##### 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, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from _____ to _______
 Commission File Number: 814-00235
 Rand Capital Corporation
 (Exact Name of Registrant as specified in its Charter)
 New York
(State or Other Jurisdiction of Incorporation 
or organization)
    
    16-0961359
(IRS Employer
Identification No.)2200 Rand Building, Buffalo, NY
(Address of Principal executive offices)
    
    14203
(Zip Code)
 (716) 853-0802
 (Registrants Telephone No. Including Area Code)
 þ o
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



RAND CAPITAL CORPORATION  TABLE OF CONTENTS FOR FORM 10-Q
 PART I.  FINANCIAL INFORMATIONItem 1. Financial Statements and Supplementary Data (Unaudited)
    
    
    3Condensed Consolidated Statements of Financial Position as of September
30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Changes in Net Assets for the Three
Months and Nine Months Ended September 30, 2009 and 20086Condensed Consolidated Schedule of Portfolio Investments as of September
30, 2009
    
    
    7Notes to the Consolidated Financial Statements
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4T. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.Defaults upon Senior Securities
    
    
    27Item 4.Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.Other Information
    
    
    27Item 6.Exhibits
    
    
    26EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements and Supplementary Data
 
 RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of September 30, 2009 and December 31, 2008
 September 30,2009
    
    
    December 31,(Unaudited)
    
    
    2008ASSETSInvestments at fair value (identified cost: 9/30/09 
$15,020,461; 12/31/08  $14,386,451)
    
    $
    29,072,368
    
    
    $
    28,126,282Cash and cash equivalents
    
    
    4,320,826
    
    
    
    2,757,653Interest
receivable (net of allowance: 9/30/09  $209,089;
12/31/08  $122,817)
    
    
    1,206,546
    
    
    
    1,013,888Prepaid income taxes
    
    
    174,331
    
    
    
    Other assets
    
    
    186,017
    
    
    
    330,974Total assets
    
    $
    34,960,088
    
    
    $
    32,228,797LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    8,100,000
    
    
    $
    8,100,000Deferred tax liability
    
    
    3,168,000
    
    
    
    3,490,000Income taxes payable
    
    
    
    
    
    
    98,723Accounts payable and accrued expenses
    
    
    370,798
    
    
    
    292,731Deferred revenue
    
    
    3,945
    
    
    
    20,377Total liabilities
    
    
    11,642,743
    
    
    
    12,001,831Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000;
shares issued (9/30/09, 6,863,034; 12/31/08  5,763,034)
    
    
    686,304
    
    
    
    576,304Capital in excess of par value
    
    
    10,599,096
    
    
    
    6,973,454Accumulated net investment (loss)
    
    
    (3,860,471
    )
    
    
    (3,743,908
    )Undistributed net realized gain on investments
    
    
    6,999,175
    
    
    
    7,735,477Net unrealized appreciation on investments
    
    
    8,940,447
    
    
    
    8,732,845Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share 9/30/09  $3.42; 12/31/08  $3.54)
    
    
    23,317,345
    
    
    
    20,226,966Total liabilities and stockholders equity (net assets)
    
    $
    34,960,088
    
    
    $
    32,228,797
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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, 2009 and 2008
(Unaudited)
 Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedSeptember 30, 2009
    
    September 30, 2008
    
    September 30, 2009
    
    September 30, 2008Investment income:Interest from portfolio companies
    
    $
    123,912
    
    
    $
    128,182
    
    
    $
    411,435
    
    
    $
    489,963Interest from other investments
    
    
    2,633
    
    
    
    19,900
    
    
    
    14,927
    
    
    
    73,004Dividend and other investment income
    
    
    166,820
    
    
    
    272,877
    
    
    
    551,091
    
    
    
    707,458Other income
    
    
    5,250
    
    
    
    3,084
    
    
    
    20,416
    
    
    
    14,251298,615
    
    
    
    424,043
    
    
    
    997,869
    
    
    
    1,284,676Operating expenses:Salaries
    
    
    311,500
    
    
    
    106,312
    
    
    
    535,265
    
    
    
    321,378Employee benefits
    
    
    29,408
    
    
    
    23,221
    
    
    
    95,503
    
    
    
    93,932Directors fees
    
    
    10,750
    
    
    
    9,750
    
    
    
    65,250
    
    
    
    65,750Professional fees
    
    
    47,452
    
    
    
    19,080
    
    
    
    186,471
    
    
    
    138,717Stockholders and office operating
    
    
    24,952
    
    
    
