##### Table of Contents





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 quarter ended June 30, 2014



| ̈ | 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  x    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   |  | x  (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  x

As of July 31, 2014 there were 6,411,892 shares of the registrants common stock outstanding.









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##### Table of Contents

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-Q



|                                |  |                                                                                                                                          |  |  |    | 
|------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I.  FINANCIAL INFORMATION |  |                                                                                                                                          |  | 
|                                |  |                                                                                                                                         
|Item 1.                         |  | Financial Statements and Supplementary Data                                                                                              |  |  | 3  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Statements of Financial Position as of June 30, 2014 (Unaudited) and December 31,
2013                            |  |  | 3  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2014 and 2013 (Unaudited)             |  |  | 4  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013
(Unaudited)                              |  |  | 5  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Statements of Changes in Net Assets for the Three Months and Six Months Ended June 30, 2014 and
 2013 (Unaudited) |  |  | 6  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Schedule of Portfolio Investments as of June 30, 2014 (Unaudited)                                                 |  |  | 7  | 
|                                |  |                                                                                                                                         
|                                |  | Condensed Consolidated Schedule of Portfolio Investments as of December 31, 2013                                                         |  |  | 10 | 
|                                |  |                                                                                                                                         
|                                |  | Notes to the Condensed Consolidated Financial Statements (Unaudited)                                                                     |  |  | 14 | 
|                                |  |                                                                                                                                         
|Item 2.                         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                    |  |  | 26 | 
|                                |  |                                                                                                                                         
|Item 3.                         |  | Quantitative and Qualitative Disclosures about Market Risk                                                                               |  |  | 32 | 
|                                |  |                                                                                                                                         
|Item 4.                         |  | Controls and Procedures                                                                                                                  |  |  | 33 | 
|                                | 
|PART II  OTHER INFORMATION     |  |                                                                                                                                          |  | 
|                                |  |                                                                                                                                         
|Item 1.                         |  | Legal Proceedings                                                                                                                        |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 1A.                        |  | Risk Factors                                                                                                                             |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 2.                         |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                              |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 3.                         |  | Defaults upon Senior Securities                                                                                                          |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 4.                         |  | Mine Safety Disclosures                                                                                                                  |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 5.                         |  | Other Information                                                                                                                        |  |  | 34 | 
|                                |  |                                                                                                                                         
|Item 6.                         |  | Exhibits                                                                                                                                 |  |  | 35 | 



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of June 30, 2014 and December 31, 2013



