##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from to
 Commission File Number: 001-08205
 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 No. Including Area Code)
 þ o
  o o þ
 o þ




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##### 



RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q
  
 PART I.  FINANCIAL INFORMATION
 Item 1.
    
    Financial Statements and Supplementary Data (Unaudited)Consolidated Statements of Financial Position as of September 30, 2007
and December 31, 2006Condensed Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 2007 and 2006Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2007 and 2006Condensed Consolidated Statements of Changes in Net Assets for the
Three Months and Nine Months Ended September 30, 2007 and 2006Condensed Consolidated Schedule of Portfolio Investments as of
September 30, 2007Notes to the Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
OperationsItem 3.
    
    Quantitative and Qualitative Disclosures about Market RiskItem 4.
    
    Controls and ProceduresPART II  OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2









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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements and Supplementary Data
 
 Rand Capital Corporation and Subsidiaries
Consolidated Statements of Financial Position
As of September 30, 2007 and December 31, 2006
 September 30, 
2007
    
    
    December 31, 2006(Unaudited)ASSETSInvestments at fair value (identified cost: 9/30/07 -
$13,551,483; 12/31/06 - $14,033,789)
    
    $
    22,373,628
    
    
    $
    23,649,814Cash and cash equivalents
    
    
    4,131,507
    
    
    
    4,299,852Interest receivable (net of allowance $122,000)
    
    
    592,255
    
    
    
    507,242Prepaid income taxes
    
    
    207,130
    
    
    
    Other assets
    
    
    1,042,143
    
    
    
    1,007,036Total assets
    
    $
    28,346,663
    
    
    $
    29,463,944LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)
Liabilities:Liabilities:Debentures guaranteed by the SBA
    
    $
    8,100,000
    
    
    $
    8,100,000Deferred income taxes
    
    
    3,081,000
    
    
    
    3,808,000Income taxes payable
    
    
    
    
    
    
    410,575Accounts payable and accrued expenses
    
    
    107,726
    
    
    
    317,359Deferred revenue
    
    
    20,970
    
    
    
    45,605Total liabilities
    
    
    11,309,696
    
    
    
    12,681,539Stockholders equity (net assets):Common stock, $.10 par  shares authorized 10,000,000;
shares issued 5,763,034
    
    
    576,304
    
    
    
    576,304Capital in excess of par value
    
    
    6,973,454
    
    
    
    6,973,454Accumulated net investment (loss)
    
    
    (4,527,360
    )
    
    
    (6,253,128
    )Undistributed net realized gain on investments
    
    
    8,381,241
    
    
    
    9,763,366Net unrealized appreciation on investments
    
    
    5,680,534
    
    
    
    5,769,615Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share: 9/30/07-$2.98 , 12/31/2006-$2.93)
    
    
    17,036,967
    
    
    
    16,782,405Total liabilities and stockholders equity (net assets)
    
    $
    28,346,663
    
    
    $
    29,463,944




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Investment income:Interest from portfolio companies
    
    $
    140,766
    
    
    $
    187,325
    
    
    $
    474,962
    
    
    $
    539,783Interest from other investments
    
    
    41,563
    
    
    
    13,517
    
    
    
    133,853
    
    
    
    24,856Dividend and other investment income
    
    
    177,281
    
    
    
    163,756
    
    
    
    586,291
    
    
    
    191,994Other income
    
    
    5,993
    
    
    
    41,529
    
    
    
    26,637
    
    
    
    63,910365,603
    
    
    
    406,127
    
    
    
    1,221,743
    
    
    
    820,543Operating expenses:Salaries
    
    
    100,465
    
    
    
    95,162
    
    
    
    308,022
    
    
    
    287,070Employee benefits
    
    
    21,338
    
    
    
    20,704
    
    
    
    86,727
    
    
    
    73,857Directors fees
    
    
    10,750
    
    
    
    9,750
    
    
    
    67,250
    
    
    
    46,500Professional fees
    
    
    52,383
    
    
    
    21,028
    
    
    
    149,645
    
    
    
