |   |                                   |   |            |  
|Investments in portfolio companies                                                                                     |  |                                   | (5,883,012  | ) |                                   |   | (6,769,008 | )
|Proceeds from sale of investments                                                                                      |  |                                   | 14,313,203  |   |                                   |   | 648,605    |  
|Proceeds from loan repayments                                                                                          |  |                                   | 416,972     |   |                                   |   | 151,460    |  
|Decrease in unrealized appreciation on investments                                                                     |  |                                   | 14,119,367  |   |                                   |   | 249,864    |  
|Deferred tax (benefit) expense                                                                                         |  |                                   | (3,448,438  | ) |                                   |   | 30,183     |  
|Realized gain on portfolio investments                                                                                 |  |                                   | (14,756,953 | ) |                                   |   | (262,925   | )
|Depreciation and amortization                                                                                          |  |                                   | 25,034      |   |                                   |   | 24,698     |  
|Original issue discount amortization                                                                                   |  |                                   | (7,497      | ) |                                   |   | (11,619    | )
|Change in interest receivable allowance                                                                                |  |                                   |            |   |                                   |   | (6,311     | )
|Non-cash conversion of debenture interest                                                                              |  |                                   | (16,711     | ) |                                   |   | (69,710    | )
|Changes in operating assets and liabilities:                                                                           |  |                                   |             |   |                                   |   |            |  
|Increase in interest receivable                                                                                        |  |                                   | (97,299     | ) |                                   |   | (37,811    | )
|Decrease in other assets                                                                                               |  |                                   | 61,484      |   |                                   |   | 31,782     |  
|Decrease (increase) in prepaid income taxes                                                                            |  |                                   | 65,228      |   |                                   |   | (51,230    | )
|Increase (decrease) in income taxes payable                                                                            |  |                                   | 826,983     |   |                                   |   | (2,065,795 | )
|Decrease in accounts payable and accrued expenses                                                                      |  |                                   | (85,678     | ) |                                   |   | (185,993   | )
|Increase (decrease) in profit sharing and bonus payable                                                                |  |                                   | 1,311,659   |   |                                   |   | (758,750   | )
|Increase in deferred revenue                                                                                           |  |                                   | 27,553      |   |                                   |   | 6,333      |  
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|Total adjustments                                                                                                      |  |                                   | 6,871,895   |   |                                   |   | (9,076,227 | )
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|Net cash provided by (used in) operating activities                                                                    |  |                                   | 5,884,983   |   |                                   |   | (8,467,086 | )
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|Cash flows from financing activities:                                                                                  |  |                                   |             |   |                                   |   |            |  
|Purchase of treasury shares                                                                                            |  |                                   | (21,614     | ) |                                   |   |           |  
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|Net cash provided by financing activities                                                                              |  |                                   | (21,614     | ) |                                   |   |           |  
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|Net increase (decrease) in cash                                                                                        |  |                                   | 5,863,369   |   |                                   |   | (8,467,086 | )
|Cash:                                                                                                                  |  |                                   |             |   |                                   |   |            |  
|Beginning of period                                                                                                    |  |                                   | 5,844,795   |   |                                   |   | 13,230,717 |  
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  
|End of period                                                                                                          |  | $                                 | 11,708,164  |   |                                   | $ | 4,763,631  |  
|                                                                                                                       |  |                                   |             |   |                                   |   |            |  

See accompanying notes



6



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016

(Unaudited)



|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          |  |             |  |     |      |  |           |                             |  |  |                     |                          |  |  |     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- |  | ----------- |  | --- | ---- |  | --------- | --------------------------- |  |  | ------------------- | ------------------------ |  |  | ----
|(a)
Company, Geographic Location, Business
Description, (Industry) and Website                                                                                                                                                   |                | Type of Investment                                                                                                                                                                                                                                                   |  | (b)
Date
Acquired |          |  | (c) 
Equity |  |     | Cost |  |           | (d)(f)
Fair
Value           |  |  | Percentof NetAssets
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|Non-Control/Non-Affiliate Investments  42.0% of net assets: (j)                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          |  |             |  |     |      |  |           |                             |  |  |                     |                          |  |  |     
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|ACV Auctions, Inc. (e)(g) Buffalo, NY.
Live mobile auctions for new and used cars. (Software) www.acvauctions.com                                                                                                                |                | 118,116 Series A preferred shares.                                                                                                                                                                                                                                   |  |                   | 8/12/16  |  |             |  | 1%  |      |  |           | $163,000                    |  |  |                     | $163,000                 |  |  | 0.5%
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|Athenex, Inc. (e)(g) (Formerly Kinex
Pharmaceuticals, Inc.) Buffalo, NY. Specialty pharmaceutical and drug development. (Health Care)
www.athenex.com                                                                            |                | 46,296 common shares.                                                                                                                                                                                                                                                |  |                   | 9/8/14   |  |             |  | <1% |      |  |           | 143,285                     |  |  |                     | 416,664                  |  |  | 1.3%
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|City Dining Cards, Inc. (Loupe) (e)(g)
Buffalo, NY. Customer loyalty technology company that helps businesses attract and retain customers. (Software)
www.loupeapp.io                                                           |                | 9,525.25 Series B preferred shares.                                                                                                                                                                                                                                  |  |                   | 9/1/15   |  |             |  | 4%  |      |  |           | 500,000                     |  |  |                     | 500,000                  |  |  | 1.5%
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|eHealth Global Technologies, Inc. (g)
Henrietta, NY. eHealth Connect® improves health care delivery through intelligently aggregated clinical
record and images for patient referrals. (Health Care)
www.ehealthtechnologies.com |                | $1,500,000 senior subordinatedsecured term loan at 9% dueSeptember 2, 2019.                                                                                                                                                                                          |  |                   | 6/28/16  |  |             |  | 0%  |      |  |           | 1,500,000                   |  |  |                     | 1,500,000                |  |  | 4.6%
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|Empire Genomics, LLC (e)(g)
Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health
Care) www.empiregenomics.com        |                | $900,000 senior securedconvertible term notes at 10% dueApril 1, 2017.
$250,000 promissory note at 12%due December 31, 2019.
(i) Interest receivable $170,277.                                                                                                       |  |                   | 6/13/14  |  |             |  | <1% |      |  |           | 900,000 
250,000            |  |  |                     | 900,000 
250,000         |  |  | 3.5%
|                                                                                                                                                                                                                                 | Total Empire   |                                                                                                                                                                                                                                                                      |  |                   |          |  |             |  |     |      |  | 1,150,000 |                             |  |  | 1,150,000           |                          |  | 
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|GoNoodle, Inc. (g)
(Formerly HealthTeacher, Inc.) Nashville, TN. Student
engagement education software providing core aligned physical activity breaks. (Software) www.gonoodle.com                                              |                | $1,000,000 secured note at 12%due January 31, 2020, (1%Payment in Kind (PIK)).
Warrant for 47,324 Series CPreferred shares.                                                                                                                                          |  |                   | 2/6/15   |  |             |  | <1% |      |  |           | 1,016,560 
25               |  |  |                     | 1,016,560 
25            |  |  | 3.1%
|                                                                                                                                                                                                                                 | Total GoNoodle |                                                                                                                                                                                                                                                                      |  |                   |          |  |             |  |     |      |  | 1,016,585 |                             |  |  | 1,016,585           |                          |  | 
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|Mercantile Adjustment Bureau, LLC (g)
Williamsville, NY. Full service accounts receivable management and collections company.
(Contact Center) www.mercantilesolutions.com                                                       |                | $1,099,039 subordinated securednote at 13% (3% for the calendaryear 2016) due October 30, 2017.(e)$150,000
subordinateddebenture at 8% due June 30,2018. Warrant for 3.29% membershipinterests. Option for 1.5%membership interests.
(i)Interest receivable $64,537. |  |                   | 10/22/12 |  |             |  | 4%  |      |  |           | 1,088,191 
150,000 
 97,625 |  |  |                     | 1,088,191 
0 

0         |  |  | 3.3%
|                                                                                                                                                                                                                                 |                | Total Mercantile                                                                                                                                                                                                                                                     |  |                   |          |  |             |  |     |      |  |           | 1,335,816                   |  |  |                     | 1,088,191                |  |  |     
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|Outmatch Holdings, LLC (e)(g) (Chequed
Holdings, LLC) Saratoga Springs, NY. Web based predictive employee selection and reference checking. (Software)
www.outmatch.com                                                          |                | 2,353,854 Class P1 Units. 109,788 Class C1
Units. Total Outmatch                                                                                                                                                                                                     |  |                   | 11/18/10 |  |             |  | 4%  |      |  |           | 2,140,0075,489
2,145,496    |  |  |                     | 2,140,0075,489
2,145,496 |  |  | 6.5%
|                                                                                                                                                                                                                                 |                |                                                                                                                                                                                                                                                                      |  |                   |          | 
|PostProcess Technologies LLC (e)(g)
Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured parts. (Manufacturing)
www.postprocess.com                                                       |                | $300,000 convertible promissory note at 5% due
July 28, 2018.                                                                                                                                                                                                        |  |                   | 7/25/16  |  |             |  | 0%  |      |  |           | 300,000                     |  |  |                     | 300,000                  |  |  | 0.9%



7



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            |           |                                        |   |            |                     |                                          |  |  |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- |  | ----------- |  | -- | ---- | ---------- | --------- | -------------------------------------- | - | ---------- | ------------------- | ---------------------------------------- |  |  | ----
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                         |               | Type of Investment                                                                                                                                                      |  | (b)
Date
Acquired |          |  | (c) 
Equity |  |    | Cost |            |           | (d)(f)
Fair
Value                      |   |            | Percentof NetAssets
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Rheonix, Inc. (e) Ithaca, NY.
Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com                                                           |               | 9,676 common shares. (g)1,839,422 Series
A preferredshares. (g) 50,593 common shares. (g) 589,420 Series B preferred shares.                                            |  |                   | 10/29/09 |  |             |  | 4% |      |            |           | -2,099,999
-
702,732                   |   |            |                     | 11,000  2,165,999
59,000
702,732         |  |  | 8.9%
|                                                                                                                                                                                                                      | Total Rheonix |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            | 2,802,731 |                                        |   |            | 2,938,731           |                                          |  | 
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|SocialFlow, Inc. (e)(g) New York, NY.
Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)
www.socialflow.com           |               | 1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares. 717,772 Series C preferred shares.
Total Social Flow                                        |  |                   | 4/5/13   |  |             |  | 4% |      |            |           | 500,000750,000
500,000
1,750,000       |   |            |                     | 731,431  839,648
500,221
2,071,300       |  |  | 6.3%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Somerset Gas Transmission Company, LLC (e)
Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com                                                                                                |               | 26.5337 units.                                                                                                                                                          |  |                   | 7/10/02  |  |             |  | 3% |      |            |           | 719,097                                |   |            |                     | 500,000                                  |  |  | 1.5%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Other Non-Control/Non-Affiliate Investments:                                                                                                                                                                          |               |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            |           |                                        |   |            |                     |                                          |  |  |     
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|DataView, LLC (Software) (e)                                                                                                                                                                                          |               | Membership Interest.                                                                                                                                                    |  |                   | -        |  |             |  | -  |      |            |           | 310,357                                |   |            |                     | -                                        |  |  | 0.0%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|UStec/Wi3 (Manufacturing) (e)                                                                                                                                                                                         |               | Common Stock.                                                                                                                                                           |  |                   | -        |  |             |  | -  |      |            |           | 100,500                                |   |            |                     | -                                        |  |  | 0.0%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            |           |                                        |   |            |                    
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                        |               |                                                                                                                                                                         |  |                   |          |  |             |  |    | $    | 13,936,867 |           |                                        | $ | 13,789,967 |                     |                                          | 
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            |           |                                        |   |            |                    
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Affiliate Investments  41.7% of net assets (k)                                                                                                                                                                       |               |                                                                                                                                                                         |  |                   |          |  |             |  |    |      |            |           |                                        |   |            |                     |                                          |  |  |     
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|BeetNPath, LLC (Grainful) (e)(g) Ithaca,
NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com                     |               | 1,119,024 Series A-2 PreferredMembership Units.
$150,000 convertible promissory noteat 8% due September 1, 2017.
Total BeetNPath                                        |  |                   | 10/20/14 |  |             |  | 9% |      |            |           | $359,000
 150,000
509,000              |   |            |                     | $359,000
 150,000
509,000                |  |  | 1.5%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Carolina Skiff LLC (g) Waycross, GA.
Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing)
www.carolinaskiff.com                                                                             |               | 6.0825% Class A commonmembership interest.                                                                                                                              |  |                   | 1/30/04  |  |             |  | 7% |      |            |           | 15,000                                 |   |            |                     | 600,000                                  |  |  | 1.8%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|ClearView Social, Inc. (e)(g) Buffalo, NY.
Social media publishing tool for law, CPA and professional firms. (Software) www.clearviewsocial.com                                                                       |               | 312,500 Series seed plus preferred shares.                                                                                                                              |  |                   | 1/4/16   |  |             |  | 6% |      |            |           | 200,000                                |   |            |                     | 200,000                                  |  |  | 0.6%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|First Wave Products Group, LLC (e)(g)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health Care)
www.firstwaveproducts.com |               | $500,000 senior term notes at 10% dueDecember 31, 2016.
$280,000 junior term notes at 10% dueDecember 31, 2016.
Warrant for 41,619 capital securities. Total First
Wave |  |                   | 4/19/12  |  |             |  | 7% |      |            |           | 661,563
 316,469
22,000
1,000,032      |   |            |                     | 250,000
 0
0
250,000                     |  |  | 0.8%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|Genicon, Inc. (g) Winter Park, FL.
Designs, produces and distributes patented surgical instrumentation. (Health Care) www.geniconendo.com                                                                             |               | 1,586,902 Series B preferred shares. $1,100,000
senior term loans at 12% due April 1, 2019. $600,000 term loan at 14% due
March 31, 2018. Total Genicon                 |  |                   | 4/10/15  |  |             |  | 6% |      |            |           | 1,000,000 1,100,000
 600,000
2,700,000 |   |            |                     | 1,000,000  
1,100,000 
600,000
2,700,000 |  |  | 8.2%
|                                                                                                                                                                                                                      |               |                                                                                                                                                                         |  |                   |          | 
|GiveGab, Inc. (e)(g) Ithaca, NY. Online
fundraising, day of giving supporter engagement software for non-profit organizations. (Software) www.givegab.com                                                             |               | 5,084,329 Series Seed preferred shares.                                                                                                                                 |  |                   | 3/13/13  |  |             |  | 9% |      |            |           | 616,221                                |   |            |                     | 424,314                                  |  |  | 1.3%



8



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |             |  |      |                                                        |  |                   |  |                                                        |                     |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----------- |  | ---- | ------------------------------------------------------ |  | ----------------- |  | ------------------------------------------------------ | ------------------- |  | ----
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                     |  | Type of Investment                                                                                                                                                                                                                                                                           |  | (b)
Date
Acquired |  | (c) 
Equity |  | Cost |                                                        |  | (d)(f)
Fair
Value |  |                                                        | Percentof NetAssets
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|G-TEC Natural Gas Systems (e) Buffalo, NY.
Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing) www.gas-tec.com                                |  | 17.845% Class A membership interest.8% cumulative dividend.                                                                                                                                                                                                                                  |  | 8/31/99           |  | 18%         |  |      | 400,000                                                |  |                   |  | 100,000                                                |                     |  | 0.3%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|Intrinsiq Materials, Inc. (e)(g)
Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)
www.intrinsiqmaterials.com |  | 4,161,747 Series A preferred shares.                                                                                                                                                                                                                                                         |  | 9/19/13           |  | 12%         |  |      | 1,125,673                                              |  |                   |  | 780,000                                                |                     |  | 2.4%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|Knoa Software, Inc. (e)(g) New York, NY.
End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software) www.knoa.com                                                |  | 973,533 Series A-1 convertiblepreferred shares.
1,876,922 Series B preferred shares. $48,466 convertible promissory
note at8% due May 9, 2018. Total Knoa                                                                                                                                    |  | 11/20/12          |  | 7%          |  |      | 750,000
479,155 
48,466
1,277,621                      |  |                   |  | 0
449,455 
48,466
497,921                              |                     |  | 1.5%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|KnowledgeVision Systems, Inc. (e)(g)
Lincoln, MA. Online presentation and training software. (Software)
www.knowledgevision.com                                                                                   |  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares.
129,033 Series A-3 preferred shares. Warrant for 46,743 Series A-3
shares. Total KnowledgeVision                                                                                                                   |  | 11/13/13          |  | 7%          |  |      | 250,000300,000
165,001 35,000
750,001                  |  |                   |  | 0300,000
165,001 35,000
500,001                        |                     |  | 1.5%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|Mezmeriz, Inc. (e)(g) Ithaca, NY.
Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)
www.mezmeriz.com      |  | 1,554,565 Series Seed preferred shares.                                                                                                                                                                                                                                                      |  | 1/9/08            |  | 15%         |  |      | 742,850                                                |  |                   |  | 351,477                                                |                     |  | 1.1%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|Microcision LLC (g) Philadelphia, PA.
Manufacturer of precisionmachined medical implants, components and assemblies. (Manufacturing) www.microcision.com                                                          |  | $1,500,000 subordinated promissorynote at 11% due January 31, 2017.
15% Class A common membershipinterest. Total
Microcision                                                                                                                                                                 |  | 9/24/09           |  | 15%         |  |      | 1,891,964

-
1,891,964                                 |  |                   |  | 1,891,964