|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                          |  | June 30,2014 |            |   | December 31,2013 |  
|                                                                                                                                                          |  | (Unaudited)  |            |   |                  |  
|ASSETS                                                                                                                                                    |  |              |            |   |                  |   |            |  
|Investments at fair value:                                                                                                                                |  |              |            |   |                  |   |            |  
|Control investments (cost of $1,489,686 and $1,640,156, respectively)                                                                                     |  | $            | 10,159,349 |   |                  | $ | 10,309,819 |  
|Affiliate investments (cost of $15,111,700 and $12,844,406, respectively)                                                                                 |  |              | 14,840,143 |   |                  |   | 12,542,869 |  
|Non-affiliate investments (cost of $6,929,621 and $5,410,248, respectively)                                                                               |  |              | 8,251,489  |   |                  |   | 5,495,865  |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|Total investments, at fair value (cost of $23,531,007 and $19,894,810, respectively)                                                                      |  |              | 33,250,981 |   |                  |   | 28,348,553 |  
|Cash and cash equivalents                                                                                                                                 |  |              | 4,090,943  |   |                  |   | 9,764,810  |  
|Interest receivable (net of allowance: 6/30/14$128,311 and 12/31/13- $122,000 )                                                                          |  |              | 86,266     |   |                  |   | 58,093     |  
|Other assets                                                                                                                                              |  |              | 320,602    |   |                  |   | 1,578,914  |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|Total assets                                                                                                                                              |  | $            | 37,748,792 |   |                  | $ | 39,750,370 |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)                                                                                                         |  |              |            |   |                  |   |            |  
|Liabilities:                                                                                                                                              |  |              |            |   |                  |   |            |  
|Debentures guaranteed by the SBA                                                                                                                          |  | $            | 7,000,000  |   |                  | $ | 7,000,000  |  
|Deferred tax liability                                                                                                                                    |  |              | 2,036,407  |   |                  |   | 2,206,808  |  
|Income tax payable                                                                                                                                        |  |              | 4,999      |   |                  |   | 1,223,427  |  
|Accounts payable and accrued expenses                                                                                                                     |  |              | 251,763    |   |                  |   | 1,224,339  |  
|Deferred revenue                                                                                                                                          |  |              | 36,208     |   |                  |   | 26,464     |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|Total liabilities                                                                                                                                         |  |              | 9,329,377  |   |                  |   | 11,681,038 |  
|Stockholders equity (net assets):                                                                                                                        |  |              |            |   |                  |   |            |  
|Common stock, $.10 par; shares authorized 10,000,000; shares issued 6,863,034; shares outstanding of 6,411,892 as of 6/30/14 and
6,411,918 as of 12/31/13 |  |              | 686,304    |   |                  |   | 686,304    |  
|Capital in excess of par value                                                                                                                            |  |              | 10,581,789 |   |                  |   | 10,581,789 |  
|Accumulated net investment (loss)                                                                                                                         |  |              | (553,974   | ) |                  |   | (889,317   | )
|Undistributed net realized gain on investments                                                                                                            |  |              | 12,719,924 |   |                  |   | 13,522,890 |  
|Net unrealized appreciation on investments                                                                                                                |  |              | 6,175,571  |   |                  |   | 5,357,785  |  
|Treasury stock, at cost; 451,142 as of 6/30/14 and 451,116 shares as of 12/31/13                                                                          |  |              | (1,190,199 | ) |                  |   | (1,190,119 | )
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|Total stockholders equity (net assets) (per share 6/30/14 - $4.43 and 12/31/13 - $4.38)                                                                  |  |              | 28,419,415 |   |                  |   | 28,069,332 |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  
|Total liabilities and stockholders equity                                                                                                                |  | $            | 37,748,792 |   |                  | $ | 39,750,370 |  
|                                                                                                                                                          |  |              |            |   |                  |   |            |  

See accompanying notes



3



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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and the Six Months Ended June 30, 2014 and 2013

(Unaudited)