    96,031Stockholders and office operating
    
    
    23,902
    
    
    
    19,389
    
    
    
    98,056
    
    
    
    87,257Insurance
    
    
    10,920
    
    
    
    10,920
    
    
    
    32,760
    
    
    
    32,760Corporate development
    
    
    17,886
    
    
    
    12,188
    
    
    
    50,351
    
    
    
    40,863Other operating
    
    
    2,343
    
    
    
    3,783
    
    
    
    7,884
    
    
    
    8,341239,987
    
    
    
    192,924
    
    
    
    800,695
    
    
    
    672,679Interest on SBA obligations
    
    
    125,766
    
    
    
    127,137
    
    
    
    377,297
    
    
    
    346,635Total expenses
    
    
    365,753
    
    
    
    320,061
    
    
    
    1,177,992
    
    
    
    1,019,314Investment (loss) gain before income taxes
    
    
    (150
    )
    
    
    86,066
    
    
    
    43,751
    
    
    
    (198,771
    )Current income tax expense (benefit)
    
    
    36,082
    
    
    
    (1,842
    )
    
    
    217,447
    
    
    
    8,158Deferred income tax expense (benefit)
    
    
    377,982
    
    
    
    123,402
    
    
    
    (12,151
    )
    
    
    120,783Net investment (loss)
    
    
    (414,214
    )
    
    
    (35,494
    )
    
    
    (161,545
    )
    
    
    (327,712
    )Realized and unrealized gain (loss) on investments:Net gain on sales and dispositions
    
    
    555,000
    
    
    
    292,633
    
    
    
    516,204
    
    
    
    519,527Unrealized appreciation (depreciation) on
investments:Beginning of period
    
    
    9,735,146
    
    
    
    487,020
    
    
    
    9,616,025
    
    
    
    (342,028
    )End of period
    
    
    8,822,146
    
    
    
    193,516
    
    
    
    8,822,146
    
    
    
    193,516Change in unrealized appreciation
(depreciation) before income taxes
    
    
    (913,000
    )
    
    
    (293,504
    )
    
    
    (793,879
    )
    
    
    535,544Deferred income tax (benefit) expense
    
    
    (421,115
    )
    
    
    (117,402
    )
    
    
    (377,529
    )
    
    
    214,217Net change in unrealized appreciation (depreciation) on
investments
    
    
    (491,885
    )
    
    
    (176,102
    )
    
    
    (416,350
    )
    
    
    321,327Net realized and unrealized gain on investments
    
    
    63,115
    
    
    
    116,531
    
    
    
    99,854
    
    
    
    840,854Net (decrease) increase in
net assets from operations
    
    $
    (351,099
    )
    
    $
    81,037
    
    
    $
    (61,691
    )
    
    $
    513,142Weighted average shares outstanding
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934
    
    
    
    5,718,934Basic and diluted net (decrease) increase in net assets
from operations per share
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    0.09




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 September 30,
    
    
    September 30,2007
    
    
    2006Cash flows from operating activities:Net (decrease) increase in net assets from operations
    
    $
    (61,691
    )
    
    $
    513,142Adjustments to reconcile net (decrease) increase in net
assets to net cash used in operating activities:Depreciation and amortization
    
    
    25,487
    
    
    
    20,603Original issue discount accretion
    
    
    (62,333
    )
    
    
    Decrease in unrealized appreciation of investments
    
    
    793,879
    
    
    
    (535,544
    )Deferred tax benefit
    
    
    (389,547
    )
    
    
    335,000Net realized gain on portfolio investments
    
    
    (516,204
    )
    
    
    (519,527
    )Non-cash conversion of debenture interest
    
    
    (50,000
    )
    
    
    (12,877
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (85,013
    )
    
    
    (189,098
    )Increase in prepaid income taxes
    
    
    (207,130
    )(Increase) decrease in other assets
    
    
    (59,244
    )
    
    
    61,985(Decrease) in income taxes payable
    
    
    (410,575
    )
    
    
    (Decrease) in accounts payable and accrued expenses
    
    
    (230,833
    )
    