-
1,891,964                                 |                     |  | 5.8%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|New Monarch Machine Tool, Inc. (g)
Cortland, NY. Manufactures and servicesvertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com                                                                |  | 22.84 common shares.                                                                                                                                                                                                                                                                         |  | 9/24/03           |  | 15%         |  |      | 22,841                                                 |  |                   |  | 22,841                                                 |                     |  | 0.1%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|OnCore Golf Technology, Inc. (e)(g)
Buffalo, NY. Maker of patented hollow-metalcore golf balls. (Consumer Product)
www.oncoregolf.com                                                                             |  | 150,000 Series AA preferred shares. $300,000
subordinated convertible promissory notes at 6% due January 24,2017.
Total OnCore                                                                                                                                                               |  | 12/31/14          |  | 7%          |  |      | 375,000 
300,000 675,000                               |  |                   |  | 187,500 
300,000 487,500                               |                     |  | 1.5%
|                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                              |  |                   |  |            
|SciAps, Inc. (e)(g) Woburn, MA.
Instrumentation companyproducing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com |  | 187,500 Series A convertible preferredshares.
274,299 Series A-1 convertible preferred shares.
117,371 Series B preferred shares. $200,000 subordinated
convertible note at 10% due April 8, 2017. $100,000 secured
subordinated convertible note at 10% due December 31, 2017.
Total SciAps |  | 7/12/13           |  | 9%          |  |      | 1,500,000
 504,710
250,000 
200,000 
100,000
2,554,710 |  |                   |  | 1,000,000
 504,710
250,000 
200,000 
100,000
2,054,710 |                     |  | 6.3%



9



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  |                                      |                     |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----------- |  | ---- | ------------------------------------------- |  | ----------------- |  | ------------------------------------ | ------------------- |  | ----
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                          |  | Type of Investment                                                                                                                                                                                                    |  | (b)
Date
Acquired |  | (c) 
Equity |  | Cost |                                             |  | (d)(f)
Fair
Value |  |                                      | Percentof NetAssets
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|SOMS Technologies, LLC (g) Valhalla, NY.
Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com                                             |  | 5,959,490 Series B membership interests.                                                                                                                                                                              |  | 12/2/08           |  | 9%          |  |      | 472,632                                     |  |                   |  | 528,348                              |                     |  | 1.6%
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|Statisfy, Inc. (e)(g) Boston, MA. Mobile
marketing platform for engagement, advertising and surveys. (Software) www.statisfy.co                                                                        |  | 65,000 Series seed preferred shares. Warrant for
1,950,000 Series seed preferred shares. Total
Statisfy                                                                                                               |  | 8/18/14           |  | 10%         |  |      | 20,968 629,032
650,000                      |  |                   |  | 0  
0
0                              |                     |  | 0.0%
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|Teleservices Solutions Holdings, LLC (e)(g)(m)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries.
(Contact Center) www.ipacesetters.com |  | 250,000 Class B preferred units. 1,000,000 Class
C preferred units. 80,000 Class D preferred units. 104,198
Class E preferred units. PIK dividend for Series C and D at 12% and 14%, respectively.
Total Teleservices |  | 5/30/14           |  | 6%          |  |      | 250,0001,190,680
91,200
104,198 
 1,636,078 |  |                   |  | 0  595,340
91,200
104,198 
 790,738  |                     |  | 2.4%
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|Tilson Technology Management, Inc.(g)
Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com                   |  | 12 Series B preferred shares. 21,390.67 Series C
convertible preferredshares. $200,000 subordinated promissory noteat 8% due September 28, 2021.
Total Tilson                                                         |  | 1/20/15           |  | 8%          |  |      | 600,000 200,000
 200,000
1,000,000          |  |                   |  | 600,000  
200,000 
200,000
1,000,000 |                     |  | 3.0%
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   | 
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 
|Subtotal Affiliate Investments                                                                                                                                                                         |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      | $18,239,623                                 |  |                   |  | $13,688,814                          |                     |  |     
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|Control Investments  0.3% of net assets (l)                                                                                                                                                           |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  |                                      |                     |  |     
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|Advantage 24/7 LLC (e)(g) Williamsville,
NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com                                                                 |  | 53% Membership interest.                                                                                                                                                                                              |  | 12/30/10          |  | 53%         |  |      | $99,500                                     |  |                   |  | $99,500                              |                     |  | 0.3%
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   | 
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 
|Subtotal Control Investments                                                                                                                                                                           |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      | $99,500                                     |  |                   |  | $99,500                              |                     |  |     
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|TOTAL INVESTMENTS  84.0%                                                                                                                                                                              |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      | $32,275,990                                 |  |                   |  | $27,578,281                          |                     |  |     
|OTHER ASSETS IN EXCESS OF LIABILITIES  16.0%                                                                                                                                                          |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  | 5,266,853         |  |                                      |                    
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  |                                      |                     |  |     
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |            
|NET ASSETS  100%                                                                                                                                                                                      |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  | $32,845,134                          |                     |  |     
|                                                                                                                                                                                                       |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  |                                      |                     |  |     



10



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



Notes to the Consolidated Schedule of Portfolio Investments



|(a) | At September 30, 2016, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(c) | Each equity percentage estimates the Corporations ownership interest in the applicable 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 warrants or conversion of debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an
equity interest of less than one percent.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes
guidelines for measuring fair value. At September 30, 2016, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are
valued at the average closing bid price for these securities for the last three trading days of the month. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation
and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when 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 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 (see Note 3 Investments to the Consolidated Financial Statements).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | These investments are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions
within the last twelve months, or are not expected to do so going forward.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | As of September 30, 2016, the total cost of investment securities was approximately $32.3 million. Net unrealized depreciation was approximately ($4.7) million, which was comprised of $1.4 million of unrealized
appreciation of investment securities and ($6.1) million of unrealized depreciation of investment securities. At September 30, 2016, the aggregate gross unrealized gain for federal income tax purposes was $1.7 million and the aggregate gross
unrealized loss for federal income tax purposes was ($5.8) million. The net unrealized loss for federal income tax purposes was $4.1 million based on a tax cost of $31.7 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Rand Capital SBIC, Inc. investment.
|--- | -----------------------------------

|(h) | Reduction in cost and value from previously reported balances reflects current principal repayment. There were no principal repayments during the three months ended September 30, 2016.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) | Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable on the Corporations Statement of Financial Position.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(k) | Affiliate Investments are defined by the Investment Company Act of 1940, as amended (1940 Act), as those Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by
the Corporation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) | Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where greater than 50% of the board representation is
maintained.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(m) | Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.
|--- | ---------------------------------------------------------------------------------------------------



11



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



Investments in and Advances to Affiliates



|                               |  |                                                                                                                                                      |  |                            |                         |  |                   |  |                      |                    |  |  |                             |  |  |                                            |                            |  |  |  |                   | 
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------------------- |  | ----------------- |  | -------------------- | ------------------ |  |  | --------------------------- |  |  | ------------------------------------------ | -------------------------- |  |  |  | ----------------- | 
|Company                        |  | Type of Investment                                                                                                                                   |  | December 31,2015 FairValue |                         |  | GrossAdditions(1) |  |                      | GrossReductions(2) |  |  | September30, 2016Fair Value |  |  | Amount ofInterest/
Dividend/
Fee Income(3) |                           
|Control Investments:           |  |                                                                                                                                                      |  |                            |                         |  |                   |  |                      |                    |  |  |                             |  |  |                                            |                            |  |  |  |                   | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Advantage 24/7 LLC             |  | 53% Membership interest.                                                                                                                             |  |                            | $99,500                 |  |                   |  | $              -     |                    |  |  | $                -          |  |  |                                            | $99,500                    |  |  |  | $              -  | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Gemcor II, LLC                 |  | $1,000,000 subordinated promissory note at 15%.
31.25 membership units. Escrow receivable due from sale of
business.                                 |  |                            | 416,97213,400,000
-     |  |                   |  | --
-                 |                    |  |  | (416,972)(13,400,00)
-      |  |  |                                            | --
-                       |  |  |  | 11,8282,000
-     | 
|                               |  | Total Gemcor                                                                                                                                         |  |                            | 13,816,972              |  |                   |  | -                    |                    |  |  | (13,816,972)                |  |  |                                            | -                          |  |  |  | 13,828            | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|                               |  | Total Control Investments                                                                                                                            |  |                            | $13,916,472             |  |                   |  | $0                   |                    |  |  | ($13,816,972)               |  |  |                                            | $99,500                    |  |  |  | $13,828           | 
|Affiliate Investments:         |  |                                                                                                                                                      |  |                            |                         |  |                   |  |                      |                    |  |  |                             |  |  |                                            |                            |  |  |  |                   | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|BeetNPath, LLC                 |  | 1,119,024 Series A-2 Preferred Membership Units.
$150,000 convertible promissory note at 8%.                                                         |  |                            | $359,000-               |  |                   |  | $           -150,000 |                    |  |  | $                --         |  |  |                                            | $359,000150,000            |  |  |  | $        -3,452   | 
|                               |  | Total BeetNPath                                                                                                                                      |  |                            | 359,000                 |  |                   |  | 150,000              |                    |  |  | -                           |  |  |                                            | 509,000                    |  |  |  | 3,452             | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Carolina Skiff LLC             |  | 6.0825% Class A common membership interest.                                                                                                          |  |                            | 600,000                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 600,000                    |  |  |  | 97,684            | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|ClearView Social, Inc.         |  | 312,500 Series seed plus preferred shares.                                                                                                           |  |                            | -                       |  |                   |  | 200,000              |                    |  |  | -                           |  |  |                                            | 200,000                    |  |  |  | -                 | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|First Wave Products Group, LLC |  | $500,000 senior term notes at 10%. $280,000
junior term notes at 10%. Warrant for 41,619 capital securities.                                         |  |                            | 250,000-
-              |  |                   |  | --
-                 |                    |  |  | --
-                        |  |  |                                            | 250,000-
-                 |  |  |  | 833-
-            | 
|                               |  | Total First Wave                                                                                                                                     |  |                            | 250,000                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 250,000                    |  |  |  | 833               | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Genicon, Inc.                  |  | 1,586,902 Series B preferred shares.
$1,100,000 senior term loans at 12%. $600,000 term loan at
14%.                                                 |  |                            | 1,000,000-
-            |  |                   |  | -1,100,000
600,000   |                    |  |  | --
-                        |  |  |                                            | 1,000,0001,100,000
600,000 |  |  |  | 2,11275,967
7,233 | 
|                               |  | Total Genicon                                                                                                                                        |  |                            | 1,000,000               |  |                   |  | 1,700,000            |                    |  |  | -                           |  |  |                                            | 2,700,000                  |  |  |  | 85,312            | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|GiveGab, Inc.                  |  | 5,084,329 Series Seed preferred shares.                                                                                                              |  |                            | 424,314                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 424,314                    |  |  |  | -                 | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|G-TEC Natural Gas Systems      |  | 17.845% Class A membership interest. 8% cumulative dividend.                                                                                         |  |                            | 100,000                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 100,000                    |  |  |  | -                 | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Intrinsiq Materials, Inc.      |  | 4,161,747 Series A preferred shares. $95,000
convertible promissory note at 8%.                                                                      |  |                            | -95,000                 |  |                   |  | 780,000-             |                    |  |  | -(95,000)                   |  |  |                                            | 780,000-                   |  |  |  | -6,689            | 
|                               |  | Total Intrinsiq                                                                                                                                      |  |                            | 95,000                  |  |                   |  | 780,000              |                    |  |  | (95,000)                    |  |  |                                            | 780,000                    |  |  |  | 6,689             | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Knoa Software, Inc.            |  | 973,533 Series A-1 convertible preferred shares. 1,876,922 Series B preferred shares.
$48,466 convertible promissory note at 8%.                     |  |                            | 381,503490,752
-        |  |                   |  | --
48,466            |                    |  |  | (381,503)(41,297)
-         |  |  |                                            | -449,455
48,466            |  |  |  | --
1,529          | 
|                               |  | Total Knoa                                                                                                                                           |  |                            | 872,255                 |  |                   |  | 48,466               |                    |  |  | (422,800)                   |  |  |                                            | 497,921                    |  |  |  | 1,529             | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|KnowledgeVision Systems, Inc.  |  | 200,000 Series A-1 preferred shares. 214,285
Series A-2 preferred shares. 129,033 Series A-3 preferred shares.
Warrant for 46,743 Series A-3 shares. |  |                            | -300,000
165,001
35,000 |  |                   |  | --
- -               |                    |  |  | --
- -                      |  |  |                                            | -300,000
165,001
35,000    |  |  |  | --
- -            | 
|                               |  | Total Knowledge Vision                                                                                                                               |  |                            | 500,001                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 500,001                    |  |  |  | -                 | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Mezmeriz, Inc.                 |  | 1,554,565 Series seed preferred shares.                                                                                                              |  |                            | 351,477                 |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 351,477                    |  |  |  | -                 | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|Microcision LLC                |  | $1,500,000 subordinated promissory note at 11%.
15% Class A common membership interest.                                                              |  |                            | 1,891,964-              |  |                   |  | --                   |                    |  |  | --                          |  |  |                                            | 1,891,964-                 |  |  |  | 156,087-          | 
|                               |  | Total Microcision                                                                                                                                    |  |                            | 1,891,964               |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 1,891,964                  |  |  |  | 156,087           | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|New Monarch Machine Tool, Inc. |  | 22.84 common shares.                                                                                                                                 |  |                            | 22,841                  |  |                   |  | -                    |                    |  |  | -                           |  |  |                                            | 22,841                     |  |  |  | 28,409            | 
|                               |  |                                                                                                                                                      |  |                            |                         | 
|OnCore Golf Technology, Inc.   |  | 150,000 Series AA preferred shares. $300,000
subordinated convertible promissory notes at 6%.                                                        |  |                            | 187,500150,000          |  |                   |  | -150,000             |                    |  |  | --                          |  |  |                                            | 187,500300,000             |  |  |  | -12,649           | 
|                               |  | Total OnCore                                                                                                                                         |  |                            | 337,500                 |  |                   |  | 150,000              |                    |  |  | -                           |  |  |                                            | 487,500                    |  |  |  | 12,649            | 
|                               |  |                                                                                                                                                      |  |                            |                         |  |                   |  |                      |                    |  |  |                             |  |  |                                            |                            |  |  |  |                   | 



12



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



Investments in and Advances to Affiliates

|                       |  |                                                        |  |                            |             |  |                   |  |            |                    |  |  |                              |  |  |                                            |             |  |  |  |          | 
|---------------------- |  | ------------------------------------------------------ |  | -------------------------- | ----------- |  | ----------------- |  | ---------- | ------------------ |  |  | ---------------------------- |  |  | ------------------------------------------ | ----------- |  |  |  | -------- | 
|Company                |  | Type of Investment                                     |  | December 31,2015 FairValue |             |  | GrossAdditions(1) |  |            | GrossReductions(2) |  |  | September
30, 2016Fair Value |  |  | Amount ofInterest/
Dividend/ FeeIncome
(3) |            
|Rheonix, Inc.          |  | 9,676 common shares.                                   |  |                            | 11,000      |  |                   |  | -          |                    |  |  | (11,000)                     |  |  |                                            | -           |  |  |  | -        | 
|                       |  | 1,839,422 Series A preferred shares.                   |  |                            | 2,165,999   |  |                   |  | -          |                    |  |  | (2,165,999)                  |  |  |                                            | -           |  |  |  | -        | 
|                       |  | 50,593 common shares.                                  |  |                            | 59,000      |  |                   |  | -          |                    |  |  | (59,000)                     |  |  |                                            | -           |  |  |  | -        | 
|                       |  | 589,420 Series B preferred shares.                     |  |                            | 702,732     |  |                   |  | -          |                    |  |  | (702,732)                    |  |  |                                            | -           |  |  |  | -        | 
|                       |  | Total Rheonix                                          |  |                            | 2,938,731   |  |                   |  | -          |                    |  |  | (2,938,731)                  |  |  |                                            | -           |  |  |  | -        | 
|                       |  |                                                        |  |                            |             | 
|SciAps, Inc.           |  | 187,500 Series A convertible preferred shares.         |  |                            | 1,000,000   |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 1,000,000   |  |  |  | -        | 
|                       |  | 274,299 Series A-1 convertible preferred shares.       |  |                            | 504,710     |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 504,710     |  |  |  | -        | 
|                       |  | 117,371 Series B preferred shares.                     |  |                            | 250,000     |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 250,000     |  |  |  | -        | 
|                       |  | $200,000 subordinated promissory note at 10%.          |  |                            | -           |  |                   |  | 200,000    |                    |  |  | -                            |  |  |                                            | 200,000     |  |  |  | 9,612    | 
|                       |  | $100,000 secured subordinated convertible note at 10%. |  |                            | -           |  |                   |  | 100,000    |                    |  |  | -                            |  |  |                                            | 100,000     |  |  |  | -        | 
|                       |  | Total SciAps                                           |  |                            | 1,754,710   |  |                   |  | 300,000    |                    |  |  | -                            |  |  |                                            | 2,054,710   |  |  |  | 9,612    | 
|                       |  |                                                        |  |                            |             | 
|SOMS Technologies, LLC |  | 5,959,490 Series B membership interests.               |  |                            | 528,348     |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 528,348     |  |  |  | 13,464   | 
|                       |  |                                                        |  |                            |             | 
|Statisfy, Inc.         |  | 65,000 Series seed preferred shares.                   |  |                            | 20,968      |  |                   |  | -          |                    |  |  | (20,968)                     |  |  |                                            | -           |  |  |  | -        | 
|                       |  | Warrant for 1,950,000 Series seed preferred shares.    |  |                            | 629,032     |  |                   |  | -          |                    |  |  | (629,032)                    |  |  |                                            | -           |  |  |  | -        | 
|                       |  | Total Statisfy                                         |  |                            | 650,000     |  |                   |  | -          |                    |  |  | (650,000)                    |  |  |                                            | -           |  |  |  | -        | 
|                       |  |                                                        |  |                            |             | 
|Teleservices Solutions |  | 250,000 Class B shares.                                |  |                            | -           |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | -           |  |  |  | -        | 
|Holdings, LLC          |  | 1,000,000 Class C shares.                              |  |                            | 1,190,680   |  |                   |  | -          |                    |  |  | (595,340)                    |  |  |                                            | 595,340     |  |  |  | -        | 
|                       |  | 80,000 Class D preferred units.                        |  |                            | 91,200      |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 91,200      |  |  |  | -        | 
|                       |  | 104,198 Class E preferred units.                       |  |                            | 104,198     |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 104,198     |  |  |  | -        | 
|                       |  | Total Teleservices                                     |  |                            | 1,386,078   |  |                   |  | -          |                    |  |  | (595,340)                    |  |  |                                            | 790,738     |  |  |  |          | 
|                       |  |                                                        |  |                            |             | 
|Tilson Technology      |  | 12 Series B preferred shares.                          |  |                            | 600,000     |  |                   |  | -          |                    |  |  | -                            |  |  |                                            | 600,000     |  |  |  | 11,250   | 
|Management, Inc.       |  | 21,390 Series C convertible preferred shares.          |  |                            | -           |  |                   |  | 200,000    |                    |  |  | -                            |  |  |                                            | 200,000     |  |  |  |          | 
|                       |  | $200,000 subordinated promissory note at 8%.           |  |                            | -           |  |                   |  | 200,000    |                    |  |  | -                            |  |  |                                            | 200,000     |  |  |  |          | 
|                       |  | Total Tilson                                           |  |                            | 600,000     |  |                   |  | 400,000    |                    |  |  | -                            |  |  |                                            | 1,000,000   |  |  |  |          | 
|                       |  |                                                        |  |                            |             | 
|                       |  | Total Affiliate Investments                            |  |                            | $14,662,219 |  |                   |  | $3,728,466 |                    |  |  | ($4,701,871)                 |  |  |                                            | $13,688,814 |  |  |  | $426,970 | 
|                       |  |                                                        |  |                            |             | 
|                       |  | Total Control and Affiliate Investments                |  |                            | $28,578,691 |  |                   |  | $3,728,466 |                    |  |  | ($18,518,843)                |  |  |                                            | $13,788,314 |  |  |  | $440,798 | 
|                       |  |                                                        |  |                            |             |  |                   |  |            |                    |  |  |                              |  |  |                                            |             |  |  |  |          | 