    29,340
    
    
    
    110,848
    
    
    
    91,048Insurance
    
    
    14,491
    
    
    
    12,400
    
    
    
    39,919
    
    
    
    31,500Corporate development
    
    
    13,270
    
    
    
    12,548
    
    
    
    37,645
    
    
    
    47,713Other operating
    
    
    2,904
    
    
    
    1,826
    
    
    
    7,633
    
    
    
    6,264454,727
    
    
    
    214,477
    
    
    
    1,078,534
    
    
    
    796,302Interest on SBA obligations
    
    
    127,007
    
    
    
    144,766
    
    
    
    370,431
    
    
    
    396,297Bad debt expense
    
    
    50,844
    
    
    
    
    
    
    
    39,867
    
    
    
    Total expenses
    
    
    632,578
    
    
    
    359,243
    
    
    
    1,488,832
    
    
    
    1,192,599Investment (loss) gain before income taxes
    
    
    (333,963
    )
    
    
    64,800
    
    
    
    (490,963
    )
    
    
    92,077Current income tax benefit (expense)
    
    
    83,987
    
    
    
    (87,183
    )
    
    
    (52,075
    )
    
    
    (608,807
    )Deferred income tax benefit
    
    
    223,291
    
    
    
    106,710
    
    
    
    426,474
    
    
    
    617,376Net investment (loss) gain
    
    
    (26,685
    )
    
    
    84,327
    
    
    
    (116,564
    )
    
    
    100,646Realized and unrealized gain (loss) on investments:Net loss on sales and dispositions
    
    
    (705,030
    )
    
    
    
    
    
    
    (736,301
    )
    
    
    Unrealized appreciation on investments:Beginning of period
    
    
    12,859,507
    
    
    
    12,943,146
    
    
    
    13,739,831
    
    
    
    13,137,846End of period
    
    
    14,051,907
    
    
    
    12,145,146
    
    
    
    14,051,907
    
    
    
    12,145,146Change in unrealized appreciation
before income taxes
    
    
    1,192,400
    
    
    
    (798,000
    )
    
    
    312,076
    
    
    
    (992,700
    )Deferred income tax (expense) benefit
    
    
    (427,291
    )
    
    
    376,290
    
    
    
    (104,474
    )
    
    
    445,624Net increase (decrease) in unrealized appreciation
    
    
    765,109
    
    
    
    (421,710
    )
    
    
    207,602
    
    
    
    (547,076
    )Net realized and unrealized gain (loss) on investments
    
    
    60,079
    
    
    
    (421,710
    )
    
    
    (528,699
    )
    
    
    (547,076
    )Net increase (decrease) in net assets from operations
    
    $
    33,394
    
    
    
    ($337,383
    )
    
    
    ($645,263
    )
    
    
    ($446,430
    )Weighted average shares outstanding
    
    
    6,018,406
    
    
    
    5,718,934
    
    
    
    6,026,555
    
    
    
    5,718,934Basic and diluted net increase (decrease) in net assets
from operations per share
    
    $
    0.01
    
    
    
    ($0.06
    )
    
    
    ($0.11
    )
    
    
    ($0.08
    )
  4




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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, 2009 and 2008
(Unaudited)
 September 30, 2009
    
    September 30, 2008Cash flows from operating activities:Net decrease in net assets from operations
    
    $
    (645,263
    )
    
    $
    (446,430
    )Adjustments to reconcile net decrease in net assets to
net cash used in operating activities:Depreciation and amortization
    
    
    26,736
    
    
    
    43,587Change in interest receivable allowance
    
    
    86,272
    
    
    
    (Increase) decrease in unrealized appreciation of
investments
    
    
    (312,076
    )
    
    
    992,700Deferred tax benefit
    
    
    (322,000
    )
    
    
    (1,063,000
    )Net realized loss on portfolio investments
    
    
    736,301
    
    
    
    Payment in kind, interest accrued
    
    
    (31,850
    )
    
    
    Non-cash conversion of debenture interest
    
    
    (25,657
    )
    
    
    (70,717
    )Changes in operating assets and liabilities:Increase in interest receivable
    
    
    (278,930
    )
    
    
    (277,391
    )Decrease in other assets
    
    
    118,222
    
    
    
    683,028Increase in prepaid income taxes
    
    
    (174,331
    )
    
    
    Decrease in income taxes payable
    
    
    (98,723
    )
    