    
    (21,849
    )(Decrease) in deferred revenue
    
    
    (24,635
    )
    
    
    (69,123
    )Total adjustments
    
    
    (1,216,148
    )
    
    
    (930,430
    )Net cash used in operating activities
    
    
    (1,277,839
    )
    
    
    (417,288
    )Cash flows from investing activities:Investments originated
    
    
    (1,030,010
    )
    
    
    (1,820,622
    )Proceeds from sale of portfolio investments
    
    
    255,440
    
    
    
    1,397,831Proceeds from loan repayments
    
    
    1,885,414
    
    
    
    773,927Capital expenditures
    
    
    (1,350
    )
    
    
    (12,256
    )Net cash provided by investing activities
    
    
    1,109,494
    
    
    
    338,880Cash flows from financing activities:Proceeds from SBA debenture
    
    
    
    
    
    
    900,000Origination costs to SBA
    
    
    
    
    
    
    (19,125
    )Net cash provided by financing activities
    
    
    
    
    
    
    880,875Net (decrease) increase in cash and cash equivalents
    
    
    (168,345
    )
    
    
    802,467Cash and cash equivalents:Beginning of period
    
    
    4,299,852
    
    
    
    1,209,839End of period
    
    $
    4,131,507
    
    
    $
    2,012,306




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Net Assets
For the Three Months and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net assets at beginning of period
    
    $
    17,388,066
    
    
    $
    9,048,039
    
    
    $
    16,782,405
    
    
    $
    8,615,934Cumulative effect adjustment for
uncertain tax positions  FIN 48
    
    
    
    
    
    
    
    
    
    
    316,253
    
    
    
    Net investment loss
    
    
    (414,214
    )
    
    
    (35,494
    )
    
    
    (161,545
    )
    
    
    (327,712
    )Net realized gain on investments
    
    
    555,000
    
    
    
    292,633
    
    
    
    516,204
    
    
    
    519,527Net change in unrealized appreciation
(depreciation) of investments
    
    
    (491,885
    )
    
    
    (176,102
    )
    
    
    (416,350
    )
    
    
    321,327Net (decrease) increase in net assets
from operations
    
    
    (351,099
    )
    
    
    81,037
    
    
    
    (61,691
    )
    
    
    513,142Net assets at end of period
    
    $
    17,036,967
    
    
    $
    9,129,076
    
    
    $
    17,036,967
    
    
    $
    9,129,076




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007
(Unaudited)
 (b)
    
    (c)
    
    
    
    
    
    (d)
    
    PerShareDate
    
    
    
    
    
    
    
    
    
    
    
    
    
    ofCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    RandAdampluseve, Inc. (g)

New York, NY. Luxury sports wear company
for men and women.
www.adampluseve.com
    
    Warrants to
purchase 1,715
Series A
Convertible
Preferred shares.
    
    7/14/06
    
    
    3
    %
    
    $
    68,000
    
    
    $
    133,341
    
    
    
    .02Allworx Corp. (g)

East Rochester, NY. Manufactures and distributes
a line of converged voice and data  networking products for small
businesses (SMBs). www.alloworxcorp.com
    
    943,396 shares
Series A Preferred.
Warrants to
purchase 311,320
common shares.
    
    7/22/07
    
    
    3
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .09APF Group, Inc. (g)(h)
Mount Vernon, NY. Manufacturer of
museum quality picture frames and framed
mirrors for museums, art galleries,
retail frame shops, upscale designers
and prominent collectors.
www.apfgroup.com
    
    $584,328 Consolidated Senior
Subordinated note at 13.99% due June
30, 2011. Warrants to purchase
10.2941 shares of common stock.
    
    7/8/04
    
    
    6
    %
    
    
    566,504
    
    
    
    566,504
    
    
    
    .10Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh
water, ocean fishing and pleasure boats.
www.carolinaskiff.com
    
    $985,000 Class A preferred
membership interest at 11%.
Redeemable January 31, 2010.
5% common membership interest.
    