This schedule should be read in conjunction with the Corporations Consolidated Financial Statements, including the
Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.

(1) Gross additions include increases in the cost basis
of investments resulting from new portfolio investment, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation,
and the movement of an existing portfolio company into this category and out of another category.

(2) Gross reductions include decreases in the cost basis
of investments resulting from principal repayments, sales, note conversions, net increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing
portfolio company out of this category and into another category.

(3) Represents the total amount of interest, fees or dividends credited to income for the
portion of the period an investment was included in Control or Affiliate categories, respectively.



13



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

September 30, 2016 (Continued)

(Unaudited)



|                        |  |                                                                               
|----------------------- |  | ------------------------------------------------------------------------------
|Industry Classification |  | Percentage of Total    Investments (at fair value)    as of September 30, 2016
|                        | 
|Healthcare              |  | 32.5%                                                                         
|                        | 
|Software                |  | 27.3%                                                                         
|                        | 
|Manufacturing           |  | 20.8%                                                                         
|                        | 
|Contact Center          |  | 6.8%                                                                          
|                        | 
|Consumer Product        |  | 5.5%                                                                          
|                        | 
|Professional Services   |  | 3.6%                                                                          
|                        | 
|Oil and Gas             |  | 1.8%                                                                          
|                        | 
|Electronics             |  | 1.3%                                                                          
|                        | 
|Marketing               |  | 0.4%                                                                          
|                        |  |                                                                               
|                        | 
|Total Investments       |  | 100%                                                                          
|                        |  |                                                                               



14



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015



|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          |  |             |  |     |      |  |  |                                   |  |  |                     |                                   |  |  |  |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- |  | ----------- |  | --- | ---- |  |  | --------------------------------- |  |  | ------------------- | --------------------------------- |  |  |  | ---- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                             |  | Type of Investment                                                                                                                                                                                                                                                          |  | (b)
Date
Acquired |          |  | (c) 
Equity |  |     | Cost |  |  | (d)(f)
Fair
Value                 |  |  | Percentof NetAssets |                                  
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Non-Control/Non-Affiliate Investments  24.4% of net assets: (j)                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          |  |             |  |     |      |  |  |                                   |  |  |                     |                                   |  |  |  |      | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Athenex, Inc. (e)(g) (Formerly Kinex
Pharmaceuticals, Inc.) Buffalo, NY. Specialty pharmaceutical and drug development. (Health Care)
www.athenex.com                                                                     |  | 46,296 common shares.                                                                                                                                                                                                                                                       |  |                   | 9/8/14   |  |             |  | <1% |      |  |  | $143,285                          |  |  |                     | $347,220                          |  |  |  | 1.0% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|City Dining Cards, Inc. (Loupe) (e)(g)
Buffalo, NY. Customer loyalty technology company that helps businesses attract and retain customers. (Software)
www.citydiningcards.com                                            |  | 9,525.25 Series B preferred shares.                                                                                                                                                                                                                                         |  |                   | 9/1/15   |  |             |  | 4%  |      |  |  | 500,000                           |  |  |                     | 500,000                           |  |  |  | 1.5% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Empire Genomics, LLC (e)(g) Buffalo, NY.
Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care)
www.empiregenomics.com |  | $600,000 senior secured convertible term note at 10% due April 1, 2017.
(i) Interest receivable $92,833.                                                                                                                                                                    |  |                   | 6/13/14  |  |             |  | -   |      |  |  | 600,000                           |  |  |                     | 600,000                           |  |  |  | 1.8% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|GoNoodle, Inc. (g) (Formerly
HealthTeacher, Inc.) Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software)
www.gonoodle.com                                       |  | $1,000,000 secured note at 12% due January 31, 2020, (1% Payment in Kind (PIK)).
Warrant for 47,324 Series C Preferred shares.                                                                                                                                              |  |                   | 2/6/15   |  |             |  | <1% |      |  |  | 1,008,974 
25                     |  |  |                     | 1,008,974 
25                     |  |  |  | 3.0% | 
|                                                                                                                                                                                                                          |  | Total GoNoodle                                                                                                                                                                                                                                                              |  |                   |          |  |             |  |     |      |  |  | 1,008,999                         |  |  |                     | 1,008,999                         |  |  |  |      | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Mercantile Adjustment Bureau, LLC (g)
Williamsville, NY. Full service accounts receivable management and collections company.
(Contact Center) www.mercantilesolutions.com                                                |  | $1,099,039 subordinated secured note at 13% (3% for the calendar year 2015) due October 30, 2017.(e) $150,000 subordinated
debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests. Option for 1.5% membership interests.
(i)Interest receivable $93,455. |  |                   | 10/22/12 |  |             |  | 4%  |      |  |  | 1,080,694 
150,000 
97,625        |  |  |                     | 1,080,694 
0 
0                   |  |  |  | 3.2% | 
|                                                                                                                                                                                                                          |  | Total Mercantile                                                                                                                                                                                                                                                            |  |                   |          |  |             |  |     |      |  |  | 1,328,319                         |  |  |                     | 1,080,694                         |  |  |  |      | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Outmatch (e)(g) (Formerly Chequed
Holdings, LLC) Saratoga Springs, NY. Web based predictive employee selection and reference checking. (Software)
www.outmatch.com                                                        |  | 2,264,995 Class P1 Units. 109,788 Class C1
Units. Total Outmatch                                                                                                                                                                                                            |  |                   | 11/18/10 |  |             |  | 4%  |      |  |  | 2,140,0075,489
2,145,496          |  |  |                     | 2,140,0075,489
2,145,496          |  |  |  | 6.3% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|SocialFlow, Inc. (e)(g) New York, NY.
Provides instant analysis of social networks using a proprietary, predictive analytic algorithm to optimize advertising and publishing. (Software)
www.socialflow.com               |  | 1,049,538 Series B preferred shares. 1,204,819
Series B-1 preferred shares. 717,772 Series C preferred
Total Social Flow                                                                                                                                                    |  |                   | 4/5/13   |  |             |  | 4%  |      |  |  | 500,000 750,000
500,000
1,750,000 |  |  |                     | 731,431 839,648
500,221
2,071,300 |  |  |  | 6.1% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Somerset Gas Transmission Company, LLC (e)
Columbus, OH. Natural gas transportation. (Oil and Gas)
www.somersetgas.com                                                                                                    |  | 26.5337 units.                                                                                                                                                                                                                                                              |  |                   | 7/10/02  |  |             |  | 3%  |      |  |  | 719,097                           |  |  |                     | 500,000                           |  |  |  | 1.5% | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|Other Non-Control/Non-Affiliate Investments:                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                             |  |                   |          |  |             |  |     |      |  |  |                                   |  |  |                     |                                   |  |  |  |      | 
|                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                             |  |                   |          | 
|DataView, LLC (Software) (e)                                                                                                                                                                                              |  | Membership Interest.                                                                                                                                                                                                                                                        |  |                   | -        |  |             |  | -   |      |  |  | 310,357                           |  |  |                     | -                                 |  |  |  | 0.0% | 



15



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |             |  |      |                                |  |                   |  |                          |                     |  |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----------- |  | ---- | ------------------------------ |  | ----------------- |  | ------------------------ | ------------------- |  | ----
|(a)
Company, Geographic Location, Business
Description, (Industry) and Website                                                                                                                                        |  | Type of Investment                                                                                                                                       |  | (b)
Date
Acquired |  | (c) 
Equity |  | Cost |                                |  | (d)(f)
Fair
Value |  |                          | Percentof NetAssets
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|UStec/Wi3 (Manufacturing) (e)                                                                                                                                                                                         |  | Common Stock.                                                                                                                                            |  | -                 |  | -           |  |      | 100,500                        |  |                   |  | -                        |                     |  | 0.0%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |             |  |      |                                |  |                   | 
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                        |  |                                                                                                                                                          |  |                   |  |             |  |      | $8,606,053                     |  |                   |  | $8,253,709               |                     |  |     
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |             |  |      |                                |  |                   | 
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|Affiliate Investments  43.3% of net assets (k)                                                                                                                                                                       |  |                                                                                                                                                          |  |                   |  |             |  |      |                                |  |                   |  |                          |                     |  |     
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|BeetNPath, LLC (e)(g)
Ithaca, NY. Frozen entrées and packaged dry side dishes made from 100% whole grain steel cut oats under Grainful brand name. (Consumer Product)
www.grainful.com                                |  | 1,119,024 Series A-2 Preferred Membership Units.                                                                                                         |  | 10/20/14          |  | 9%          |  |      | $359,000                       |  |                   |  | $359,000                 |                     |  | 1.0%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|Carolina Skiff LLC (g)
Waycross, GA. Manufacturer of fresh water, ocean fishing and pleasure boats.
(Manufacturing)
www.carolinaskiff.com                                                                             |  | 6.0825% Class A common membership interest.                                                                                                              |  | 1/30/04           |  | 7%          |  |      | 15,000                         |  |                   |  | 600,000                  |                     |  | 1.8%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|First Wave Products Group, LLC (e)(g)
Batavia, NY. Sells First Crush automated pill crusher that crushes and grinds medical pills for nursing homes and medical institutions. (Health Care)
www.firstwaveproducts.com |  | $500,000 senior term notes at 10% due December 31, 2016.
$280,000 junior term notes at 10% due December 31, 2016. Warrant
for 41,619 capital securities. |  | 4/19/12           |  | 7%          |  |      | 661,563
 316,469
22,000        |  |                   |  | 250,000
 0
0             |                     |  | 0.7%
|                                                                                                                                                                                                                      |  | Total First Wave                                                                                                                                         |  |                   |  |             |  |      | 1,000,032                      |  |                   |  | 250,000                  |                     |  |     
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|Genicon, Inc. (e)(g)
Winter Park, FL. Designs, produces and distributes patented surgical instrumentation. (Health Care)
www.geniconendo.com                                                                          |  | 1,586,902 Series B preferred shares.                                                                                                                     |  | 4/10/15           |  | 6%          |  |      | 1,000,000                      |  |                   |  | 1,000,000                |                     |  | 3.0%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|GiveGab, Inc. (e)(g)
Ithaca, NY. Online fundraising, day of giving supporter engagement software for non-profit organizations. (Software)
www.givegab.com                                                             |  | 5,084,329 Series Seed preferred shares.                                                                                                                  |  | 3/13/13           |  | 9%          |  |      | 616,221                        |  |                   |  | 424,314                  |                     |  | 1.2%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|G-TEC Natural Gas Systems (e)
Buffalo, NY. Manufactures and distributes systems that allow natural gas to be used as an alternative fuel to gases. (Manufacturing)
www.gas-tec.com                                    |  | 17.845% Class A membership interest. 8% cumulative dividend.                                                                                             |  | 8/31/99           |  | 18%         |  |      | 400,000                        |  |                   |  | 100,000                  |                     |  | 0.3%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|Intrinsiq Materials, Inc. (e)(g)
Rochester, NY. Produces printable electronics utilizing a unique process of nanomaterial based ink in a room-temperature environment. (Manufacturing)
www.intrinsiqmaterials.com     |  | 599,055 Series 2 preferred shares. $95,000
convertible promissory note at 8% due March 31, 2016. Total Intrinsiq                                         |  | 9/19/13           |  | 7%          |  |      | 600,002
95,000
695,002         |  |                   |  | 0 95,000
95,000          |                     |  | 0.3%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|Knoa Software, Inc. (e)(g)
New York, NY. End user experience management and performance (EMP) solutions utilizing enterprise applications. (Software)
www.knoa.com                                                    |  | 973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares.                                                                    |  | 11/20/12          |  | 7%          |  |      | 750,000
479,155
1,229,155      |  |                   |  | 381,503
490,752 872,255  |                     |  | 2.6%
|                                                                                                                                                                                                                      |  |                                                                                                                                                          |  |                   |  |            
|KnowledgeVision Systems, Inc. (e)(g)
Lincoln, MA. Online presentation and training software. (Software)
www.knowledgevision.com                                                                                       |  | 200,000 Series A-1 preferred shares. 214,285 Series A-2 preferred shares.
129,033 Series A-3 preferred shares. Warrant for 46,743 Series A-3
shares.     |  | 11/13/13          |  | 7%          |  |      | 250,000
300,000 165,001
35,000 |  |                   |  | 0
300,000 165,001
35,000 |                     |  | 1.5%
|                                                                                                                                                                                                                      |  | Total KnowledgeVision                                                                                                                                    |  |                   |  |             |  |      | 750,001                        |  |                   |  | 500,001                  |                     |  |     