    
    (464,986
    )Increase (decrease) in accounts payable and
accrued expenses
    
    
    78,066
    
    
    
    (188,387
    )Decrease in deferred revenue
    
    
    (16,432
    )
    
    
    (24,956
    )Total adjustments
    
    
    (214,402
    )
    
    
    (370,122
    )Net cash used in operating activities
    
    
    (859,665
    )
    
    
    (816,552
    )Cash flows from investing activities:Investments originated
    
    
    (1,430,309
    )
    
    
    (689,990
    )Proceeds from sale of portfolio investments
    
    
    67,448
    
    
    
    Proceeds from loan repayments
    
    
    50,057
    
    
    
    697,433Capital expenditures
    
    
    
    
    
    
    (1,866
    )Net cash (used) provided by investing
activities
    
    
    (1,312,804
    )
    
    
    5,577Cash flows from financing activities:Issuance of common stock
    
    
    3,735,642
    
    
    
    Net cash provided by financing activities
    
    
    3,735,642
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    1,563,173
    
    
    
    (810,975
    )Cash and cash equivalents:Beginning of period
    
    
    2,757,653
    
    
    
    4,396,595End of period
    
    $
    4,320,826
    
    
    $
    3,585,620
  5




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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, 2009 and 2008
(Unaudited)
 Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedSeptember 30, 2009
    
    September 30, 2008
    
    September 30, 2009
    
    September 30, 2008Net assets at beginning of period
    
    $
    19,548,309
    
    
    $
    19,708,776
    
    
    $
    20,226,966
    
    
    $
    19,817,823Net investment (loss) gain
    
    
    (26,685
    )
    
    
    84,327
    
    
    
    (116,564
    )
    
    
    100,646Net realized loss on investments
    
    
    (705,030
    )
    
    
    
    
    
    
    (736,301
    )
    
    
    Net change in unrealized appreciation
on investments
    
    
    765,109
    
    
    
    (421,710
    )
    
    
    207,602
    
    
    
    (547,076
    )Net increase (decrease) in net assets
from operations
    
    
    33,394
    
    
    
    (337,383
    )
    
    
    (645,263
    )
    
    
    (446,430
    )Issuance of common stock
    
    
    3,735,642
    
    
    
    
    
    
    
    3,735,642
    
    
    
    -Net assets at end of period
    
    $
    23,317,345
    
    
    $
    19,371,393
    
    
    $
    23,317,345
    
    
    $
    19,371,393
  6




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    (d)
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandNon-Control/Non-Affiliate Investments: (k)GridApp Systems, Inc.
(e)(g)
New York, NY. Provider of database
automation software that helps businesses
gain control of their heterogeneous
database applications through a
centralized software console. (Software)
www.gridapp.com
    
    $660,000 term note at 4% simple
interest, 8% deferred interest
(PIK) due January 4, 2012.
$6,667 convertible note at 4%
due November 28, 2018. $297,000
term note at 4% interest, 8%
deferred interest (PIK) due
January 4, 2012. $3,000
convertible note at 4% due
September 25, 2019.
    
    11/25/08
    
    
    4.6
    %
    
    $
    998,517
    
    
    $
    998,517
    
    
    $
    .15Kionix, Inc.
Ithaca, NY. Develops innovative MEMS
based inertial sensors used in consumer
electronics, automation and healthcare
sectors. (Manufacturing)
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
    
    
    
    5,637,000
    
    
    
    .83Mezmeriz, Inc. (g)
Ithaca, NY. Developer of micro mirror
technology that replaces silicon with
carbon fibers in micro-electronic
mechanical systems (MEMS) enabling
efficient, wide-angle, Pico projectors to
be embedded in mobile devices.
(Electronics Developer)
www.mezmeriz.com
    
    $100,000 convertible note at 9%
due January 9, 2010.
    
    1/9/08
    
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    .01Somerset Gas Transmission Company, LLC (e)
Columbus, OH. Natural gas transportation
company. (Oil and Gas)
www.somersetgas.com
    
    26.5337 units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .12Synacor Inc. (g)
Buffalo, NY. Develops provisioning
platforms for aggregation and delivery of
content and services across multiple
digital devices. (Software)
www.synacor.com
    
    234,558 Series A preferred
shares. 600,000 Series B
preferred shares. 240,378
Series C preferred shares.
897,438 common shares.
    