    1/30/04
    
    
    5
    %
    
    
    1,000,000
    
    
    
    1,227,000
    
    
    
    .21Contract Staffing (e)

Buffalo, NY. PEO providing human
resource administration for small
businesses.
www.contract-staffing.com
    
    Preferred Stock Repurchase Agreement
through March 31, 2010 at 5%.
    
    11/8/99
    
    
    10
    %
    
    
    141,400
    
    
    
    141,400
    
    
    
    .02EmergingMed.com, Inc. (g)

New York, NY. Cancer clinical trial
matching and referral service.
www.emergingmed.com
    
    $500,000 Senior subordinated note at
10% due December 19, 2010.
    
    12/19/05
    
    
    5
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .09Gemcor II, LLC (e)(g)(h)

West Seneca, NY. Designs and sells
automatic riveting machines used in the
assembly of aircraft components.
www.gemcor.com
    
    $250,000 Subordinated note at 8% due
June 28, 2010 with warrant to
purchase 6.25 membership units. 25
membership units.
    
    6/28/04
    
    
    31
    %
    
    
    680,254
    
    
    
    680,254
    
    
    
    .12G-TEC Natural Gas Systems
Buffalo, NY. Manufactures and
distributes systems that allow natural
gas to be used as an alternative fuel to
gases.
www.gas-tec.com
    
    33.057% Class A membership interest.
8% cumulative dividend.
    
    8/31/99
    
    
    33
    %
    
    
    400,000
    
    
    
    198,000
    
    
    
    .03Innov-X Systems, Inc. (g)

Woburn, MA. Manufactures portable x-ray
fluorescence (XRF) analyzers used in
metals/alloy analysis.
www.innovxsys.com
    
    2,642 Series A Convertible Preferred
stock. Warrants for 21,596 common
shares.
    
    9/27/04
    
    
    9
    %
    
    
    1,000,000
    
    
    
    8,761,700
    
    
    
    1.53Kionix, Inc.

Ithaca, NY. Develops innovative MEMS
based technology applications.
www.kionix.com
    
    30,241 shares Series B preferred
stock. 696,296 shares Series C
preferred stock.
(g)2,862,091 shares Series A
preferred stock. 714,285 shares
Series B preferred stock.
    
    5/17/02
    
    
    2
    %
    
    
    1,506,044
    
    
    
    1,221,568
    
    
    
    .21New Monarch Machine Tool, Inc. (e)(g)(h)
Cortland, NY. Manufactures and services
vertical/horizontal machining centers.
www.monarchmt.com
    
    $527,877 note at 12% due January 13,
2009. $300,000 note at 12% due
January 13, 2009. Warrants for
22.84 shares of common stock.
    
    9/24/03
    
    
    15
    %
    
    
    565,270
    
    
    
    565,270
    
    
    
    .10




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007 (Continued)
(Unaudited)
 (b)
    
    (c)
    
    
    
    
    
    (d)
    
    PerShareDate
    
    
    
    
    
    
    
    
    
    
    
    
    
    ofCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    RandNiagara Dispensing Technologies, Inc. (e)(g)

Tonawanda, NY. Beverage dispensing
technology development and products
manufacturer, specializing in beer
dispensing systems.
www.exactpour.com
    
    $500,000 Senior Subordinated
note at 8% due March 7, 2011.
Adjustable warrant for 4% of
common stock. 200 shares
common stock. $250,000
Promissory Note at 14% due
July 10, 2008.
    
    3/8/06
    
    
    4
    %
    
    
    790,010
    
    
    
    790,010
    
    
    
    .14Photonic Products Group, Inc (OTC:PHPG.OB)
(i)

Northvale, NJ. Develops and manufactures
products for laser photonics industry.
www.inrad.com
    
    100 shares convertible Series
B preferred stock, 10%
dividend.
(a) 26,000 shares common stock.
    
    10/31/00
    
    
    <1
    %
    
    
    165,000
    
    
    
    172,000
    
    
    
    .03RAMSCO (e)(g)(h)

Albany, NY. Distributor of water, sanitary,
storm sewer and specialty construction
materials to the contractor, highway and
municipal construction markets.
www.ramsco.com
    
    $300,000 Promissory Notes at
8% due October 20, 2010.
Warrants for 5.99% of common
stock.
    