16



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   |  |                                            |                     |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----------- |  | ---- | ------------------------------------------- |  | ----------------- |  | ------------------------------------------ | ------------------- |  | ----
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                      |  | Type of Investment                                                                                                                                                                                                    |  | (b)
Date
Acquired |  | (c) 
Equity |  | Cost |                                             |  | (d)(f)
Fair
Value |  |                                            | Percentof NetAssets
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Mezmeriz, Inc. (e)(g) Ithaca, NY.
Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules for gesture recognition and 3D scanning. (Electronics Developer)
www.mezmeriz.com       |  | 1,554,565 Series Seed preferred shares.                                                                                                                                                                               |  | 1/9/08            |  | 15%         |  |      | 742,850                                     |  |                   |  | 351,477                                    |                     |  | 1.0%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Microcision LLC (g) Philadelphia, PA.
Manufacturer of precision machined medical implants, components and assemblies. (Manufacturing) www.microcision.com                                                          |  | $1,500,000 subordinated promissory note at 11% due January 31, 2017.
15% Class A common membership interest. Total
Microcision                                                                                        |  | 9/24/09           |  | 15%         |  |      | 1,891,964
-
1,891,964                       |  |                   |  | 1,891,964
-
1,891,964                      |                     |  | 5.6%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|New Monarch Machine Tool, Inc. (g)
Cortland, NY. Manufactures and services vertical/horizontal machining centers. (Manufacturing)
www.monarchmt.com                                                                |  | 22.84 common shares.                                                                                                                                                                                                  |  | 9/24/03           |  | 15%         |  |      | 22,841                                      |  |                   |  | 22,841                                     |                     |  | 0.1%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|OnCore Golf Technology, Inc. (e)(g)
Buffalo, NY. Maker of patented hollow-metal core golf balls. (Consumer Product)
www.oncoregolf.com                                                                             |  | 150,000 Series AA preferred shares. $150,000
subordinated convertible promissory note at 6% due January 24, 2017. Total OnCore                                                                                        |  | 12/31/14          |  | 7%          |  |      | 375,000 150,000
525,000                     |  |                   |  | 187,500  
150,000
337,500                  |                     |  | 1.0%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Rheonix, Inc. (e) Ithaca, NY. Developer of
fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com                                                        |  | 9,676 common shares. (g)1,839,422 Series
A preferred shares. (g) 50,593 common shares. (g)
589,420 Series B preferred shares. Total Rheonix                                                                           |  | 10/29/09          |  | 5%          |  |      | -2,099,999
-
702,732
2,802,731              |  |                   |  | 11,000  2,165,999
59,000
702,732
2,938,731 |                     |  | 8.7%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|SciAps, Inc. (e)(g) Woburn, MA.
Instrumentation company producing portable analytical devices using XRF, LIBS and RAMAN spectroscopy to identify compounds, minerals, and elements. (Manufacturing)
www.sciaps.com |  | 187,500 Series A convertible preferred shares.
274,299 Series A-1 convertible preferred shares. 117,371 Series B
preferred shares. Total SciAps                                                                       |  | 7/12/13           |  | 9%          |  |      | 1,500,000504,710
250,000
2,254,710          |  |                   |  | 1,000,000  504,710
250,000
1,754,710       |                     |  | 5.2%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|SOMS Technologies, LLC (e)(g) Valhalla,
NY. Produces and markets the microGreen Extended Performance Oil Filter. (Consumer Products) www.microgreenfilter.com                                                      |  | 5,959,490 Series B membership interests.                                                                                                                                                                              |  | 12/2/08           |  | 9%          |  |      | 472,632                                     |  |                   |  | 528,348                                    |                     |  | 1.5%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Statisfy, Inc. (e)(g) Boston, MA. Mobile
marketing platform for engagement, advertising and surveys. (Software) www.statisfy.co                                                                                    |  | 65,000 Series seed preferred shares. Warrant for
1,950,000 Series seed preferred shares. Total Statisfy                                                                                                               |  | 8/18/14           |  | 10%         |  |      | 20,968629,032
650,000                       |  |                   |  | 20,968  629,032
650,000                    |                     |  | 1.9%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Teleservices Solutions Holdings, LLC (g)(n)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)
www.ipacesetters.com                |  | 250,000 Class B preferred units. 1,000,000 Class
C preferred units. 80,000 Class D preferred units. 104,198
Class E preferred units. PIK dividend for Series C and D at 12% and 14%, respectively.
Total Teleservices |  | 5/30/14           |  | 6%          |  |      | 250,000
1,190,680 91,200
104,198 
1,636,078 |  |                   |  | 0
1,190,680
91,200
104,198 
1,386,078      |                     |  | 4.1%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |            
|Tilson Technology Management, Inc.(g)
Portland, ME. Cellular, fiber optic and wireless information systems, construction, and management. (Professional Services)
www.tilsontech.com                               |  | 12 Series B preferred shares.                                                                                                                                                                                         |  | 1/20/15           |  | 8%          |  |      | 600,000                                     |  |                   |  | 600,000                                    |                     |  | 1.8%
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 
|Subtotal Affiliate Investments                                                                                                                                                                                     |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      | $17,663,217                                 |  |                   |  | $14,662,219                                |                     |  |     
|                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                       |  |                   |  |             |  |      |                                             |  |                   | 



17



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



|                                                                                                                                                         |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     |                                |  |  |      
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- |  | ----------- |  | --- | ---- |  |  | ------------------------ |  |  | ------------------- | ------------------------------ |  |  | -----
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                            |  | Type of Investment                                                                                         |  | (b)
Date
Acquired |          |  | (c) 
Equity |  |     | Cost |  |  | (d)(f)
Fair
Value        |  |  | Percentof NetAssets
|                                                                                                                                                         |  |                                                                                                            |  |                   |          | 
|Control Investments  41.1% of net assets (l)                                                                                                            |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     |                                |  |  |      
|                                                                                                                                                         |  |                                                                                                            |  |                   |          | 
|Advantage 24/7 LLC (e)(g) Williamsville,
NY. Marketing program for wine and spirits dealers. (Marketing Company) www.advantage24-7.com                   |  | 53% Membership interest.                                                                                   |  |                   | 12/30/10 |  |             |  | 53% |      |  |  | $99,500                  |  |  |                     | $99,500                        |  |  | 0.3% 
|                                                                                                                                                         |  |                                                                                                            |  |                   |          | 
|Gemcor II, LLC (g)(h)(m) West Seneca, NY.
Designs and sells automatic riveting machines used in the assembly of aircraft. (Manufacturing) www.gemcor.com |  | $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units.
Total Gemcor |  |                   | 6/28/04  |  |             |  | 31% |      |  |  | 416,972625,000
1,041,972 |  |  |                     | 416,972  13,400,000
13,816,972 |  |  | 40.8%
|                                                                                                                                                         |  |                                                                                                            |  |                   |         
|                                                                                                                                                         |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                    
|Subtotal Control Investments                                                                                                                             |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  | $1,141,472               |  |  |                     | $13,916,472                    |  |  |      
|                                                                                                                                                         |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                    
|                                                                                                                                                         |  |                                                                                                            |  |                   |          | 
|TOTAL INVESTMENTS  108.8%                                                                                                                               |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  | $27,410,742              |  |  |                     | $36,832,400                    |  |  |      
|LIABILITIES IN EXCESS OF OTHER ASSETS  (8.8%)                                                                                                           |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     | (2,978,740)                    |  |  |      
|                                                                                                                                                         |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     |                                |  |  |      
|                                                                                                                                                         |  |                                                                                                            |  |                   |          | 
|NET ASSETS  100%                                                                                                                                        |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     | $33,853,660                    |  |  |      
|                                                                                                                                                         |  |                                                                                                            |  |                   |          |  |             |  |     |      |  |  |                          |  |  |                     |                                |  |  |      



18



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



Notes to the Consolidated Schedule of Portfolio Investments



|(a) | At December 31, 2015, restricted securities represented 100% of the fair value of the investment portfolio. Restricted securities are subject to one or more restrictions on resale and are not freely marketable.
Freed Maxick CPAs P.C. has not audited 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) | Each equity percentage estimates the Corporations ownership interest in the applicable 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 warrants or conversion of debentures, or other available data. If applicable, the symbol <1% indicates that the Corporation holds an
equity interest of less than one percent.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures, which defines fair value and establishes
guidelines for measuring fair value. At December 31, 2015, ASC 820 designates 100% of the Corporations investments as Level 3 assets. Under the valuation policy of the Corporation, unrestricted publicly held securities are
valued at the average closing bid price for these securities for the last three trading days of the month. Restricted securities are subject to restrictions on resale, and are valued at fair value as determined by the management of the Corporation
and submitted to the Board of Directors for approval. Fair value is considered to be the amount that the Corporation may reasonably expect to receive for portfolio securities when 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 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 (see Note 3 Investments to the Consolidated Financial Statements).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | These investments are non-income producing. All other investments are income producing. Non-income producing investments have not generated cash payments of interest or dividends including LLC tax-related distributions
within the last twelve months, or are not expected to do so going forward.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | As of December 31, 2015, the total cost of investment securities was approximately $27.5 million. Net unrealized appreciation was approximately $9.4 million, which was comprised of $14.1 million of unrealized
appreciation of investment securities and ($4.7) million related to unrealized depreciation of investment securities. At December 31, 2015, the aggregate gross unrealized gain for federal income tax purposes was $10.2 million and the aggregate
gross unrealized loss for federal income tax purposes was ($4.4) million. The net unrealized gain for federal income tax purposes was $5.8 million based on a tax cost of $31.0 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Rand Capital SBIC, Inc. investment.
|--- | -----------------------------------

|(h) | Reduction in cost and value from previously reported balances reflects current principal repayment.
|--- | ---------------------------------------------------------------------------------------------------

|(i) | Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable on the Corporations Statement of Financial Position.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(k) | Affiliate Investments are defined by the Investment Company Act of 1940, as amended (1940 Act), as those Non-Control investments in companies in which between 5% and 25% of the voting securities are owned by
the Corporation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) | Control Investments are defined by the 1940 Act as investments in companies in which more than 25% of the voting securities are owned by the Corporation or where greater than 50% of the board representation is
maintained.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(m) | Gemcor II, LLC is an unconsolidated significant subsidiary as defined in SECs Regulation S-X.
|--- | ------------------------------------------------------------------------------------------------

|(n) | Payment in kind (PIK) represents earned interest that is added to the cost basis of the investment.
|--- | ---------------------------------------------------------------------------------------------------



19



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



Investments in and Advances to Affiliates



|                               |  |                                                                                                                                                      |  |                            |                        |  |                    |  |                   |                    |  |  |                             |  |  |                                            |                         |  |  |  |                      | 
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------------------- |  | ------------------ |  | ----------------- | ------------------ |  |  | --------------------------- |  |  | ------------------------------------------ | ----------------------- |  |  |  | -------------------- | 
|Company                        |  | Type of Investment                                                                                                                                   |  | December 31,2014 FairValue |                        |  | GrossAdditions
(1) |  |                   | GrossReductions(2) |  |  | December 31,2015 FairValue  |  |  | Amount ofInterest/
Dividend/
Fee Income(3) |                        
|Control Investments:           |  |                                                                                                                                                      |  |                            |                        |  |                    |  |                   |                    |  |  |                             |  |  |                                            |                         |  |  |  |                      | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Advantage 24/7 LLC             |  | 53% Membership interest.                                                                                                                             |  |                            | $99,500                |  |                    |  | $            -    |                    |  |  | $            -              |  |  |                                            | $99,500                 |  |  |  | $            -       | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Gemcor II, LLC                 |  | $1,000,000 subordinated promissory note at 15%.
31.25 membership units.                                                                              |  |                            | 622,8009,300,000       |  |                    |  | -4,100,000        |                    |  |  | (205,828)-                  |  |  |                                            | 416,97213,400,000       |  |  |  | 77,0771,743,934      | 
|                               |  | Total Gemcor                                                                                                                                         |  |                            | 9,922,800              |  |                    |  | 4,100,000         |                    |  |  | (205,828)                   |  |  |                                            | 13,816,972              |  |  |  | 1,821,011            | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|                               |  | Total Control Investments                                                                                                                            |  |                            | $10,022,300            |  |                    |  | $4,100,000        |                    |  |  | ($205,828)                  |  |  |                                            | $13,916,472             |  |  |  | $1,821,011           | 
|Affiliate Investments:         |  |                                                                                                                                                      |  |                            |                        |  |                    |  |                   |                    |  |  |                             |  |  |                                            |                         |  |  |  |                      | 
|BeetNPath, LLC                 |  | 1,119,024 Series A-2 Preferred Membership Units.                                                                                                     |  |                            | $            -         |  |                    |  | $359,000          |                    |  |  | $            -              |  |  |                                            | $359,000                |  |  |  | $7,250               | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Carolina Skiff LLC             |  | $985,000 Class A preferred membership interest at 9.8%.
$250,000 subordinated promissory note at 14%. 6.0825% Class A
common membership interest.    |  |                            | 985,000125,000
600,000 |  |                    |  | --
-              |                    |  |  | (985,000)(125,000)
-        |  |  |                                            | --
600,000              |  |  |  | 81,78214,778
116,052 | 
|                               |  | Total Carolina Skiff                                                                                                                                 |  |                            | 1,710,000              |  |                    |  | -                 |                    |  |  | (1,110,000)                 |  |  |                                            | 600,000                 |  |  |  | 212,612              | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Chequed.com, Inc.              |  | 408,476 Series A preferred shares. $250,000
convertible promissory note at 8%.                                                                       |  |                            | 1,383,222250,000       |  |                    |  | --                |                    |  |  | (1,383,222)(250,000)        |  |  |                                            | --                      |  |  |  | -11,507              | 
|                               |  | Total Chequed                                                                                                                                        |  |                            | 1,633,222              |  |                    |  | -                 |                    |  |  | (1,633,222)                 |  |  |                                            | -                       |  |  |  | 11,507               | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|CrowdBouncer, Inc.             |  | 300,000 Series A preferred shares.                                                                                                                   |  |                            | -                      |  |                    |  | -                 |                    |  |  | -                           |  |  |                                            | -                       |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|First Wave Products Group, LLC |  | $500,000 senior term notes at 10%. $280,000
junior term notes at 10%. Warrant for 41,619 capital securities.                                         |  |                            | 637,992308,687
22,000  |  |                    |  | 23,5717,782
-     |                    |  |  | (411,563)(316,469)
(22,000) |  |  |                                            | 250,000-
-              |  |  |  | 24,5718,447
-        | 
|                               |  | Total First Wave                                                                                                                                     |  |                            | 968,679                |  |                    |  | 31,353            |                    |  |  | (750,032)                   |  |  |                                            | 250,000                 |  |  |  | 33,018               | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Genicon, Inc.                  |  | 1,586,902 Series B preferred shares.                                                                                                                 |  |                            | -                      |  |                    |  | 1,000,000         |                    |  |  | -                           |  |  |                                            | 1,000,000               |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|GiveGab, Inc.                  |  | 5,084,329 Series Seed preferred shares.                                                                                                              |  |                            | 403,388                |  |                    |  | 212,833           |                    |  |  | (191,907)                   |  |  |                                            | 424,314                 |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|G-TEC Natural Gas Systems      |  | 17.8% Class A membership interest. 8% cumulative dividend.                                                                                           |  |                            | 100,000                |  |                    |  | -                 |                    |  |  | -                           |  |  |                                            | 100,000                 |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Intrinsiq Materials, Inc.      |  | 599,055 Series 2 preferred shares. $95,000
convertible promissory note at 8%.                                                                        |  |                            | 600,002-               |  |                    |  | -95,000           |                    |  |  | (600,002)-                  |  |  |                                            | -95,000                 |  |  |  | -2,436               | 
|                               |  | Total Intrinsiq                                                                                                                                      |  |                            | 600,002                |  |                    |  | 95,000            |                    |  |  | (600,002)                   |  |  |                                            | 95,000                  |  |  |  | 2,436                | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Knoa Software, Inc.            |  | 973,533 Series A-1 convertible preferred shares.
1,876,922 Series B preferred shares.                                                                |  |                            | 381,503490,752         |  |                    |  | --                |                    |  |  | --                          |  |  |                                            | 381,503490,752          |  |  |  | --                   | 
|                               |  |                                                                                                                                                      |  |                            | 872,255                |  |                    |  | -                 |                    |  |  | -                           |  |  |                                            | 872,255                 |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|KnowledgeVision Systems, Inc.  |  | 200,000 Series A-1 preferred shares. 214,285
Series A-2 preferred shares. 129,033 Series A-3 preferred shares.
Warrant for 46,743 Series A-3 shares. |  |                            | 250,000300,000
-
-     |  |                    |  | --
165,001 35,000 |                    |  |  | (250,000)-
-
-              |  |  |                                            | -300,000
165,001
35,000 |  |  |  | --
- -               | 
|                               |  | Total Knowledge Vision                                                                                                                               |  |                            | 550,000                |  |                    |  | 200,001           |                    |  |  | (250,000)                   |  |  |                                            | 500,001                 |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Mezmeriz, Inc.                 |  | 1,554,565 Series seed preferred shares.
$200,000 convertible notes at 8%.                                                                            |  |                            | -200,000               |  |                    |  | 351,477-          |                    |  |  | -(200,000)                  |  |  |                                            | 351,477-                |  |  |  | --                   | 
|                               |  | Total Mezmeriz                                                                                                                                       |  |                            | 200,000                |  |                    |  | 351,477           |                    |  |  | (200,000)                   |  |  |                                            | 351,477                 |  |  |  | -                    | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|Microcision LLC                |  | $1,500,000 subordinated promissory note at 11%.
15% Class A common membership interest.                                                              |  |                            | 1,891,964-             |  |                    |  | --                |                    |  |  | --                          |  |  |                                            | 1,891,964-              |  |  |  | 208,116-             | 
|                               |  | Total Microcision                                                                                                                                    |  |                            | 1,891,964              |  |                    |  | -                 |                    |  |  | -                           |  |  |                                            | 1,891,964               |  |  |  | 208,116              | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|New Monarch Machine Tool, Inc. |  | 22.84 common shares.                                                                                                                                 |  |                            | 22,841                 |  |                    |  | -                 |                    |  |  | -                           |  |  |                                            | 22,841                  |  |  |  | 30,409               | 
|                               |  |                                                                                                                                                      |  |                            |                        | 
|OnCore Golf Technology, Inc.   |  | 150,000 Series AA preferred shares. $150,000
subordinated convertible promissory note at 6%.                                                         |  |                            | --                     |  |                    |  | 375,000150,000    |                    |  |  | (187,500)-                  |  |  |                                            | 187,500150,000          |  |  |  | -3,945               | 
|                               |  | Total OnCore                                                                                                                                         |  |                            | -                      |  |                    |  | 525,000           |                    |  |  | (187,500)                   |  |  |                                            | 337,500                 |  |  |  | 3,945                | 



20



---

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)