    11/18/02
    
    
    4
    %
    
    
    1,349,479
    
    
    
    4,168,001
    
    
    
    .61Subtotal Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    $
    4,673,137
    
    
    $
    11,690,266
    
    
    $
    1.72Affiliate Investments: (l)APF Group, Inc. (e)(g)
Yonkers, NY. Manufacturer of museum
quality picture frames and framed mirrors
for museums, art galleries, retail frame
shops, upscale designers and prominent
collectors. (Manufacturing)
www.apfgroup.com
    
    $587,786 consolidated senior
subordinated notes at 8% due
June 30, 2011. $13,514 senior
subordinated note at 14% due
June 30, 2011. Warrants to
purchase 10.2941 shares of
common stock.
    
    7/8/04
    
    
    6
    %
    
    $
    631,547
    
    
    $
    0
    
    
    $
    .00Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh
water, ocean fishing and pleasure boats.
(Manufacturing)
www.carolinaskiff.com
    
    $985,000 Class A preferred
membership interest at 7.5%.
Redeemable January 31, 2010.
5% common membership interest.(j)Interest receivable $732,330.
    
    1/30/04
    
    
    5
    %
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    .15EmergingMed.com, Inc. (g)
New York, NY. Cancer clinical trial
matching and referral service.
(Software)
www.emergingmed.com
    
    $500,000 senior subordinated
note at 10% due December 19,
2010. Warrants for 7.0% of
common stock.(j)Interest receivable $189,167.
    
    12/19/05
    
    
    7
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .07
 7




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2009 (Continued)
(Unaudited)
 (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    PerCompany, Geographic Location, Business
    
    
    
    Date
    
    (c)
    
    
    
    
    
    (d)
    
    ShareDescription, (Industry) and Website
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandAffiliate Investments: (l) (Continued)Golden Goal LLC (g)
Fort Ann, NY. Youth soccer and lacrosse
tournament park. (Sports and
Entertainment)
www.goldengoalpark.com
    
    191,811 Class C units at 4%.
$38,237.98 convertible
promissory notes at 13% due
January 2012.
    
    12/10/07
    
    
    6
    %
    
    
    675,652
    
    
    
    38,238
    
    
    
    .01Innov-X Systems, Inc. (g)
Woburn, MA. Manufactures portable x-ray
fluorescence (XRF) analyzers used in
metals/alloy analysis. (Manufacturing)
www.innovxsys.com
    

(e) $250,000 note at 11% due
March 31, 2017. 2,642 Series A
preferred stock. Warrants for
21,924 common shares. 8%
cumulative dividend.(j)Interest receivable $224,411.
    
    9/27/04
    
    
    9
    %
    
    
    1,250,000
    
    
    
    6,300,000
    
    
    
    .92Microcision LLC (g)
Philadelphia, PA. Custom manufacturer of
medical and dental implants.
(Manufacturing).
www.microcision.com
    
    $500,000 subordinated promissory
note at 5% due December 31,
2013. 6% deferred interest
(PIK). 5% class A common
membership interest.
    
    9/25/09
    
    
    5
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .07Niagara Dispensing Technologies, Inc.
Amherst, NY. Beverage dispensing
technology development and products
manufacturer, specializing in rapid pour
beer dispensing systems for high volume
stadium and concession operations.
(Manufacturing)
www.niagaradispensing.com
    
    202,081 Series B preferred stock.(g)463,691 Series A preferred
stock. 518,752 Series B
preferred stock. (e)$300,000
promissory note at 6%, 8%
deferred interest (PIK) due July
30, 2011. Warrants for 190,561
class A common stock.
    
    3/8/06
    
    
    14
    %
    
    
    1,581,783
    
    
    
    1,302,082
    
    
    
    .19RAMSCO (e)(g)
Albany, NY. Distributor of water,
sanitary, storm sewer and specialty
construction materials to the contractor,
highway and municipal construction
markets. (Distributor)
www.ramsco.com
    
    $300,000 promissory notes at 10%
due October 20, 2010. Warrants
for 5.99% of common stock.
    
    11/19/02
    
    
    6
    %
    
    
    300,000
    
    
    
    300,000
    
    
    
    .04SOMS Technologies, LLC (g)
Valhalla, NY. Produces and markets the
microGreen Extended Performance Oil
Filter. (Auto Parts Developer)
www.microgreenfilter.com
    
    $250,000 secured convertible
note at 10% due December 2,
2010.
    