    11/19/02
    
    
    6
    %
    
    
    300,000
    
    
    
    300,000
    
    
    
    .05Rocket Broadband Networks, Inc. (g)

Rochester, NY. Communications service
provider of satellite TV, broadband
internet and VoIP digital phone targeting
multiple dwelling units.
www.rocketbroadband.com
    
    285,829 Series A Preferred
shares. 247,998 Series A-1
Preferred shares. 996,441
Series B Preferred shares
    
    12/20/05
    
    
    11
    %
    
    
    680,000
    
    
    
    680,000
    
    
    
    .12Somerset Gas Transmission Company, LLC (e)

Columbus, OH. Natural gas transportation
company.
www.somersetgas.com
    
    26.5337 Units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .14Synacor Inc. (g)

Buffalo, NY. Develops provisioning
platforms for aggregation and delivery of
content for broadband access providers.
www.synacor.com
    
    200,000 shares of Series B
preferred stock. 78,186
Series A preferred shares.
80,126 Series C preferred
shares. Warrants for 299,146
common shares.
    
    11/18/02
    
    
    4
    %
    
    
    999,478
    
    
    
    3,818,000
    
    
    
    .67Topps Meat Company LLC (e)(g)
Elizabeth, NJ. Producer and supplier of
premium branded frozen hamburgers and other
portion controlled meat products.
www.toppsmeat.com
    
    Preferred A and Class A common
membership interest.
    
    4/3/03
    
    
    3
    %
    
    
    595,000
    
    
    
    0
    
    
    
    .00Ultra  Scan Corporation
Amherst, NY. Biometrics application
developer of ultrasonic fingerprint
technology.
www.ultra-scan.com
    
    536,596 common shares, 107,104
Series A-1 preferred shares.
(g) 95,284 Series A-1
preferred shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .21WineIsIt.com, Corp. (e)

Amherst, NY. Marketing company
specializing in customer loyalty programs
supporting the wine and spirit industry.
www.wineisit.com
    
    $20,000 note at 12% due April
26, 2007.
(g) $500,000 Senior
Subordinated note at 10% due
December 17, 2009. $250,000
note at 10% due April 16,
2005. Warrants to purchase
100,000 shares Class B common
stock.
    
    12/18/02
    
    
    2
    %
    
    
    821,918
    
    
    
    100,000
    
    
    
    .02Other Investments
    
    Various
    
    
    
    
    
    
    
    
    615,344
    
    
    
    28,833
    
    
    
    .02Total portfolio investments
    
    
    
    
    
    
    
    $
    13,551,483
    
    
    $
    22,373,628
    
    
    $
    3.91




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2007 (Continued)
(Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments




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##### Table of Contents



Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Note 1. ORGANIZATION
  Formation of SBIC Subsidiary




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##### Table of Contents




    
    a BDC (Rand) to operate a BDC/small business investment company (Rand SBIC) as its
wholly owned subsidiary in limited partnership form;
    
    Rand, Rand Management and Rand SBIC to engage in certain transactions that the
Corporation would otherwise be permitted to engage in as a BDC if its component parts
were organized as a single corporation;
    
    Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage
requirements for senior securities on a consolidated basis;
    
    Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports
on a consolidated basis as part of Rands reports.




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##### Table of Contents



Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation 
  N-30-B2/ARS
    
    Quarterly & Annual Reports to ShareholdersN-54A
    
    Election to Adopt Business Development Company statusDEF-14A
    
    Definitive Proxy Statement submitted to shareholdersForm 10-K
    
    Annual Report on Form 10-K for the year ended December 31, 2006Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended June 30, 2007, March
31, 2007 and September 30, 2006Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  Principles of Consolidation
 Investments




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##### Table of Contents



Cash and Cash Equivalents
 Revenue Recognition  Interest Income
  Original Issue Discount
 Deferred Debenture Costs
 Net Assets per Share
 Supplemental Cash Flow Information $
 Accounting Estimates
 Stockholders Equity (Net Assets) 