Investments in and Advances to Affiliates



|                                     |  |                                                                                                                                                                 |  |                            |                            |  |                    |  |                         |                    |  |  |                            |  |  |                                             |                                  |  |  |  |                   | 
|------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------------------------- |  | ------------------ |  | ----------------------- | ------------------ |  |  | -------------------------- |  |  | ------------------------------------------- | -------------------------------- |  |  |  | ----------------- | 
|Company                              |  | Type of Investment                                                                                                                                              |  | December 31,2014 FairValue |                            |  | GrossAdditions
(1) |  |                         | GrossReductions(2) |  |  | December 31,2015 FairValue |  |  | Amount ofInterest/
Dividend/
Fee Income (3) |                                 
|Rheonix, Inc.                        |  | 9,676 common shares. 1,839,422 Series A
preferred shares. 50,593 common shares. 589,420 Series B
preferred shares. $680,475 convertible promissory notes at 8%. |  |                            | 11,0002,165,999
59,000 -
- |  |                    |  | --
- 702,732
702,732    |                    |  |  | --
- -
(702,732)           |  |  |                                             | 11,0002,165,999
59,000 702,732
- |  |  |  | --
- -
22,258     | 
|                                     |  | Total Rheonix                                                                                                                                                   |  |                            | 2,235,999                  |  |                    |  | 1,405,464               |                    |  |  | (702,732)                  |  |  |                                             | 2,938,731                        |  |  |  | 22,258            | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|SciAps, Inc.                         |  | 187,500 Series A convertible preferred shares.
274,299 Series A-1 convertible preferred shares. 117,371 Series B
preferred shares.                              |  |                            | 1,500,000-
-               |  |                    |  | -504,710
250,000        |                    |  |  | (500,000)-
-               |  |  |                                             | 1,000,000504,710
250,000         |  |  |  | -4,711
-          | 
|                                     |  | Total SciAps                                                                                                                                                    |  |                            | 1,500,000                  |  |                    |  | 754,710                 |                    |  |  | (500,000)                  |  |  |                                             | 1,754,710                        |  |  |  | 4,711             | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|SOMS Technologies, LLC               |  | 5,959,490 Series B membership interests.                                                                                                                        |  |                            | 528,348                    |  |                    |  | -                       |                    |  |  | -                          |  |  |                                             | 528,348                          |  |  |  | 4,355             | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|Statisfy, Inc.                       |  | 65,000 Series seed preferred shares. Warrant
for 1,950,000 Series seed preferred shares.                                                                        |  |                            | --                         |  |                    |  | 20,968629,032           |                    |  |  | --                         |  |  |                                             | 20,968629,032                    |  |  |  | --                | 
|                                     |  | Total Statisfy                                                                                                                                                  |  |                            | -                          |  |                    |  | 650,000                 |                    |  |  | -                          |  |  |                                             | 650,000                          |  |  |  | -                 | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|Teleservices Solutions Holdings, LLC |  | 250,000 Class B shares. 1,000,000 Class C
shares. 80,000 Class D preferred units. 104,198 Class E
preferred units.                                              |  |                            | 250,0001,070,680
80,000
-  |  |                    |  | -120,000
11,200 104,198 |                    |  |  | (250,000)-
-
-             |  |  |                                             | -1,190,680
91,200
104,198        |  |  |  | -168,000
15,680
- | 
|                                     |  | Total Teleservices                                                                                                                                              |  |                            | 1,400,680                  |  |                    |  | 235,398                 |                    |  |  | (250,000)                  |  |  |                                             | 1,386,078                        |  |  |  | 183,680           | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|Tilson Technology Management, Inc.   |  | 12 Series B preferred shares.                                                                                                                                   |  |                            | -                          |  |                    |  | 600,000                 |                    |  |  | -                          |  |  |                                             | 600,000                          |  |  |  | 14,417            | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|                                     |  | Total Affiliate Investments                                                                                                                                     |  |                            | $14,617,378                |  |                    |  | $6,420,236              |                    |  |  | ($6,375,395)               |  |  |                                             | $14,662,219                      |  |  |  | $738,714          | 
|                                     |  |                                                                                                                                                                 |  |                            |                            | 
|                                     |  | Total Control and Affiliate Investments                                                                                                                         |  |                            | $24,639,678                |  |                    |  | $10,520,236             |                    |  |  | ($6,581,223)               |  |  |                                             | $28,578,691                      |  |  |  | $2,559,725        | 
|                                     |  |                                                                                                                                                                 |  |                            |                            |  |                    |  |                         |                    |  |  |                            |  |  |                                             |                                  |  |  |  |                   | 

This schedule should be read in conjunction with the Corporations Consolidated Financial Statements,
including the Consolidated Schedule of Portfolio Investments and Notes to the Consolidated Financial Statements.

(1) Gross additions
include increases in the cost basis of investments resulting from new portfolio investment, follow on investments, capitalized interest and the accretion of discounts. Gross additions also include net increases in unrealized appreciation or net
decreases in unrealized depreciation, and the movement of an existing portfolio company into this category and out of another category.

(2) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales, note conversions, net
increases in unrealized depreciation, net decreases in unrealized appreciation, the exchange of existing securities for new securities and the movement of an existing portfolio company out of this category and into another category.

(3) Represents the total amount of interest, fees or dividends credited to income for the portion of the period an investment was included in
Control or Affiliate categories, respectively.



21



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2015 (Continued)









|                        |  |                                                                              
|----------------------- |  | -----------------------------------------------------------------------------
|Industry Classification |  | Percentage of Total    Investments (at fair value)    as of December 31, 2015
|                        | 
|Manufacturing           |  | 49.6%                                                                        
|                        | 
|Software                |  | 22.2%                                                                        
|                        | 
|Healthcare              |  | 13.9%                                                                        
|                        | 
|Contact Center          |  | 6.7%                                                                         
|                        | 
|Consumer Product        |  | 3.3%                                                                         
|                        | 
|Professional Services   |  | 1.6%                                                                         
|                        | 
|Oil and Gas             |  | 1.4%                                                                         
|                        | 
|Electronics             |  | 1.0%                                                                         
|                        | 
|Marketing               |  | 0.3%                                                                         
|                        |  |                                                                              
|                        | 
|Total Investments       |  | 100%                                                                         
|                        |  |                                                                              
|                        |  |                                                                              



22



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Rand Capital Corporation and Subsidiary

Notes to the Consolidated Financial Statements

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)

Note 1. ORGANIZATION

Rand Capital Corporation (Rand, we, us and our) was incorporated under the laws of New
York in February 1969. We completed our initial public offering in 1971 as an internally managed, closed-end, diversified, management investment company. We have elected to be treated as a business development company (BDC) under the
Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in qualifying
assets and provide managerial assistance to the portfolio companies in which we invest. See Item 1. Business  Regulation, Regulation as a Business Development Company in our Annual Report on Form 10-K for the year ended
December 31, 2015.

The majority of our venture capital investments are completed through our wholly-owned subsidiary, Rand Capital
SBIC, Inc. (Rand SBIC), which operates as a small business investment company (SBIC) and has been licensed by the U.S. Small Business Administration (SBA) since 2002. Rand SBICs predecessor was organized as
a Delaware limited partnership and was converted into a New York corporation on December 31, 2008, at which time our operations as a licensed SBIC were continued. Although Rand SBIC was operated as if it were a BDC, it was registered as an
investment company under the 1940 Act. In 2012, the SEC granted an Order of Exemption for Rand with respect to the operations of Rand SBIC, and then Rand SBIC filed an election to be regulated as a BDC under the 1940 Act. Rand SBICs board of
directors is comprised of the directors of Rand, a majority of whom are not interested persons of Rand or Rand SBIC.

We
operate as an internally managed investment company whereby our officers and employees conduct the business of the Corporation under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated
investment company as defined under Subchapter M of the Internal Revenue Code.

In this Quarterly Report on Form 10-Q, unless the context
otherwise requires, we, the Corporation, us, and our refer to Rand Corporation and Rand SBIC.

Our corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available free of charge on our website
our annual and periodic reports, proxy statements and other information as soon as reasonably practicable after such material is filed with the Securities and Exchange Commission (SEC). Our shares are traded on the NASDAQ Capital Market
under the ticker symbol RAND.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation  It is our opinion that the accompanying consolidated financial statements include all adjustments of
a normal recurring nature necessary for a fair presentation in accordance with United States generally accepted accounting principles (GAAP) of the consolidated financial position, results of operations, cash flows and statement of
changes in net assets for the interim periods presented. Certain information and note disclosures normally included in audited annual consolidated financial statements prepared in accordance with GAAP have been omitted; however, we believe that the
disclosures made are adequate to make the information presented herein not misleading. Our interim results for the nine months ended September 30, 2016 are not necessarily indicative of the results for the full year.



23



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These statements should be read in conjunction with the consolidated financial statements and the
notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Information contained in this filing should also be reviewed in conjunction with our related filings with the SEC prior to the date of this report. Those
filings include, but are not limited to, the following:



N-54A

Election to Adopt Business Development Company statusDEF-14A

2016 Definitive Proxy Statement submitted to shareholdersForm 10-K

Annual Report on Form 10-K for the year ended December 31, 2015Form 10-Q

Quarterly Reports on Form 10-Q for the quarters ended June 30, 2016 and March 31, 2016


Principles of Consolidation - The consolidated financial statements include the accounts
of Rand and its wholly-owned subsidiary Rand SBIC. All intercompany accounts and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments  The carrying amounts reported in the consolidated statement of financial position of
cash, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

Fair Value of SBA Debentures -In September 2016, the SBIC Funding Corporation completed a pooling of SBA debentures that have a
coupon rate of 2.051%, excluding a mandatory SBA annual charge estimated to be 0.804%, resulting in a total estimated fixed rate for ten years of 2.855%. The carrying value of Rands SBA debentures is a reasonable estimate of fair value
because stated interest rates approximate current interest rates that are available for debt with similar terms.

Investment
Classification  In accordance with the provisions of the 1940 Act, the Corporation classifies its investments by level of control. Under the 1940 Act, Control Investments are investments in companies that the Corporation is
deemed to Control because it owns more than 25% of the voting securities of the company or has greater than 50% representation on the companys board. Affiliate Investments are companies in which the Corporation owns
between 5% and 25% of the voting securities. Non-Control/Non-Affiliate Investments are those companies that are neither Control Investments nor Affiliate Investments.

Investments - Investments are valued at fair value as determined in good faith by the management of the Corporation and approved
by the Board of Directors. The Corporation invests in loan instruments, debt instruments, and equity instruments. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be
applied to the specific facts and circumstances of each portfolio investment while employing a consistent valuation process. The Corporation analyzes and values each investment quarterly, and records unrealized depreciation for an investment that it
believes has become impaired, including where collection of a loan or debt security or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that an
underlying portfolio company has appreciated in value and, therefore, its equity securities have also appreciated in value. These estimated fair values may differ from the values that would have been used had a ready market for the investments
existed and these differences could be material if the Corporations assumptions and judgments differ from results of actual liquidation events.

Qualifying Assets- All of the Corporations investments were made in privately held small business enterprises, that were
not investment companies, were principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act.

Revenue Recognition - Interest Income - Interest income 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.



24



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

After reviewing each of our portfolio companies
performance and the circumstances surrounding each investment, the Corporation ceased accruing interest income on First Wave Products Group, LLC (First Wave) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loans in
2015 and G-TEC Natural Gas Systems in 2004.

The Corporation holds debt securities in its investment portfolio that contain
payment-in-kind (PIK) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual
collection of this interest may be deferred until the time of debt principal repayment.

Revenue Recognition - Dividend Income
- The Corporation may receive distributions from portfolio companies that are limited liability companies or corporations and these distributions are classified as dividend income on the consolidated statement of operations. Dividend income
is recognized on an accrual basis when it can be reasonably estimated.

The Corporation holds preferred equity securities that contain
cumulative dividend provisions. Cumulative dividends are recorded as dividend income, if declared, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be
deferred until such time as the preferred equity is redeemed.

Revenue Recognition - Fee Income- Consists of the revenue
associated with the amortization of financing fees charged to the portfolio companies upon successful closing of Rand SBIC financings and income associated with portfolio company board attendance fees. The income associated with the amortization of
financing fees was $15,948 and $13,667 for the nine months ended September 30, 2016 and 2015, respectively. The board fees were $3,000 and $8,000 for the nine months ended September 30, 2016 and 2015, respectively.

Realized Gain or Loss and Unrealized Appreciation or Depreciation of Investments -Amounts reported as realized gains and losses
are measured by the difference between the proceeds from the sale or exchange and the cost basis of the investment without regard to unrealized gains or losses recorded in prior periods. The cost of securities that have, in managements
judgment, become worthless are written off and reported as realized losses when appropriate. Unrealized appreciation or depreciation reflects the difference between the fair value of the investments and the cost basis of the investments.

Original Issue Discount  Investments may include original issue discount or OID income. This occurs when the
Corporation purchases a warrant and a note from a portfolio company simultaneously, which requires an allocation of a portion of the purchase price to the warrant and reduces the note or debt instrument by an equal amount in the form of a note
discount or OID. The note is reported net of the OID and the OID is accreted into interest income over the life of the loan. The Corporation recognized $7,497 and $11,619 in OID income for the nine months ended September 30, 2016 and 2015,
respectively. OID income is estimated to be approximately $2,500 for the remainder of 2016 and $8,350 for 2017.

Deferred Debenture
Costs - The Financial Accounting Standards Board (FASB) issued an Accounting Standard Update 2015-03 (ASU) requiring that debt issuance costs be presented as a direct deduction from the related debt liability. Therefore, the SBA debenture
origination and commitment costs are presented as a direct deduction from the debt liability (see Note 6). As a result $199,627 was reclassified from other assets to debentures guaranteed by the SBA in the accompanying consolidated statement of
financial position as of



25



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December 31, 2015. As of September 30, 2016, the balance in debt issuance costs was $179,077. These costs are amortized ratably over the terms of the SBA debentures and are expensed
when the debt is repaid early. Amortization expense was $20,550 for each of the nine months ended September 30, 2016 and 2015. Amortization over the next five years is estimated to be approximately $27,000 per year.

SBA Debenture - The Corporation had $8,000,000 in outstanding SBA debentures at September 30, 2016 and December 31,
2015 with a weighted average interest rate of 3.54% as of September 30, 2016. The debentures are presented net of deferred debenture costs (see Note 6). The $8,000,000 in outstanding SBA leverage matures from 2022 through 2025.

In the event of a future default of such SBA obligations, the Corporation has consented to the exercise, by the SBA, of all rights of the SBA
under 13 C.F.R. 107.1810(i) SBA remedies for automatic events of default and has agreed to take all actions that the SBA may so require. These may include the Corporations automatic consent to the appointment of the SBA, or its
designee, as receiver under Section 311(c) of the Small Business Investment Act of 1958.

Net Assets per Share - Net
assets per share are based on the number of shares of common stock outstanding. We do not have any common stock equivalents outstanding.

Supplemental Cash Flow Information - Income taxes paid during the nine months ended September 30, 2016 and 2015 was
$1,995,948 and $2,347,317, respectively. Interest paid during the nine months ended September 30, 2016 and 2015 was $283,650 and $269,066, respectively. The Corporation converted $16,711 and $69,710 of interest receivable into investments
during the nine months ended September 30, 2016 and 2015, respectively.

Accounting Estimates - The preparation of
financial statements in conformity with GAAP 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 September 30, 2016 and December 31, 2015, there were 500,000 shares of
$10.00 par value preferred stock authorized and unissued.

On October 19, 2016, the Board of Directors extended the repurchase
authorization for up to 1,000,000 shares of the Corporations outstanding common stock on the open market through October 19, 2017 at prices that are no greater than the then current net asset value. There were 6,550 shares repurchased
during the nine months ended September 30, 2016 and the total treasury shares held was 541,046 shares with a total cost of $1,469,105 at September 30, 2016. Therefore, at September 30, 2016, the Corporation had authorization to
purchase up to an additional 458,954 shares of common stock.

Profit Sharing and Stock Option Plan- In 2001, the
stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan (the Option Plan), that provides for the award of stock options to purchase up to 200,000 common shares to eligible employees. In 2002, the
Corporation placed the Option Plan on inactive status as it developed a new profit sharing plan for the Corporations employees in connection with the formation of its SBIC subsidiary. As of September 30, 2016, no stock options had been
awarded under the Option 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 stock options will be granted under the Option Plan while any profit sharing plan is in effect with respect to the Corporation.



26



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In 2002, the Corporation established a Profit Sharing Plan (the Plan) for its
executive officers in accordance with Section 57(n) of the 1940 Act. Under the Plan, the Corporation will pay its executive officers aggregate profit sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of
all realized capital losses and unrealized depreciation of the SBIC subsidiary, for the fiscal year, computed in accordance with the Plan and the Corporations interpretation of the Plan. Any profit sharing paid or accrued cannot exceed 20% of
the Corporations net income, as defined in the Plan. For purposes of the 20% profit sharing test, the Corporation interprets net income to be the total of the Corporations net investment gain (loss) and its net realized gain
(loss) on investments, prior to inclusion of the estimated profit sharing obligation. The profit sharing payments are split equally between the Corporations two executive officers, each of whom is fully vested in the Plan.

The Corporation accrued $1,411,659 under the Plan for the nine months ended September 30, 2016. There were no amounts earned pursuant to
the Plan for the nine months ended September 30, 2015. Estimated payroll taxes and benefits on the profit sharing under the Plan have been accrued at September 30, 2016. The amounts accrued do not exceed the defined limits under the Plan.
During the year ended December 31, 2014, the Corporation approved and accrued $899,500 under the Plan, of which $717,500 was paid during the nine months ended September 30, 2015.

Income Taxes - The Corporation reviews the tax positions it has taken to determine if they meet a more likely than not
threshold for the benefit of the tax position to be recognized in the consolidated financial statements. A tax position that fails to meet the more likely than not recognition threshold will result in either a reduction of a current or
deferred tax asset or receivable, or the recording of a current or deferred tax liability. During the nine months ended September 30, 2016 there was an $18,500 increase in the current tax liability offset by an $8,500 decrease in previous
reserves, resulting in a net $10,000 change in uncertain tax positions. There were no new uncertain tax positions recorded at December 31, 2015.

It is the Corporations policy to include interest and penalties related to income tax liabilities in income tax expense. There were no
amounts recognized for interest or penalties related to tax expense for the nine months ended September 30, 2016 or 2015.