    12/2/08
    
    
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    .04Ultra  Scan Corporation
Amherst, NY. Biometrics application
developer of ultrasonic fingerprint
technology. (Electronics
Hardware/Software)
www.ultra-scan.com
    
    536,596 common shares. 107,104
Series A-1 preferred shares.(g) 95,284 Series A-1 preferred
shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .18Subtotal Affiliate Investments
    
    
    
    
    
    
    
    
    
    $
    7,627,146
    
    
    $
    11,393,320
    
    
    $
    1.67Control Investments (m)Gemcor II, LLC (e)(g)(h)
West Seneca, NY. Designs and sells
automaticriveting machines used in the
assembly of aircraft components.
(Manufacturing)
www.gemcor.com
    
    $250,000 subordinated note at 8%
due June 28, 2010 with warrant
to purchase 6.25 membership
units. 25 membership units.
    
    6/28/04
    
    
    31
    %
    
    $
    553,141
    
    
    $
    5,753,141
    
    
    $
    .84G-TEC Natural Gas Systems
Buffalo, NY. Manufactures and distributes
systems that allow natural gas to be used
as an alternative fuel to gases.
(Manufacturing)
www.gas-tec.com
    
    28.925% Class A membership
interest. 8% cumulative
dividend.
    
    8/31/99
    
    
    29
    %
    
    
    400,000
    
    
    
    100,000
    
    
    
    .01Subtotal Control Investments
    
    
    
    
    
    
    
    
    
    $
    953,141
    
    
    $
    5,853,141
    
    
    $
    0.85Other Investments (a)(i)
    
    Various
    
    
    
    
    
    
    
    $
    1,767,037
    
    
    $
    135,641
    
    
    $
    .02Total portfolio investments
    
    
    
    
    
    
    
    $
    15,020,461
    
    
    $
    29,072,368
    
    
    $
    4.26
 8




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2009 (Continued)
(Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments
              9




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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, 2009 and 2008
(Unaudited)
 Note 1. ORGANIZATION
   SBIC Subsidiary
      10




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##### Table of Contents




    
    Rand and Rand SBIC to engage in certain related party transactions that the
Corporation would otherwise be permitted to engage in as a BDC if its component parts
were organized as a single corporation;
    
    Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage
requirements for senior securities on a consolidated basis; and
    
    Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports
on a consolidated basis as part of Rands Exchange Act reports.
  11




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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, 2008Form 10-Q
    
    Quarterly Report on Form 10-Q for the quarters ended June 30, 2009, March
31, 2009 and September 30, 2008Form N-23C-1
    
    Reports by closed-end investment companies of purchases of their own securities
  Principles of Consolidation
 Cash and Cash Equivalents
 Revenue Recognition  Interest Income
  12




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##### Table of Contents



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




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##### Table of Contents



Income Taxes 
    Concentration of Credit Risk 
 Fair Value of Financial Instruments 
 Subsequent Events 
 14




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##### Table of Contents



Note 3. INVESTMENTS
         Assets Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reported Date UsingQuoted Prices in
    
    
    Significant
    
    
    Other SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Venture Capital
Investments
    
    $
    29,072,368
    
    
    $
    44,800
    
    
    $
    0
    
    
    $
    29,027,568
 15




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##### Table of Contents



Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
 Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital InvestmentsBeginning Balance, December 31, 2008, of Level 3 Assets
    
    
    
    
    
    $
    28,014,282Realized Gains or Losses included in net change in net assets from operationsRocket Broadband
    
    
    
    
    
    
    ($705,030
    )Unrealized gains or losses included in net change in net assets from operations
    
    
    
    
    
    
    Associates Interactive, LLC (Associates)
    
    
    ($293,518
    )APF Group, Inc. (APF)
    
    
    ($324,213
    )Adampluseve, Inc.(Adampluseve)
    
    
    ($65,341
    )Golden Goal LLC (Golden Goal)
    
    
    ($400,000
    )G-TEC Natural Gas Systems (G-Tec)
    
    
    ($98,000
    )Innov-X Systems, Inc. (Innovex)
    
    
    ($2,711,700
    )Kionix, Inc. (Kionix)
    
    $
    3,637,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    ($168,702
    )Rocket Broadband realized loss
    
    $
    715,000
    
    
    $
    290,526Purchases of SecuritiesAssociates
    
    $
    43,518APF
    
    $
    24,212Golden Goal
    
    $
    38,238GridApp Systems Inc. (GridApp)
    
    $
    331,850Innovex
    
    $
    250,000Microcision LLC (Microcision)
    
    $
    500,000Niagara Dispensing
    
    $
    300,000
    
    
    $
    1,487,818Repayments of SecuritiesGemcor II, LLC (Gemcor)
    
    
    ($50,058
    )Rocket Broadband
    
    
    ($9,970
    )
    
    
    ($60,028
    )Transfers in or out of Level 3
    
    
    
    
    
    
    Ending Balance, September 30, 2009, of Level 3 Assets
    
    
    
    
    
    $
    29,027,568The amount of total gains or losses for the period included in changes
in net assets attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date.
    