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##### Table of Contents



Stock
Option Plan 
 Income Taxes  
     Concentration
of Credit Risk 




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##### Table of Contents



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




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##### Table of Contents



Financial Condition
  Increase
    
    % Increase9/30/07
    
    12/31/06
    
    (Decrease)
    

(Decrease)Total assets
    
    $
    28,346,663
    
    
    $
    29,463,944
    
    
    ($
    1,117,281
    )
    
    
    (3.8
    %)Total liabilities
    
    
    11,309,696
    
    
    
    12,681,539
    
    
    
    (1,371,843
    )
    
    
    (10.8
    %)Net assets
    
    $
    17,036,967
    
    
    $
    16,782,405
    
    
    $
    254,562
    
    
    
    1.5
    %
  9/30/07
    
    12/31/06
    
    (Decrease)
    

%(Decrease)Investments, at cost
    
    $
    13,551,483
    
    
    $
    14,033,789
    
    
    ($
    482,306
    )
    
    
    (3.4
    %)Unrealized appreciation, net
    
    
    8,822,146
    
    
    
    9,616,025
    
    
    
    (793,879
    )
    
    
    (8.3
    %)Investments at fair value
    
    $
    22,373,629
    
    
    $
    23,649,814
    
    
    ($
    1,276,185
    )
    
    
    (5.4
    %)
  AmountNew Investments:Allworx Corp. (Allworx)
    
    $
    500,000RAMSCO (Ramsco)
    
    
    300,000Rocket Broadband Networks, Inc. (Rocket)
    
    
    280,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    250,010Total of investments made during the nine months
ended September 30, 2007
    
    $
    1,330,010Other Changes to investments:Adampluseve, Inc. (Adampluseve) warrant accretion
    
    
    62,333Niagara Dispensing interest conversion
    
    
    40,000Photonics interest conversion
    
    
    10,000Total of new investments and changes to investments
during the nine months ended September 30, 2007
    
    $
    1,442,343Sales/Investment RepaymentsRamsco
    
    
    (819,428
    )Adampluseve
    
    
    (561,000
    )UStec, Inc. (UStec)
    
    
    (350,000
    )New Monarch Machine Tool, Inc. (Monarch)
    
    
    (127,393
    )Gemcor II, LLC (Gemcor)
    
    
    (42,679
    )APF Group, Inc. (APF)
    
    
    (19,984
    )Takeform
    
    
    (4,165
    )Total of sales and investment repayments
during the nine months ended September 30, 2007
    
    
    (1,924,649
    )Total change in investment balance, at cost
during the nine months ended September 30, 2007
    
    ($
    482,306
    )




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the nine months ended September 30, 2007 to the nine months ended September 30, 2006
 September 30,
    
    September 30,
    
    Increase
    
    % Increase2007
    
    2006
    
    (Decrease)
    
    (Decrease)Interest from portfolio companies
    
    $
    474,962
    
    
    $
    539,783
    
    
    
    ($64,821
    )
    
    
    (12.0
    %)Interest from other investments
    
    
    133,853
    
    
    
    24,856
    
    
    
    108,997
    
    
    
    438.5
    %Dividend and other investment income
    
    
    586,291
    
    
    
    191,994
    
    
    
    394,297
    
    
    
    205.4
    %Other income
    
    
    26,637
    
    
    
    63,910
    
    
    
    (37,273
    )
    
    
    (58.3
    %)Total investment income
    
    $
    1,221,743
    
    
    $
    820,543
    
    
    $
    401,200
    
    
    
    48.9
    %
 Interest from portfolio companies




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##### Table of Contents



Investment
    
    Year that InterestCompany
    
    Interest Rate
    
    Cost
    
    Accrual CeasedContract Staffing
    
    
    5
    %
    
    $
    141,400
    
    
    
    2006G-Tec
    
    
    8
    %
    
    
    400,000
    
    
    
    2004UStec
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com
    
    
    10
    %
    
    
    821,918
    
    
    