Concentration of Credit and Market Risk  The Corporations financial instruments potentially subject it to
concentrations of credit risk. Cash is invested with banks in amounts which, at times, exceed insurable limits. Management does not anticipate non-performance by such banks.

At September 30, 2016, Rheonix, Inc. (Rheonix), Genicon, Inc. (Genicon), Outmatch (formerly Chequed Holdings, LLC) (Outmatch), Social
Flow, Inc. (Social Flow) and SciAps, Inc. (Sciaps) represented 11%, 10%, 8%, 8% and 7%, respectively, of the fair value of the Corporations investment portfolio.

Reclassification  Certain balances in prior years were reclassified to conform to presentations adopted in 2016.

Note 3. INVESTMENTS

The
Corporations investments are carried at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value
in GAAP, and expands disclosures about fair value measurements.

Loan investments are defined as traditional loan financings with no
equity features. Debt investments are defined as debt financings that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. A financing may also be categorized as a debt financing if
it is accompanied by the direct purchase of an equity interest in the company.



27



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The Corporation uses several approaches to determine the fair value of an investment. The main
approaches are:



| |  |  | Loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its
estimated fair value.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The loan and debt securities are typically carried at cost, however, may be valued at an amount other
than the price the security would command given the rate and related inherent portfolio risk of the investment.

A loan or debt
instrument may be reduced in value if it is judged to be of poor quality, collection is in doubt or insufficient liquidation proceeds exist.



| |  |  | Equity securities may be valued using the asset approach, market approach or income approach. The asset approach involves estimating the liquidation value of the portfolio
companys assets. To the extent the value exceeds the remaining principal amount of the debt or loan and all other debt securities of the portfolio company, the fair value of such securities is generally estimated to be their
cost. However, where value is less than the remaining principal amount of the loan and all other debt securities, the Corporation may discount the value of such securities. 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASC 820 classifies the inputs used to measure fair value into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporations valuation at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable and significant
inputs to determining the fair value.

Financial assets are categorized based upon the level of judgment associated with the inputs used
to measure their fair value.

Any changes in estimated fair value are recorded in the statement of operations as Net (decrease)
increase in unrealized depreciation or appreciation on investments.

Under the valuation policy, the Corporation values unrestricted
publicly traded companies, categorized as Level 1 investments, at the average closing bid price for the last three trading days of the reporting period. There were no such Level 1 investments as of September 30, 2016.

In the valuation process, the Corporation values restricted securities, categorized as Level 3 investments, using financial information from
these portfolio companies, which may include:



| |  |  | Financial information obtained from each portfolio company, including audited and unaudited statements of operations, balance sheets and operating budgets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Current and projected financial, operational and technological developments of the portfolio company;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Current and projected ability of the portfolio company to service its debt obligations;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | The current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



28



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| |  |  | Pending debt or capital restructuring of the portfolio company;
| | - |  | ---------------------------------------------------------------



| |  |  | Current information regarding any offers to purchase the investment, or recent fundraising transactions;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Current ability of the portfolio company to raise additional financing if needed;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Qualitative assessment of key management;
| | - |  | -----------------------------------------



| |  |  | Contractual rights, obligations or restrictions associated with the investment; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Other factors deemed relevant by the Corporations management to assess valuation.
| | - |  | ----------------------------------------------------------------------------------

This
information is used to determine financial condition, performance, and valuation of the portfolio companies. The valuation may be reduced if a portfolio companys performance and potential have deteriorated significantly. If the factors that
led to a reduction in valuation are overcome, the valuation may be readjusted.

Equity Securities

Equity Securities may include Preferred Stock, Common Stock, Warrants and Limited Liability Company Membership Interests.

The significant unobservable inputs used in the fair value measurement of the Corporations equity investments are earnings before
interest, tax and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the senior equity preferences that may exist in a deemed liquidation event. Standard
industry multiples may be used when available; however, the Corporations portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and
operational performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes to the unobservable inputs, such as
variances in financial performance from expectations, may result in a significantly higher or lower fair value measurement. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.

Another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated
non-strategic unrelated new investor entered into by the portfolio company. The terms of these equity transactions may not be identical to the equity transactions between the portfolio company and the Corporation, and the impact of the difference in
transaction terms on the market value of the portfolio company may be difficult or impossible to quantify.

When appropriate the
Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation
of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.

For recent investments, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair
market value inputs are identified causing the Corporation to depart from this basis.

Loan and Debt Securities

The significant unobservable inputs used in the fair value measurement of the Corporations loan and debt securities are the financial and
operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio companys products or services. These inputs will likely provide an indicator
as to the probability of principal recovery of the investment. The



29



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Corporations loan and debt investments are often junior secured or unsecured debt securities. Fair value may also be determined based on other criteria where appropriate. Significant
changes to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair market value inputs are identified
causing the Corporation to depart from this basis.

The following table provides a summary of the significant unobservable inputs used to
determine the fair value of the Corporations Level 3 portfolio investments as of September 30, 2016:



|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|-------------------------------- |  | ---------------------------- | --------------- |  | ---------------------------------- | - | ----------- | ----------------------------- |  | - | -------------------------------- |  |  | ------------------------------ | ----------- |  | ------ | - | -------------- |  |  | - | ---------- | 
|Investment Type                  |  | MarketApproachEBITDAMultiple |                 |  | MarketApproachLiquidationSeniority |   |             | MarketApproachRevenueMultiple |  |   | MarketApproachTransactionPricing |  |  | AssetApproachLiquidationMethod |             |  | Totals |  
|Non-Control/Non-Affiliate Equity |  | $                            | 1,088,191       |  |                                    | $ |            |                               |  | $ |                                 |  |  | $                              | 8,735,216   |  |        | $ |               |  |  | $ | 9,823,407  | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Non-Control/Non-Affiliate Debt   |  |                              |                |  |                                    |   |            |                               |  |   |                                 |  |  |                                |            |  |        |   | 3,966,560      |  |  |   | 3,966,560  | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Total Non-Control/Non-Affiliate  |  | $                            | 1,088,191       |  |                                    | $ |            |                               |  | $ |                                 |  |  | $                              | 8,735,216   |  |        | $ | 3,966,560      |  |  | $ | 13,789,967 | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Affiliate Equity                 |  | $                            | 1,128,348       |  |                                    | $ | 22,841      |                               |  | $ | 600,001                          |  |  | $                              | 7,097,194   |  |        | $ |               |  |  | $ | 8,848,384  | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Affiliate Debt                   |  |                              |                |  |                                    |   |            |                               |  |   |                                 |  |  |                                | 300,000     |  |        |   | 4,540,430      |  |  |   | 4,840,430  | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Total Affiliate                  |  | $                            | 1,128,348       |  |                                    | $ | 22,841      |                               |  | $ | 600,001                          |  |  | $                              | 7,397,194   |  |        | $ | 4,540,430      |  |  | $ | 13,688,814 | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Control Equity                   |  | $                            |                |  |                                    | $ |            |                               |  | $ | 99,500                           |  |  | $                              |            |  |        | $ |               |  |  | $ | 99,500     | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Control Debt                     |  |                              |                |  |                                    |   |            |                               |  |   |                                 |  |  |                                |            |  |        |   |               |  |  |   |           | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Total Control                    |  | $                            |                |  |                                    | $ |            |                               |  | $ | 99,500                           |  |  | $                              |            |  |        | $ |               |  |  | $ | 99,500     | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Total Level 3 Investments        |  | $                            | 2,216,539       |  |                                    | $ | 22,841      |                               |  | $ | 699,501                          |  |  | $                              | 16,132,410  |  |        | $ | 8,506,990      |  |  | $ | 27,578,281 | 
|                                 |  |                              |                 |  |                                    |   |             |                               |  |   |                                  |  |  |                                |             |  |        |   |                |  |  |   |            | 
|Range                            |  |                              | 3.6X-7.5X       |  |                                    |   | 1X          |                               |  |   | 0.75X-2.5X                       |  |  |                                | 0.0X  1.0X |  |        |   | Not Applicable |  |  |   |            | 
|Unobservable Input               |  |                              | EBITDA Multiple |  |                                    |   | Asset Value |                               |  |   | RevenueMultiple                  |  |  |                                | Discount    |  |        |   | Asset Value    |  |  |   |            | 
|Weighted Average                 |  |                              | 5.4X            |  |                                    |   | 1X          |                               |  |   | 2X                               |  |  |                                | 0 .89X      |  |        |   | Not Applicable |  |  |   |            | 

The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value on
a Recurring Basis at September 30, 2016:



|                   |  |                   |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 
|------------------ |  | ----------------- | ---------------------------------------------- |  | ----------------------------------------------------------- | - | - | ------------------------------------- |  | - | -------------------------------------------- |  |  | - | ---------- | 
|                   |  |                   | Fair Value Measurements at Reported Date Using | 
|Description        |  | September 30,2016 |                                                |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | SignificantObservable Inputs(Level 2) |  |   | Other SignificantUnobservableInputs(Level 3) | 
|Loan investments   |  | $                 | 3,200,000                                      |  |                                                             | $ |  |                                       |  | $ |                                             |  |  | $ | 3,200,000  | 
|Debt investments   |  |                   | 6,695,181                                      |  |                                                             |   |  |                                       |  |   |                                             |  |  |   | 6,695,181  | 
|Equity investments |  |                   | 17,683,100                                     |  |                                                             |   |  |                                       |  |   |                                             |  |  |   | 17,683,100 | 
|                   |  |                   |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 
|Total              |  | $                 | 27,578,281                                     |  |                                                             | $ |  |                                       |  | $ |                                             |  |  | $ | 27,578,281 | 
|                   |  |                   |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 



30



---

The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at
Fair Value on a Recurring Basis at December 31, 2015:



|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 
|------------------ |  | ---------------- | ---------------------------------------------- |  | ----------------------------------------------------------- | - | - | ------------------------------------- |  | - | -------------------------------------------- |  |  | - | ---------- | 
|                   |  |                  | Fair Value Measurements at Reported Date Using | 
|Description        |  | December 31,2015 |                                                |  | Quoted Prices inActive Marketsfor Identical Assets(Level 1) |   |   | SignificantObservable Inputs(Level 2) |  |   | Other SignificantUnobservableInputs(Level 3) | 
|Loan investments   |  | $                | 416,972                                        |  |                                                             | $ |  |                                       |  | $ |                                             |  |  | $ | 416,972    | 
|Debt investments   |  |                  | 5,076,632                                      |  |                                                             |   |  |                                       |  |   |                                             |  |  |   | 5,076,632  | 
|Equity investments |  |                  | 31,338,796                                     |  |                                                             |   |  |                                       |  |   |                                             |  |  |   | 31,338,796 | 
|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 
|Total              |  | $                | 36,832,400                                     |  |                                                             | $ |  |                                       |  | $ |                                             |  |  | $ | 36,832,400 | 
|                   |  |                  |                                                |  |                                                             |   |   |                                       |  |   |                                              |  |  |   |            | 

The following table provides a summary of changes in Assets Measured at Fair Value on a Recurring Basis Using
Significant Unobservable Inputs (Level 3) for the nine months ended September 30, 2016:



|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | --------- | ------------ | --------------- | - | --------- | ----------------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                  |  | Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital Investments |          
|Description                                                                                       |  | LoanInvestments                                                                                   |           |              | DebtInvestments |   |           | EquityInvestments |  |   | Total       |  
|Ending Balance, December 31, 2015, of Level 3 Assets                                              |  | $                                                                                                 | 416,972   |              |                 | $ | 5,076,632 |                   |  | $ | 31,338,796  |   |  | $ | 36,832,400  |  
|Realized Gains included in net change in net assets from operations:                              |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 14,588,813  |   |  |   | 14,588,813  |  
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Realized Gains                                                                              |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 14,588,813  |   |  |   | 14,588,813  |  
|Unrealized Gains and Losses included in net change innet assets from
operations:                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Athenex, Inc. (Athenex)                                                                           |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 69,444      |   |  |   | 69,444      |  
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   |          |              |                 |   |          |                   |  |   | (12,775,000 | ) |  |   | (12,775,000 | )
|Intrinsiq Material, Inc. (Intrinsiq)                                                              |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 254,329     |   |  |   | 254,329     |  
|Knoa Software, Inc. (Knoa)                                                                        |  |                                                                                                   |          |              |                 |   |          |                   |  |   | (422,800    | ) |  |   | (422,800    | )
|Statisfy, Inc. (Statisfy)                                                                         |  |                                                                                                   |          |              |                 |   |          |                   |  |   | (650,000    | ) |  |   | (650,000    | )
|Teleservices Solutions Holdings, LLC (Teleservices)                                               |  |                                                                                                   |          |              |                 |   |          |                   |  |   | (595,340    | ) |  |   | (595,340    | )
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Unrealized Gains and Losses                                                                 |  |                                                                                                   |          |              |                 |   |          |                   |  |   | (14,119,367 | ) |  |   | (14,119,367 | )
|Purchases of Securities/Changes to Securities/Non-cash conversions:                               |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|ACV Auctions, Inc. (ACV Auctions)                                                                 |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 163,000     |   |  |   | 163,000     |  
|BeetNPath, LLC (Beetnpath)                                                                        |  |                                                                                                   |          |              |                 |   | 150,000   |                   |  |   |            |   |  |   | 150,000     |  
|ClearView Social, Inc. (Clearview Social)                                                         |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 200,000     |   |  |   | 200,000     |  
|eHealth Global Technologies, Inc. (eHealth)                                                       |  |                                                                                                   | 1,500,000 |              |                 |   |          |                   |  |   |            |   |  |   | 1,500,000   |  
|Empire Genomics, LLC (Empire Genomics)                                                            |  |                                                                                                   |          |              |                 |   | 550,000   |                   |  |   |            |   |  |   | 550,000     |  
|Genicon, Inc. (Genicon)                                                                           |  |                                                                                                   | 1,700,000 |              |                 |   |          |                   |  |   |            |   |  |   | 1,700,000   |  
|GoNoodle, Inc. (GoNoodle)                                                                         |  |                                                                                                   |          |              |                 |   | 7,586     |                   |  |   |            |   |  |   | 7,586       |  
|Intrinsiq                                                                                         |  |                                                                                                   |          |              |                 |   |          |                   |  |   | 430,671     |   |  |   | 430,671     |  
|Knoa Software, Inc. (Knoa)                                                                        |  |                                                                                                   |          |              |                 |   | 48,466    |                   |  |   |            |   |  |   | 48,466      |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                    |  |                                                                                                   |          |              |                 |   | 7,497     |                   |  |   |            |   |  |   | 7,497       |  
|OnCore Golf Technology, Inc. (Oncore Golf)                                                        |  |                                                                                                   |          |              |                 |   | 150,000   |                   |  |   |            |   |  |   | 150,000     |  
|PostProcess Technologies, Inc. (Post Process)                                                     |  |                                                                                                   |          |              |                 |   | 300,000   |                   |  |   |            |   |  |   | 300,000     |  
|SciAps, Inc. (Sciaps)                                                                             |  |                                                                                                   |          |              |                 |   | 300,000   |                   |  |   |            |   |  |   | 300,000     |  
|Tilson Technology Management, Inc. (Tilson)                                                       |  |                                                                                                   |          |              |                 |   | 200,000   |                   |  |   | 200,000     |   |  |   | 400,000     |  
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Purchases of Securities/Changes to Securities/Non-cash conversions                          |  |                                                                                                   | 3,200,000 |              |                 |   | 1,713,549 |                   |  |   | 993,671     |   |  |   | 5,907,220   |  
|Repayments and Sale of Securities:                                                                |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Gemcor                                                                                            |  |                                                                                                   | (416,972  | )            |                 |   |          |                   |  |   | (15,213,813 | ) |  |   | (15,630,785 | )
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Total Repayments and Sale of Securities                                                           |  |                                                                                                   | (416,972  | )            |                 |   |          |                   |  |   | (15,213,813 | ) |  |   | (15,630,785 | )
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Transfers within Level 3                                                                          |  |                                                                                                   |          |              |                 |   | (95,000   | )                 |  |   | 95,000      |   |  |   |            |  
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Ending Balance, September 30, 2016, of Level 3 Assets                                             |  | $                                                                                                 | 3,200,000 |              |                 | $ | 6,695,181 |                   |  | $ | 17,683,100  |   |  | $ | 27,578,281  |  
|                                                                                                  |  |                                                                                                   |           |              |                 |   |           |                   |  |   |             |   |  |   |             |  
|Change in unrealized appreciation on investments for the period included in changes in net assets |  |                                                                                                   |           | ($14,119,367 | )              
|Net realized gain on investments for the period included in changes in net assets                 |  |                                                                                                   | $         | 14,756,953   |                