    
    
    
    
    $
    290,526Gains and losses (realized and unrealized) included in Net decrease
in net assets from operations for the period above are reported as follows:Net Gain (Loss) on Sales and Dispositions
    
    
    
    
    
    
    ($705,030
    )Change in unrealized gains or losses relating to assets still held at reporting date
    
    
    
    
    
    
    ($414,504
    )
   16




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##### Table of Contents



Note 4. FINANCIAL HIGHLIGHTS
  Nine months endedSeptember 30,
    
    Year ended2009
    
    December 31,(Unaudited)
    
    2008Income from investment operations (1):Investment income
    
    $
    0.17
    
    
    $
    0.31Expenses
    
    
    0.26
    
    
    
    0.30Investment (loss) income before income taxes
    
    
    (0.09
    )
    
    
    0.01Income tax benefit
    
    
    0.06
    
    
    
    0.01Net investment (loss) income
    
    
    (0.03
    )
    
    
    0.02Net realized and unrealized (loss) gain on investments
    
    
    (0.09
    )
    
    
    0.05(Decrease) increase in net asset value
    
    
    (0.12
    )
    
    
    0.07Net asset value, beginning of period
    
    
    3.54
    
    
    
    3.47Net asset value, end of period
    
    $
    3.42
    
    
    $
    3.54Per share market price, end of period
    
    $
    3.95
    
    
    $
    3.50Total return based on market value
    
    
    12.86
    %
    
    
    (2.78
    )%Total return based on net asset value
    
    
    (3.19
    )%
    
    
    2.10
    %Supplemental data:Ratio of expenses before income taxes to average net
assets
    
    
    6.84
    %
    
    
    8.60
    %Ratio of expenses including taxes to average net assets
    
    
    5.12
    %
    
    
    9.10
    %Ratio of net investment (loss) gain to average net assets
    
    
    (0.54
    )%
    
    
    0.68
    %Portfolio turnover
    
    
    5.20
    %
    
    
    6.00
    %Net assets, end of period
    
    $
    23,317,345
    
    
    $
    20,226,966Weighted average shares outstanding, end of period
    
    
    6,026,555
    
    
    
    5,718,934
 
 (1)
    
    Per share data are based on weighted average shares outstanding and the results are
rounded
The Corporations quarterly results could fluctuate as a result of a number of factors,
therefore results for any one quarter should not be relied upon as being indicative of performance
in future quarters. 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
 Statements included in this Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this document that do not relate to present or historical
conditions are forward-looking statements within the meaning of that term in Section 27A of the
Securities Act of 1933, and in Section 21F of the Securities Exchange Act of 1934. Additional oral
or written forward-looking statements may be made by the Corporation from time to time and those
statements may be included in documents that are filed with the Securities and Exchange Commission.
Such forward-looking statements involve risks and uncertainties that could cause results or
outcomes to differ materially from those expressed in the forward-looking statements.
Forward-looking statements may include, without limitation, statements relating to the
Corporations plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as believes, forecasts, intends, possible, expects, estimates,
anticipates, or plans and similar expressions are intended to identify forward-looking
statements. Among the important factors on which such statements are based are assumptions
concerning the state of the national economy and the local markets in which the Corporations
portfolio companies operate, the state of the securities markets in which the securities of the
Corporations portfolio companies trade or could be traded, liquidity within the national financial
markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described in Part II, Item 1A of this report, the text of which is incorporated herein by
reference.
 There may be other factors that we have not identified that affect the likelihood that the
forward-looking statements may prove to be accurate. Further, any forward-looking statement speaks
only as of the date it is made and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which it is made
or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors
emerge from time to time that may cause our business not to develop as we expect, and we cannot
predict all of them.
 Corporate Structure
   Business Developments
  18




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##### Table of Contents




    
    The ability of the Corporations portfolio companies to obtain
necessary credit financing for their operations may be impaired.
    
    The Corporations portfolio companies may experience greater
difficulty in obtaining equity financing to continue to fund their
operations.
    