    2005
 Interest from other investments
 Dividend and other investment income
 Other income
  Operating Expenses
 Comparison of the nine months ended September 30, 2007 to the nine months ended September 30, 2006
 September 30, 2007
    
    September 30, 2006
    
    Increase
    
    % IncreaseTotal Expenses
    
    $
    1,177,992
    
    
    $
    1,019,314
    
    
    $
    158,678
    
    
    
    16
    %




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##### Table of Contents



Net Realized Gains and Losses on Investments
   Net Change in Unrealized Appreciation (Depreciation) of Investments
  September 30,2007Topps Meat Company LLC (Topps) valuation change
    
    
    ($927,000
    )Adampluseve warrants
    
    
    65,341Reclass UStec to realized loss
    
    
    39,000Photonics valuation to market
    
    
    28,780Total change in net unrealized appreciation
during the nine months ended September 30, 2007
    
    
    ($793,879
    )




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##### Table of Contents



September 30,2006Minrad valuation to market
    
    $
    829,717Increase Carolina Skiff valuation
    
    
    189,000Vanguard Sale
    
    
    135,000Photonics valuation to market
    
    
    (7,920
    )Decrease Wineisit valuation
    
    
    (176,918
    )Minrad Stock Sales
    
    
    (433,335
    )Total change in net unrealized appreciation
during the nine months ended September 30, 2006
    
    $
    535,544
      Net (Decrease) Increase in Net Assets from Operations




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##### Table of Contents



Liquidity and Capital Resources
     
 Item 3. Quantitative and Qualitative Disclosures about Market Risk




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
  The Corporations Portfolio Investments are Illiquid
  Investing in Private Companies involves a High Degree of Risk




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##### Table of Contents



Investing in The Corporations Shares May be Inappropriate for the Investors Risk Tolerance
  The Corporation is Subject to Risks Created by its Regulated Environment
  The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
  The Corporation is Dependent Upon Key Management Personnel for Future Success
  The Corporation Operates in a Competitive Market for Investment Opportunities




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##### Table of Contents



The Corporation may face litigation risks relating to investments that could have a material effect
on the operation of our business .
  Fluctuations of Quarterly Results
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information




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##### Table of Contents



Item 6. Exhibits
 (a)
    
    ExhibitsThe following exhibits are filed with this report or are incorporated herein by
reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934.
 (3)(i)
    
    Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997.(3)(ii)
    
    By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.(4)
    
    Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997.(10.1)
    
    Employee Stock Option Plan  incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.*(10.3)
    
    Agreement of Limited Partnership for Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.3 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.4)
    
    Certificate of Limited Partnership of Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.4 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.5)
    
    Limited Liability Corporation Agreement of Rand Capital Management, LLC
  incorporated by reference to Exhibit 10.5 to the Corporations Form
10-K Report filed for the year ended December 31, 2001.(10.6)
    
    Certificate of Formation of Rand Capital Management, LLC incorporated
by reference to Exhibit 10.6 to the Corporations Form 10-K Report filed
for the year ended December 31, 2001.(10.7)
    
    N/A(10.8)
    
    Profit Sharing Plan  incorporated by reference to Exhibit 10.8 to the
Corporations Form 10-K Report filed for the year ended December 31,
2002.*(21)
    
    Subsidiaries of the Corporation  incorporated by
reference to Exhibit 21 to the Corporations Form 10-K Report filed for
the year ended December 31, 2001.(31.1)
    
    Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(31.2)
    
    Certification of Chief Financial Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(32.1)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital Corporation  filed herewith(32.2)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital SBIC, L.P.  filed herewith
 
 *
    
    Management contract or compensatory plan.




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##### Table of Contents



Signatures
 Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
  RAND CAPITAL CORPORATIONBy:

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

    /s/ Daniel P. PenberthyDaniel P. Penberthy, TreasurerRAND CAPITAL SBIC, L.P.By:

    RAND CAPITAL MANAGEMENT LLCGeneral PartnerBy:

    RAND CAPITAL CORPORATIONMemberBy:

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

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