31



---

The following table provides a summary of changes in Assets Measured at Fair Value on a Recurring
Basis Using Significant Unobservable Inputs (Level 3) for the nine months ended September 30, 2015:



|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | -------- | -------- | --------------- | - | --------- | ----------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                  |  | Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital Investments |         
|Description                                                                                       |  | LoanInvestments                                                                                   |          |          | DebtInvestments |   |           | EquityInvestments |  |   | Total      |  
|Ending Balance, December 31, 2014, of Level 3 Assets                                              |  | $                                                                                                 | 622,801  |          |                 | $ | 5,384,339 |                   |  | $ | 23,692,236 |   |  | $ | 29,699,376 |  
|Unrealized Gains or Losses included in net change in netassets from
operations                    |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|First Wave Products Group, LLC (First Wave)                                                       |  |                                                                                                   |         |          |                 |   | (193,436  | )                 |  |   |           |   |  |   | (193,436   | )
|Athenex, Inc. (Athenex)                                                                           |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 92,592     |   |  |   | 92,592     |  
|SocialFlow, Inc. (Social Flow)                                                                    |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 321,300    |   |  |   | 321,300    |  
|Teleservices Solutions Holdings, LLC (Teleservices)                                               |  |                                                                                                   |         |          |                 |   |          |                   |  |   | (250,000   | ) |  |   | (250,000   | )
|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Unrealized Gains and Losses                                                                 |  |                                                                                                   |         |          |                 |   | (193,436  | )                 |  |   | 163,892    |   |  |   | (29,544    | )
|Purchases of Securities/Changes to Securities/Non-cash conversions:                               |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Chequed.com, Inc. (Chequed)                                                                       |  |                                                                                                   |         |          |                 |   | (250,000  | )                 |  |   | (1,383,222 | ) |  |   | (1,633,222 | )
|Chequed Holdings, LLC (Chequed Holdings)                                                          |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 2,145,496  |   |  |   | 2,145,496  |  
|City Dining Cards, Inc. (City Dining)                                                             |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|First Wave                                                                                        |  |                                                                                                   |         |          |                 |   | 28,132    |                   |  |   |           |   |  |   | 28,132     |  
|Genicon, Inc. (Genicon)                                                                           |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 1,000,000  |   |  |   | 1,000,000  |  
|GiveGab, Inc. (Give Gab)                                                                          |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 212,833    |   |  |   | 212,833    |  
|GoNoodle, Inc. (GoNoodle)                                                                         |  |                                                                                                   |         |          |                 |   | 1,006,458 |                   |  |   | 25         |   |  |   | 1,006,483  |  
|Intrinsiq Material, Inc. (Intrinsiq)                                                              |  |                                                                                                   |         |          |                 |   | 95,000    |                   |  |   |           |   |  |   | 95,000     |  
|KnowledgeVision Systems, Inc. (Knowledge Vision)                                                  |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 200,001    |   |  |   | 200,001    |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                                    |  |                                                                                                   |         |          |                 |   | 7,497     |                   |  |   |           |   |  |   | 7,497      |  
|Mezmeriz, Inc. (Mezmeriz)                                                                         |  |                                                                                                   |         |          |                 |   | (200,000  | )                 |  |   | 351,477    |   |  |   | 151,477    |  
|OnCore Golf Technology, Inc. (Oncore Golf)                                                        |  |                                                                                                   |         |          |                 |   | 150,000   |                   |  |   | 175,000    |   |  |   | 325,000    |  
|Rheonix, Inc. (Rheonix)                                                                           |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 702,732    |   |  |   | 702,732    |  
|SciAps, Inc. (Sciaps)                                                                             |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 754,710    |   |  |   | 754,710    |  
|Social Flow                                                                                       |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|Statisfy, Inc.(Statisfy)                                                                          |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 150,000    |   |  |   | 150,000    |  
|Teleservices                                                                                      |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 104,198    |   |  |   | 104,198    |  
|Tilson Technology Management, Inc. (Tilson)                                                       |  |                                                                                                   |         |          |                 |   |          |                   |  |   | 600,000    |   |  |   | 600,000    |  
|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Purchases of Securities/Changes to Securities/Non-cash conversions                          |  |                                                                                                   |         |          |                 |   | 837,087   |                   |  |   | 6,013,250  |   |  |   | 6,850,337  |  
|Repayments of Securities                                                                          |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Gemcor II, LLC (Gemcor)                                                                           |  |                                                                                                   | (151,460 | )        |                 |   |          |                   |  |   |           |   |  |   | (151,460   | )
|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Repayments of Securities                                                                    |  |                                                                                                   | (151,460 | )        |                 |   |          |                   |  |   |           |   |  |   | (151,460   | )
|Transfers within Level 3                                                                          |  |                                                                                                   |         |          |                 |   |          |                   |  |   |           |   |  |   |           |  
|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Ending Balance, September 30, 2015, of Level 3 Assets                                             |  | $                                                                                                 | 471,341  |          |                 | $ | 6,027,990 |                   |  | $ | 29,869,378 |   |  | $ | 36,368,709 |  
|                                                                                                  |  |                                                                                                   |          |          |                 |   |           |                   |  |   |            |   |  |   |            |  
|Change in unrealized appreciation on investments for the period included in changes
in net assets |  |                                                                                                   |          | ($29,544 | )              
|Net realized (losses) on investments for the period included in changes in net
assets             |  |                                                                                                   | $        |         |                



32



---

NOTE 4.OTHER ASSETS

At September 30, 2016 and December 31, 2015, other assets was comprised of the following:



|                                             |  |                   |            |  |                  |  |            | 
|-------------------------------------------- |  | ----------------- | ---------- |  | ---------------- |  | ---------- | 
|                                             |  | September 30,2016 |            |  | December 31,2015 | 
|Escrow receivable from BinOptics Corporation |  |                   | $1,504,854 |  |                  |  | $1,504,854 | 
|Escrow receivable from Gemcor II, LLC        |  |                   | 1,068,750  |  |                  |  |           | 
|Prepaid expenses                             |  |                   | 24,118     |  |                  |  |           | 
|Equipment (net)                              |  |                   | 7,192      |  |                  |  | 11,676     | 
|Operating receivables                        |  |                   | 2,281      |  |                  |  | 1,159      | 
|                                             |  |                   |            |  |                  |  |            | 
|Total other assets                           |  |                   | $2,607,195 |  |                  |  | $1,604,413 | 
|                                             |  |                   |            |  |                  |  |            | 

During 2014, the Corporation sold its investment in BinOptics Corporation and a portion of the proceeds are
held in escrow and scheduled to be released to the Corporation during 2016. During the first quarter of 2016, Gemcor II, LLC sold its assets, and a portion of the proceeds are held in escrow and will be released during 2017. Both escrow receivables
are subject to potential claims.

Note 5. COMMITMENTS AND CONTINGENCIES

The Corporation did not have any commitments to fund any investments as of September 30, 2016.

Note 6. SBA DEBENTURES

Pursuant to
Accounting Standard Update 2015-03 (ASU), the debt origination costs directly associated with the SBA debt obligations are presented as a direct deduction for the related debt liability.



|                                      |  |                   |            |   |                  |  |            |  
|------------------------------------- |  | ----------------- | ---------- | - | ---------------- |  | ---------- | -
|                                      |  | September 30,2016 |            |   | December 31,2015 | 
|Debentures guaranteed by the SBA      |  |                   | $8,000,000 |   |                  |  | $8,000,000 |  
|Less unamortized issue costs          |  |                   | (179,077   | ) |                  |  | (199,627   | )
|                                      |  |                   |            |   |                  |  |            |  
|Debentures guaranteed by the SBA, net |  |                   | $7,820,923 |   |                  |  | $7,800,373 |  
|                                      |  |                   |            |   |                  |  |            |  



33



---

Note 7. FINANCIAL HIGHLIGHTS

The following schedule provides the financial highlights, calculated based on weighted average shares outstanding, for the nine months ended
September 30, 2016 and the year ended December 31, 2015:



|                                                                         |  |                                                |            |    |                            |   |            |   
|------------------------------------------------------------------------ |  | ---------------------------------------------- | ---------- | -- | -------------------------- | - | ---------- | --
|                                                                         |  | Nine months endedSeptember 30, 2016(Unaudited) |            |    | Year endedDecember 31,2015 |  
|Income from investment operations (1):                                   |  |                                                |            |    |                            |   |            |   
|Investment income                                                        |  | $                                              | 0.12       |    |                            | $ | 0.45       |   
|Operating expenses                                                       |  |                                                | 0.46       |    |                            |   | 0.29       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Investment (loss) income before income taxes                             |  |                                                | (0.34      | )  |                            |   | 0.16       |   
|Income tax (benefit) expense                                             |  |                                                | (0.13      | )  |                            |   | 0.02       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Net investment (loss) income                                             |  |                                                | (0.21      | )  |                            |   | 0.14       |   
|Purchase of treasury stock                                               |  |                                                | 0.00       |    |                            |   | 0.00       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Net realized and unrealized gain on investments                          |  |                                                | 0.06       |    |                            |   | 0.10       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|(Decrease) increase in net asset value                                   |  |                                                | (0.15      | )  |                            |   | 0.24       |   
|Net asset value, beginning of period                                     |  |                                                | 5.35       |    |                            |   | 5.11       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Net asset value, end of period                                           |  | $                                              | 5.20       |    |                            | $ | 5.35       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Per share market price, end of period                                    |  | $                                              | 3.64       |    |                            | $ | 3.77       |   
|                                                                         |  |                                                |            |    |                            |   |            |   
|Total return based on market value                                       |  |                                                | (3.45      | %) |                            |   | (7.82      | %)
|Total return based on net asset value                                    |  |                                                | (2.98      | %) |                            |   | 4.64       | % 
|Supplemental data:                                                       |  |                                                |            |    |                            |   |            |   
|Ratio of operating expenses before income taxes to average net assets    |  |                                                | 8.74       | %  |                            |   | 5.49       | % 
|Ratio of operating expenses including income taxes to average net assets |  |                                                | 7.06       | %  |                            |   | 7.89       | % 
|Ratio of net investment (loss) income to average net assets              |  |                                                | (4.05      | %) |                            |   | 2.55       | % 
|Portfolio turnover                                                       |  |                                                | 18.3       | %  |                            |   | 21.4       | % 
|Net assets, end of period                                                |  | $                                              | 32,845,134 |    |                            | $ | 33,853,660 |   
|Weighted shares outstanding, end of period                               |  |                                                | 6,327,074  |    |                            |   | 6,328,538  |   



|(1) | Per share data are based on weighted average shares outstanding and the results are rounded to the nearest cent.
|--- | ----------------------------------------------------------------------------------------------------------------

The Corporations interim period results could fluctuate as a result of a number of factors; therefore results for any interim period
should not be relied upon as being indicative of performance for the full year or in future periods.



34



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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 the consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of
trends in operating results for any future periods.

FORWARD LOOKING STATEMENTS

Statements included in this Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
report 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, as amended, and in Section 21E of the Securities
Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by us from time to time, and forward-looking statements may be included in documents that are filed with the Securities and Exchange Commission.
Forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements
relating to our 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 United States economy and the local markets in which our portfolio companies operate, the state of the securities markets in which the securities of the
our portfolio companies could be traded, liquidity within the United States financial markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties described under the caption Risk Factors contained
in Part II, Item 1A of this report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

There may be other factors not identified that affect the accuracy of our forward-looking statements. Further, any forward-looking statement
speaks only as of the date when 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

We are an internally managed
investment company that invests in and lends to small and medium-sized companies primarily in connection with loans or investments made concurrently by other investors. We have elected to be treated as a business development company
(BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, we are required to comply with certain regulatory requirements. We make the majority of our investments through our wholly-owned subsidiary,
Rand Capital SBIC, Inc. (Rand SBIC), which operates as a small business investment company (SBIC) and has been licensed by the U.S. Small Business Administration (SBA) since 2002. We anticipate that most, if not
all, of our investments made in the next year will be originated through our SBIC subsidiary.



35



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Outlook

At the end of the third quarter of 2016, we had approximately $12 million in cash on hand, which is available for future investment and
operating needs. We believe the combination of cash on hand and prospective investment income provides sufficient capital for us to continue to add new investments to our portfolio, while continuing to reinvest in existing portfolio companies that
continue to demonstrate growth potential. The following short and long-term trends provide us with confidence in our ability to grow Rand:



| |  |  | We expect that well run U.S. businesses will require capital to continue to grow given the low cost of capital, strong business and consumer spending, and eager reception of new technologies and service concepts. We
believe Rand will be able to participate in financing these businesses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have sufficient cash on hand to invest in new opportunities.
| | - |  | ---------------------------------------------------------------



| |  |  | Given our available cash on hand, we are able to invest larger amounts in companies, which, we believe, will provide an opportunity to accelerate our rate of growth.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will continue to manage risk by investing with other investors, when possible.
| | - |  | ---------------------------------------------------------------------------------



| |  |  | We are actively involved with the governance and management of our portfolio companies, which enables us to support their operating and marketing efforts to facilitate their growth.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As our portfolio of investments continues to expand, we are able to better leverage our infrastructure.
| | - |  | -------------------------------------------------------------------------------------------------------

Critical Accounting Policies

We prepare
our consolidated financial statements in accordance with United States generally accepted accounting principles (GAAP), which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities. A summary of our
critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2015 under Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations.



36



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Financial Condition



|                  |  |         |            |  |          |   |            |            |  |    |              |   |  |  |      |   
|----------------- |  | ------- | ---------- |  | -------- | - | ---------- | ---------- |  | -- | ------------ | - |  |  | ---- | --
|Overview:         |  | 9/30/16 |            |  | 12/31/15 |   |            | (Decrease) |  |    | % (Decrease) |  
|Total assets      |  | $       | 43,293,415 |  |          | $ | 44,562,060 |            |  | ($ | 1,268,645    | ) |  |  | (2.8 | %)
|Total liabilities |  |         | 10,448,281 |  |          |   | 10,708,400 |            |  |    | (260,119     | ) |  |  | (2.4 | %)
|                  |  |         |            |  |          |   |            |            |  |    |              |   |  |  |      |   
|Net assets        |  | $       | 32,845,134 |  |          | $ | 33,853,660 |            |  | ($ | 1,008,526    | ) |  |  | (3.0 | %)
|                  |  |         |            |  |          |   |            |            |  |    |              |   |  |  |      |   

Net asset value per share (NAV) was $5.20 at September 30, 2016 and $5.35 at December 31, 2015.

Our outstanding SBA debentures at September 30, 2016 were $8,000,000 and will mature from 2022 through 2025. Cash approximated 36% of net
assets at September 30, 2016 as compared to 17% at December 31, 2015. The change is primarily due to the receipt of proceeds from the asset sale of one of our investments, Gemcor II, LLC, in March 2016.

Composition of Our Investment Portfolio

Our financial condition is dependent on the success of our portfolio holdings. We have invested substantially all of our assets in small to
medium-sized companies. The following summarizes our investment portfolio at the dates indicated.



|                                            |  |         |            |   |          |   |            |                    |  |    |                      |   |  |  |        |   
|------------------------------------------- |  | ------- | ---------- | - | -------- | - | ---------- | ------------------ |  | -- | -------------------- | - |  |  | ------ | --
|                                            |  | 9/30/16 |            |   | 12/31/15 |   |            | Increase(Decrease) |  |    | % Increase(Decrease) |  
|Investments, at cost                        |  | $       | 32,275,990 |   |          | $ | 27,410,742 |                    |  | $  | 4,865,248            |   |  |  | 17.7   | % 
|Unrealized (depreciation) appreciation, net |  |         | (4,697,709 | ) |          |   | 9,421,658  |                    |  |    | (14,119,367          | ) |  |  | (149.9 | %)
|                                            |  |         |            |   |          |   |            |                    |  |    |                      |   |  |  |        |   
|Investments at fair value                   |  | $       | 27,578,281 |   |          | $ | 36,832,400 |                    |  | ($ | 9,254,119            | ) |  |  | (25.1  | %)
|                                            |  |         |            |   |          |   |            |                    |  |    |                      |   |  |  |        |   

Our total investments at fair value, as estimated by management and approved by our Board of Directors,
approximated 84% of net assets at September 30, 2016 versus 109% of net assets at December 31, 2015 with the change primarily due to the asset sale of one of our investments, Gemcor II, LLC.

The change in investments during the nine months ended September 30, 2016, at cost, is comprised of the following:



|                                                                |  |                        |            |  
|--------------------------------------------------------------- |  | ---------------------- | ---------- | -
|                                                                |  | CostIncrease(Decrease) |           
|New investments:                                                |  |                        |            |  
|Genicon, Inc. (Genicon)                                         |  | $                      | 1,700,000  |  
|eHealth Global Technologies, Inc. (eHealth)                     |  |                        | 1,500,000  |  
|Empire Genomics, LLC (Empire Genomics)                          |  |                        | 550,000    |  
|Intrinsiq Materials, Inc. (Intrinsiq)                           |  |                        | 421,546    |  
|Tilson Technology Management, Inc. (Tilson)                     |  |                        | 400,000    |  
|PostProcess Technologies LLC (Post Process)                     |  |                        | 300,000    |  
|SciAps, Inc. (Sciaps)                                           |  |                        | 300,000    |  
|ClearView Social, Inc. (Clearview Social)                       |  |                        | 200,000    |  
|ACV Auctions, Inc. (ACV Auctions)                               |  |                        | 163,000    |  
|BeetNPath, LLC (Beetnpath)                                      |  |                        | 150,000    |  
|OnCore Golf Technology, Inc. (Oncore Golf)                      |  |                        | 150,000    |  
|Knoa Software, Inc. (Knoa)                                      |  |                        | 48,466     |  
|                                                                |  |                        |            |  
|Total of new investments                                        |  |                        | 5,883,012  |  
|Other changes to investments:                                   |  |                        |            |  
|Intrinsiq                                                       |  |                        | 9,125      |  
|GoNoodle, Inc. (GoNoodle) interest conversion                   |  |                        | 7,586      |  
|Mercantile Adjustment Bureau, LLC (Mercantile) OID amortization |  |                        | 7,497      |  
|                                                                |  |                        |            |  
|Total of other changes to investments                           |  |                        | 24,208     |  
|Investments repaid, sold or liquidated:                         |  |                        |            |  
|Gemcor II, LLC (Gemcor) repayment                               |  |                        | (1,041,972 | )
|                                                                |  |                        |            |  
|Total investments repaid, sold or liquidated                    |  |                        | (1,041,972 | )
|                                                                |  |                        |            |  
|Net change in investments, at cost                              |  | $                      | 4,865,248  |  
|                                                                |  |                        |            |  



37



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Results of Operations

Investment Income

Our investment
objective is to achieve long-term capital appreciation on our equity investments while investing in a mixture of loan, debenture and equity instruments, which are structured to provide a current return on a portion of the investment portfolio.