    The slowdown in capital goods spending may impact the goods and
services that the portfolio companies sell.
    
    The Corporation may find it more difficult to exit its investments as
access to public markets and the merger and acquisition industry
become impaired.
    
    The Corporations diversified portfolio of investments may experience
unexpected growth despite these market uncertainties based on their
own capitalization, industry niche, and current market acceptance for
their products/services.
  Critical Accounting Policies
  19




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##### Table of Contents



Financial Condition
  Increase
    
    % Increase9/30/09
    
    12/31/08
    
    (Decrease)
    
    (Decrease)Total assets
    
    $
    34,960,088
    
    
    $
    32,228,797
    
    
    $
    2,731,291
    
    
    
    8.5
    %Total liabilities
    
    
    11,642,743
    
    
    
    12,001,831
    
    
    
    (359,088
    )
    
    
    (3.0
    %)Net assets
    
    $
    23,317,345
    
    
    $
    20,226,966
    
    
    $
    3,090,379
    
    
    
    15.3
    %
  9/30/09
    
    12/31/08
    
    Increase
    
    % IncreaseInvestments, at cost
    
    $
    15,020,461
    
    
    $
    14,386,451
    
    
    $
    634,010
    
    
    
    4.4
    %Unrealized appreciation, net
    
    
    14,051,907
    
    
    
    13,739,831
    
    
    
    312,076
    
    
    
    2.3
    %Investments at fair value
    
    $
    29,072,368
    
    
    $
    28,126,282
    
    
    $
    946,086
    
    
    
    3.4
    %
  AmountNew Investments:Microcision LLC (Microcision)
    
    $
    500,000GridApp Systems, Inc. (GridApp)
    
    
    300,000Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    298,554Innov-X Systems, Inc. (Innovex)
    
    
    250,000Associates Interactive, LLC (Associates Interactive)
    
    
    43,518Golden Goal, LLC (Golden Goal)
    
    
    38,238Total of new investments made during the nine months
ended September 30, 2009
    
    $
    1,430,310Changes to Investments:GridApp capitalized interest
    
    $
    31,850APF Group, Inc (APF) interest conversion
    
    
    24,212Niagara Dispensing capitalized interest
    
    
    1,445Total of changes to investments made during the nine months
ended September 30, 2009
    
    $
    57,507Sales/Investment Repayments:Rocket Broadband
    
    
    ($715,000
    )Photonic Products Group, Inc. (Photonics)
    
    
    (88,750
    )Gemcor II, LLC (Gemcor)
    
    
    (50, 057
    )Total of sales and investment repayments during
the nine months ended September 30, 2009
    
    
    ($853,807
    )Total change in investment balance, at cost,
during the nine months ended September 30, 2009
    
    $
    634,010
  20




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##### Table of Contents



Results of Operations
 Investment Income
  Comparison of the nine months ended September 30, 2009 to the nine months ended September 30, 2008
 September 30,
    
    September 30,
    
    Increase
    
    % Increase2009
    
    2008
    
    (Decrease)
    
    (Decrease)Interest from portfolio companies
    
    $
    411,435
    
    
    $
    489,963
    
    
    $
    (78,528
    )
    
    
    (16.0
    )%Interest from other investments
    
    
    14,927
    
    
    
    73,004
    
    
    
    (58,077
    )
    
    
    (79.6
    %)Dividend and other investment income
    
    
    551,091
    
    
    
    707,458
    
    
    
    (156,367
    )
    
    
    (22.1
    %)Other income
    
    
    20,416
    
    
    
    14,251
    
    
    
    6,165
    
    
    
    43.3
    %Total investment income
    
    $
    997,869
    
    
    $
    1,284,676
    
    
    
    ($286,807
    )
    
    
    (22.3
    %)
 Interest from portfolio companies
  Year thatInterest
    
    Investment
    
    InterestCompany
    
    Rate
    
    Cost
    
    Accrual CeasedAPF
    
    
    8
    %
    
    $
    631,547
    
    
    
    2009Associates Interactive
    
    9% and 10%
    
    $
    293,518
    
    
    
    2009Golden Goal
    
    
    13
    %
    
    $
    675,652
    
    
    
    2009G-Tec Natural Gas Systems
    
    
    8
    %
    
    $
    400,000
    
    
    
    2004UStec, Inc.
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com (Wineisit)
    
    
    10
    %
    
    
    801,918
    
    
    