Comparison of the nine months ended September 30, 2016 to the nine months ended September 30, 2015



|                                     |  |                   |         |  |                   |   |           |                    |  |    |                     |   |  |  |       |   
|------------------------------------ |  | ----------------- | ------- |  | ----------------- | - | --------- | ------------------ |  | -- | ------------------- | - |  |  | ----- | --
|                                     |  | September 30,2016 |         |  | September 30,2015 |   |           | (Decrease)Increase |  |    | %(Decrease)Increase |  
|Interest from portfolio companies    |  | $                 | 525,073 |  |                   | $ | 549,619   |                    |  | ($ | 24,546              | ) |  |  | (4.5  | %)
|Interest from other investments      |  |                   | 33,683  |  |                   |   | 18,719    |                    |  |    | 14,964              |   |  |  | 79.9  | % 
|Dividend and other investment income |  |                   | 152,818 |  |                   |   | 1,488,545 |                    |  |    | (1,335,727          | ) |  |  | (89.7 | %)
|Fee income                           |  |                   | 18,949  |  |                   |   | 21,667    |                    |  |    | (2,718              | ) |  |  | (12.5 | %)
|                                     |  |                   |         |  |                   |   |           |                    |  |    |                     |   |  |  |       |   
|Total investment income              |  | $                 | 730,523 |  |                   | $ | 2,078,550 |                    |  | ($ | 1,348,027           | ) |  |  | (64.9 | %)
|                                     |  |                   |         |  |                   |   |           |                    |  |    |                     |   |  |  |       |   

Interest from portfolio companies  Interest income from portfolio companies decreased during the nine months
ended September 30, 2016 versus the nine months ended September 30, 2015 due to decreases in the principal balances outstanding on loan and debt investments with Gemcor, II, LLC (Gemcor) and Carolina Skiff, LLC (Carolina Skiff),
respectively, and the timing of our new debt investments made during 2016 which offset these repayments.

After reviewing their
performance and the circumstances surrounding our investments, we ceased accruing interest income on First Wave Products Group, LLC (First Wave) and a portion of the Mercantile Adjustment Bureau, LLC (Mercantile) outstanding loan balances during
2015.

Interest from other investments - The increase in interest from other investments is primarily due to higher average cash balances during
the nine months ended September 30, 2016 versus the same period in 2015.

Dividend and other investment income - Dividend income is comprised
of distributions from limited liability companies (LLCs) and corporations in which we have invested. Our investment agreements with certain LLCs require those LLCs to distribute funds to us for payment of income taxes on our allocable share of the
LLCs profits. These portfolio companies may also elect to make additional discretionary distributions. Dividend income will fluctuate based upon the profitability of these LLCs and corporations and the timing of the distributions or the impact
of new investments or divestitures. Dividend and other investment income decreased in 2016 due to the asset sale of Gemcor II, LLC during March 2016. The dividend distributions for the respective periods were:



|                                            |  |                   |         |  |                   |   |           | 
|------------------------------------------- |  | ----------------- | ------- |  | ----------------- | - | --------- | 
|                                            |  | September 30,2016 |         |  | September 30,2015 |  
|Carolina Skiff LLC (Carolina Skiff)         |  | $                 | 97,684  |  |                   | $ | 81,808    | 
|New Monarch Machine Tool LLC (Monarch)      |  |                   | 27,409  |  |                   |   | 27,409    | 
|SOMS Technologies, LLC (SOMS)               |  |                   | 13,464  |  |                   |   | 4,355     | 
|Tilson Technology Management, Inc. (Tilson) |  |                   | 11,250  |  |                   |   | 10,667    | 
|Empire Genomics                             |  |                   | 3,011   |  |                   |   |          | 
|Gemcor, II, LLC (Gemcor)                    |  |                   |        |  |                   |   | 1,364,306 | 
|                                            |  |                   |         |  |                   |   |           | 
|Total dividend and other investment income  |  | $                 | 152,818 |  |                   | $ | 1,488,545 | 
|                                            |  |                   |         |  |                   |   |           | 



38



---

Fee income - Fee income consists of the revenue associated with the amortization of financing fees charged
to the portfolio companies upon successful closing of Rand SBIC financings and income from portfolio company board attendance fees. The financing fees are amortized ratably over the life of the instrument associated with the fees. The unamortized
fees are carried on the balance sheet under the line item Deferred revenue.

The income associated with the amortization of
financing fees was $15,948 and $13,667 for the nine months ended September 30, 2016 and 2015, respectively. The income from board fees was $3,000 and $8,000 for the nine months ended September 30, 2016 and 2015, respectively.

Operating Expenses

Comparison of the nine months
ended September 30, 2016 to the nine months ended September 30, 2015



|                         |  |                   |           |  |                   |   |           |          |  |   |            |  |  |  |       |  
|------------------------ |  | ----------------- | --------- |  | ----------------- | - | --------- | -------- |  | - | ---------- |  |  |  | ----- | -
|                         |  | September 30,2016 |           |  | September 30,2015 |   |           | Increase |  |   | % Increase | 
|Total operating expenses |  | $                 | 2,915,300 |  |                   | $ | 1,221,995 |          |  | $ | 1,693,305  |  |  |  | 138.6 | %

Operating expenses predominately consist of interest expense on outstanding SBA borrowings, compensation
expense, and general and administrative expenses including stockholder and office operating expenses and professional fees.

The increase
in operating expenses during the nine months ended September 30, 2016 was comprised primarily of a $1,411,659 increase in bonus and profit sharing expense and an 87%, or $110,782, increase in professional fees.

Our largest portfolio company, in terms of fair value, Gemcor II, LLC (Gemcor) sold its assets during March 2016 and based on our ownership
percentage, we received gross cash proceeds of approximately $14.1 million. The realized gain from the sale, before income taxes, was $14,588,813 and included $1,068,750 that continued to be held in escrow at September 30, 2016. The escrow
holdback is recorded in Other Assets on the accompanying consolidated statement of financial position. The escrow is scheduled to be released during 2017, subject to potential claims. Related to this asset sale, we accrued $1,411,659
under our Profit Sharing Plan for the nine months ended September 30, 2016, that is payable to our executive officers. There were no amounts earned pursuant to the Profit Sharing Plan for the nine months ended September 30, 2015.

Professional fees were also higher during the nine months ended September 30, 2016 versus the same period in 2015 because we incurred
additional expenses in connection with implementing our long-term growth strategy. These expenses included external legal, tax consulting and other advisory expenses to support refinement of our strategy, which involved assessing options
relative to the complex regulatory environment in which we operate.



39



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Realized Gains and Losses on Investments

Comparison of the nine months ended September 30, 2016 to the nine months ended September 30, 2015



|                                                 |  |                   |            |  |                   |   |         |          |  |   |            | 
|------------------------------------------------ |  | ----------------- | ---------- |  | ----------------- | - | ------- | -------- |  | - | ---------- | 
|                                                 |  | September 30,2016 |            |  | September 30,2015 |   |         | Increase | 
|Realized gain on investments before income taxes |  | $                 | 14,756,953 |  |                   | $ | 262,925 |          |  | $ | 14,494,028 | 

During the first quarter of 2016, our portfolio company Gemcor II, LLC sold its assets, and accordingly, we
received gross cash proceeds of approximately $14.1 million, excluding amounts that continue to be held in escrow, and recognized a realized gain, before income taxes, of $14,588,813.

In addition, we recorded a realized gain of $168,140 during the nine months ended September 30, 2016 from the earn out provision in
connection with the 2014 sale of QuaDPharma, LLC to Athenex Inc.

During the nine months ended September 30, 2015, we recognized a
net realized gain, before income taxes, of $262,925 on the sale of 301,582 shares of Synacor, Inc. (Synacor). As of September 30, 2015, we did not own any shares of Synacor.

Change in Unrealized Depreciation or Appreciation of Investments

Comparison of the nine months ended September 30, 2016 to the nine months ended September 30, 2015



|                                                                      |  |                   |            |   |                   |    |         |          |  |    |            |  
|--------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -- | ------- | -------- |  | -- | ---------- | -
|                                                                      |  | September 30,2016 |            |   | September 30,2015 |    |         | Decrease | 
|Change in unrealized depreciation or appreciation before income taxes |  | ($                | 14,119,367 | ) |                   | ($ | 249,864 | )        |  | ($ | 13,869,503 | )

The decrease in unrealized depreciation or appreciation before income taxes for the nine months ended
September 30, 2016 was comprised of the following:



|                                                                                                                               |  |                   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ---------- | -
|                                                                                                                               |  | September 30,2016 |           
|Reclassify Gemcor II, LLC (Gemcor) to a realized gain                                                                          |  | ($                | 12,775,000 | )
|Statisfy, Inc. (Statisfy)                                                                                                      |  |                   | (650,000   | )
|Teleservices Solutions Holdings, LLC (Teleservices)                                                                            |  |                   | (595,340   | )
|Knoa Software, Inc. (Knoa)                                                                                                     |  |                   | (422,800   | )
|Athenex, Inc. (Athenex)                                                                                                        |  |                   | 69,444     |  
|Intrinsiq Materials, Inc. (Intrinsiq)                                                                                          |  |                   | 254,329    |  
|                                                                                                                               |  |                   |            |  
|Total change in net unrealized depreciation of investments before income taxes during the nine
months ended September 30, 2016 |  | ($                | 14,119,367 | )
|                                                                                                                               |  |                   |            |  

During the first quarter of 2016, our portfolio company, Gemcor II, LLC sold its assets and we received gross
cash proceeds of approximately $14.1 million. The realized gain from the sale, before income taxes, was $14,588,813 and included $1,068,750 that was held in escrow at September 30, 2016. The escrow holdback is recorded in Other
Assets on the accompanying consolidated statement of financial position. The escrow is scheduled to be released during 2017, subject to potential claims.

The valuation of our investment in Statisfy was decreased after we reviewed the portfolio company and its financial condition and determined
that a valuation adjustment was necessary.

Our investment in Teleservices was revalued after we reviewed their operations and their
current and past financial performance. This review indicated that a further deterioration of their business had occurred. If the factors that led to this reduction in valuation are overcome, the value may be restored. The portfolio company remains
in operation and is developing new business strategies.



40



---

The valuation of our investment in Knoa was decreased during the nine months ended
September 30, 2016 to value our equity investment at a value consistent with the anticipated pricing for Knoas future equity financing.

In accordance with our valuation policy, we increased the value of our investment in Athenex based on a significant equity financing by a new
non-strategic outside entity. This new financing used a higher valuation for Athenex than had been used for its prior financing rounds.

Intrinsiqs value was increased based on a financial analysis of the portfolio company, completed by management, indicating continued
improved performance and the completion of an equity refinancing in the third quarter of 2016.

The decrease in unrealized appreciation
before income taxes for the nine months ended September 30, 2015 was comprised of the following:



|                                                                                                                               |  |                   |          |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | -------- | -
|                                                                                                                               |  | September 30,2015 |         
|Athenex, Inc. (Athenex) (formerly Kinex Pharmaceuticals, Inc.)                                                                 |  | $                 | 92,592   |  
|First Wave Products Group, LLC (First Wave)                                                                                    |  |                   | (193,436 | )
|SocialFlow, Inc. (SocialFlow)                                                                                                  |  |                   | 321,300  |  
|Synacor, Inc. (Synacor) reclass to a realized gain                                                                             |  |                   | (220,320 | )
|Teleservices Solutions Holdings, LLC (Teleservices)                                                                            |  |                   | (250,000 | )
|                                                                                                                               |  |                   |          |  
|Total change in net unrealized appreciation of investments before income taxes during the nine
months ended September 30, 2015 |  | ($                | 249,864  | )
|                                                                                                                               |  |                   |          |  

In accordance with our valuation policy, we increased the value of our holdings in Athenex and Social Flow
based on significant equity financings for each made during 2015 by new non-strategic outside investors at a higher valuation for each than their prior financing round valuation.

The First Wave investment was revalued after our management reviewed the portfolio company and its financial condition and determined that a
valuation adjustment was necessary.

We sold our remaining shares of Synacor during the nine months ended September 30, 2015.

The Teleservices investment was revalued during the nine months ended September 30, 2015 after our management reviewed the portfolio
company and determined that the business had deteriorated since the time of the original funding.

All of these value adjustments resulted
from a review by our management using the guidance set forth by ASC 820 and our established valuation policy.

Net (Decrease) Increase in Net Assets
from Operations

We account for our operations under GAAP for investment companies. The principal measure of our financial performance
is net (decrease) increase in net assets from operations on our consolidated statements of operations. For the nine months ended September 30, 2016 and 2015, the net (decrease) increase in net assets from operations was ($986,912)
and $609,141, respectively.

Liquidity and Capital Resources

Our principal objective is to achieve growth in net asset value per share through capital appreciation. Therefore, a significant portion of our
investment portfolio is structured to maximize the potential for capital appreciation, and certain portfolio investments may be structured to provide little or no current yield in the form of dividends or interest payments.



41



---

As of September 30, 2016, our total liquidity consisted of approximately $11.7 million in
cash on hand.

Management expects that the cash on hand at September 30, 2016, coupled with the scheduled interest payments from our
portfolio investments, will be sufficient to meet our liquidity needs through the next twelve months. As a result of the reduction of investment income related to the Gemcor asset sale, we expect to continue to look for new investment opportunities
that provide interest and dividend payments so as to provide cash flow to cover operating costs. Future exits from portfolio companies may increase the amount of liquidity available for new investments, operating activities and future SBA debenture
obligations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our investment activities contain elements of risk. Our investment portfolio consists of equity and debt securities in private companies and is
subject to valuation risk. Because there is typically no public market for the equity and debt securities in which we invest, the valuation of the equity interests in the portfolio is stated at fair value as determined in good faith by
our management and approved by our Board of Directors. This is in accordance with our investment valuation policy (see the discussion of valuation policy contained in Note 3.-Investments in the consolidated financial statements contained
in Item 1 of this report, which is hereby incorporated herein by reference.) In the absence of readily ascertainable market values, the estimated value of the 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 on the consolidated statement of operations as Net (decrease) increase in unrealized appreciation on investments.

At times, a portion of our portfolio may include marketable securities traded in the over-the-counter market. In addition, there may be a
portion of the 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 markets to trade in an orderly fashion, we may not be able to realize the fair value of our marketable investments or other investments in a timely manner.

As of September 30, 2016, we did not have any off-balance sheet arrangements or hedging or similar derivative financial instrument
investments.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.The Corporation maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that this
information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the Chief
Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Corporations disclosure controls and procedures as of September 30, 2016. Based on the evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Corporations controls and procedures were effective as of September 30, 2016.

Changes in Internal Control over Financial Reporting.There have been no changes in our internal control over financial reporting
during the Corporations most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.



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PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A.
Risk Factors

See Part I, Item 1A, Risk Factors, of the Annual Report on Form 10-K for
the year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities



|                     |  |                                     |       |  |                                 |   |      |                                                                      |  |  |                                                                                   |  |  |  |         | 
|-------------------- |  | ----------------------------------- | ----- |  | ------------------------------- | - | ---- | -------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------- |  |  |  | ------- | 
|Period               |  | Total number ofshares purchased (1) |       |  | Average price paidper share (2) |   |      | Total number of sharespurchased as part ofpubliclyannounced plan (3) |  |  | Maximum number ofshares that may yetbe purchased underthe share repurchaseprogram | 
|7/1/2016  7/31/2016 |  |                                     |      |  |                                 |   |     |                                                                      |  |  |                                                                                  |  |  |  | 465,504 | 
|8/1/2016  8/31/2016 |  |                                     | 6,550 |  |                                 | $ | 3.30 |                                                                      |  |  | 6,550                                                                             |  |  |  | 458,954 | 
|9/1/2016  9/30/2016 |  |                                     |      |  |                                 |   |     |                                                                      |  |  |                                                                                  |  |  |  | 458,954 | 



|(1) | The total number of shares purchased was 6,550 during the third quarter of 2016. All transactions were made in the open market.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | The average price paid per share is calculated on a settlement basis and includes commission.
|--- | ---------------------------------------------------------------------------------------------

|(3) | On October 19, 2016, the Board of Directors extended the repurchase authorization of up to 1,000,000 shares of the Corporations common stock on the open market at prices no greater than the then current net
asset value through October 19, 2017.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.



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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) and (a) (2) of Form N-2 filed with the Securities Exchange Commission on April 22, 1997. (File
No. 333-25617).(3)(ii)

By-laws of the Corporation, filed herewith.(4)

Specimen certificate of common stock certificate, incorporated by reference to Exhibit (d) (1) of Form N-2 filed with the Securities Exchange Commission on April 22, 1997. (File No. 333-25617).(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)

Section 1350 Certifications  Rand Capital Corporation  furnished herewith






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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: November 2, 2016



RAND CAPITAL CORPORATIONBy:

/s/ Allen F. GrumAllen F. Grum, PresidentBy:

/s/ Daniel P. PenberthyDaniel P. Penberthy, Treasurer




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