    2005
 21




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##### Table of Contents



Interest from other investments
 Dividend and other investment income
  Other income
   Operating Expenses
 Comparison of the nine months ended September 30, 2009 to the nine months ended September 30, 2008
 September 30, 2009
    
    September 30, 2008
    
    Increase
    
    % IncreaseTotal Expenses
    
    $
    1,488,832
    
    
    $
    1,192,599
    
    
    $
    296,233
    
    
    
    24.8
    %
   22




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##### Table of Contents



Net Realized Gains and Losses on Investments
   Net Change in Unrealized Appreciation of Investments
   September 30,2009Kionix, Inc. (Kionix)
    
    $
    3,637,000Reclass Rocket Broadband to a realized loss
    
    
    715,000Photonic Products Group, Inc (Photonic)
    
    
    21,550Innovex
    
    
    (2,711,700
    )Golden Goal
    
    
    (400,000
    )APF Group, Inc. (APF)
    
    
    (324,213
    )Associates Interactive
    
    
    (293,518
    )Niagara Dispensing
    
    
    (168,702
    )G-TEC Natural Gas Systems (G-Tec)
    
    
    (98,000
    )Adampluseve, Inc. (Adampluseve)
    
    
    (65,341
    )Total change in net unrealized appreciation
during the nine months ended September 30, 2009
    
    $
    312,076
 th
  23




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##### Table of Contents



September 30,2008Rocket Broadband
    
    
    ($695,000
    )Photonic Products Group, Inc (Photonic)
    
    
    (158,700
    )Niagara Dispensing
    
    
    (111,000
    )Bioworks
    
    
    (28,000
    )Total change in net unrealized appreciation
during the nine months ended September 30, 2008
    
    
    ($992,700
    )
      24




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##### Table of Contents



Net Decrease in Net Assets from Operations
  Liquidity and Capital Resources
      
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  25




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##### Table of Contents



Item 4T. Controls and Procedures
 Management report on Internal Control Over Financial Reporting
     Changes in Internal Control over Financial Reporting.
 26




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Fluctuations of Quarterly Results
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  27




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##### Table of Contents



Item 6. Exhibits
 (a)
    
    ExhibitsThe following exhibits are filed with this report or are incorporated herein by
reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934.
 (3)(i)
    
    Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997.(3)(ii)
    
    By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.(4)
    
    Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997.(10.1)
    
    Employee Stock Option Plan  incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.*(10.3)
    
    Agreement of Limited Partnership for Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.3 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.4)
    
    Certificate of Formation of Rand Capital SBIC, L.P.  incorporated by
reference to Exhibit 10.4 to the Corporations Form10-K filed for the year
ended December 31, 2001(10.5)
    
    Limited Liability Corporation Agreement of Rand Capital Management, LLC
  incorporated by reference to Exhibit 10.5 to the Corporations Form
10-K Report filed for the year ended December 31, 2001.(10.6)
    
    Certificate of Formation of Rand Capital Management, LLC  incorporated
by reference to Exhibit 10.6 to the Corporations Form 10-K Report filed
for the year ended December 31, 2001.(10.7)
    
    Certificate of Incorporation of Rand Merger Corporation as filed by the
NY Department of State on 12/18/08  incorporated by reference to
Exhibit 1(a) to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.(10.8)
    
    By-laws of Rand Capital SBIC, Inc.  incorporated by reference to
Exhibit 2 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.(10.9)
    
    Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital
Management, LLC into Rand Merger Corporation, as filed by the NY
Department of State on 12/18/08  incorporated by reference to Exhibit
1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
SBIC, Inc. filed with the SEC on 2/6/09.(10.10)
    
    Rand Capital Corporation Amended and Restated Profit Sharing Plan
applicable to Rand Capital SBIC, Inc.  incorporated by reference to
Exhibit 7 to Registration Statement No. 811-22276 on Form N-5 of Rand
Capital SBIC, Inc. filed with the SEC on 2/6/09.*(10.11)
    
    Form of Subscription Agreement used by Rand Capital Corporation in
connection with a private offering of 1,100,000 shares of common stock
that was completed on September 4, 2009  incorporated by reference to
Exhibit 99.1 to the Corporations Form 8-K report filed on August 13,
2009
 28




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##### Table of Contents



(31.1)
    
    Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(31.2)
    
    Certification of Chief Financial Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(32.1)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital Corporation  furnished herewith(32.2)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital SBIC, Inc.  furnished herewith
 
 *
    
    Management contract or compensatory plan. 29




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##### Table of Contents



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