|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|---------------------------------------------------------------------- |  | ------------------------------ | --------- | - | ------------------------------ | - | --------- | ---------------------------- |  | - | ---------------------------- | - |  | - | ---------- | -
|                                                                       |  | Three monthsendedJune 30, 2014 |           |   | Three monthsendedJune 30, 2013 |   |           | Six monthsendedJune 30, 2014 |  |   | Six monthsendedJune 30, 2013 |  
|Investment income:                                                     |  |                                |           |   |                                |   |           |                              |  |   |                              |  
|Interest from portfolio companies:                                     |  |                                |           |   |                                |   |           |                              |  |   |                              |  
|Control investments                                                    |  | $                              | 29,460    |   |                                | $ | 40,205    |                              |  | $ | 61,759                       |   |  | $ | 81,993     |  
|Affiliate investments                                                  |  |                                | 130,517   |   |                                |   | 115,050   |                              |  |   | 253,373                      |   |  |   | 259,818    |  
|Non-Control/Non-Affiliate investments                                  |  |                                | 41,320    |   |                                |   | 30,074    |                              |  |   | 79,344                       |   |  |   | 70,359     |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total interest from portfolio companies                                |  |                                | 201,297   |   |                                |   | 185,329   |                              |  |   | 394,476                      |   |  |   | 412,170    |  
|Interest from other investments                                        |  |                                | 3,031     |   |                                |   | 2,452     |                              |  |   | 8,197                        |   |  |   | 5,342      |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total interest from other investments                                  |  |                                | 3,031     |   |                                |   | 2,452     |                              |  |   | 8,197                        |   |  |   | 5,342      |  
|Dividend and other investment income:                                  |  |                                |           |   |                                |   |           |                              |  |   |                              |  
|Control investments                                                    |  |                                | 399,895   |   |                                |   | 477,635   |                              |  |   | 682,981                      |   |  |   | 1,012,925  |  
|Affiliate investments                                                  |  |                                | 59,232    |   |                                |   | 44,797    |                              |  |   | 90,065                       |   |  |   | 44,797     |  
|Non-Control/Non-Affiliate investments                                  |  |                                | 2,531     |   |                                |   | 16,670    |                              |  |   | 2,531                        |   |  |   | 16,670     |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total dividend and other investment income                             |  |                                | 461,658   |   |                                |   | 539,102   |                              |  |   | 775,577                      |   |  |   | 1,074,392  |  
|Other income:                                                          |  |                                |           |   |                                |   |           |                              |  |   |                              |  
|Control investments                                                    |  |                                | 2,500     |   |                                |   | 3,500     |                              |  |   | 6,000                        |   |  |   | 5,000      |  
|Affiliate investments                                                  |  |                                | 1,767     |   |                                |   | 2,600     |                              |  |   | 2,700                        |   |  |   | 3,200      |  
|Non-Control/Non-Affiliate investments                                  |  |                                | 1,306     |   |                                |   | 1,250     |                              |  |   | 2,556                        |   |  |   | 2,500      |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total other income                                                     |  |                                | 5,573     |   |                                |   | 7,350     |                              |  |   | 11,256                       |   |  |   | 10,700     |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total investment income                                                |  |                                | 671,559   |   |                                |   | 734,233   |                              |  |   | 1,189,506                    |   |  |   | 1,502,604  |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Operating expenses:                                                    |  |                                |           |   |                                |   |           |                              |  |   |                              |  
|Salaries                                                               |  |                                | 147,669   |   |                                |   | 135,375   |                              |  |   | 295,338                      |   |  |   | 270,750    |  
|Bonus and profit sharing                                               |  |                                | (45,635   | ) |                                |   |          |                              |  |   | (45,635                      | ) |  |   |           |  
|Employee benefits                                                      |  |                                | 24,689    |   |                                |   | 34,323    |                              |  |   | 62,756                       |   |  |   | 87,495     |  
|Directors fees                                                        |  |                                | 55,500    |   |                                |   | 57,000    |                              |  |   | 74,250                       |   |  |   | 72,000     |  
|Professional fees                                                      |  |                                | 44,021    |   |                                |   | 46,525    |                              |  |   | 100,512                      |   |  |   | 75,362     |  
|Stockholders and office operating                                      |  |                                | 55,361    |   |                                |   | 52,693    |                              |  |   | 85,650                       |   |  |   | 79,367     |  
|Insurance                                                              |  |                                | 7,500     |   |                                |   | 7,500     |                              |  |   | 19,909                       |   |  |   | 19,504     |  
|Corporate development                                                  |  |                                | 16,431    |   |                                |   | 20,526    |                              |  |   | 27,556                       |   |  |   | 38,013     |  
|Other operating                                                        |  |                                | 1,979     |   |                                |   | 1,680     |                              |  |   | 3,256                        |   |  |   | 2,503      |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|                                                                       |  |                                | 307,515   |   |                                |   | 355,622   |                              |  |   | 623,592                      |   |  |   | 644,994    |  
|Interest on SBA obligations                                            |  |                                | 68,137    |   |                                |   | 34,180    |                              |  |   | 126,417                      |   |  |   | 95,924     |  
|Bad debt expense (recovery)                                            |  |                                |          |   |                                |   |          |                              |  |   | 6,311                        |   |  |   | (64,654    | )
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Total expenses                                                         |  |                                | 375,652   |   |                                |   | 389,802   |                              |  |   | 756,320                      |   |  |   | 676,264    |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Investment gain before income taxes                                    |  |                                | 295,907   |   |                                |   | 344,431   |                              |  |   | 433,186                      |   |  |   | 826,340    |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Income tax expense                                                     |  |                                | 48,712    |   |                                |   | 109,147   |                              |  |   | 97,843                       |   |  |   | 283,116    |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Net investment gain                                                    |  |                                | 247,195   |   |                                |   | 235,284   |                              |  |   | 335,343                      |   |  |   | 543,224    |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Realized (loss) gain on investments:                                   |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Affiliate investments                                                  |  |                                |          |   |                                |   |          |                              |  |   | (778,253                     | ) |  |   | (1,063,698 | )
|Non-Control/Non-Affiliate investments                                  |  |                                | (444,172  | ) |                                |   | 86,905    |                              |  |   | (446,939                     | ) |  |   | 1,842,265  |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Realized (loss) gain on investments before income taxes                |  |                                | (444,172  | ) |                                |   | 86,905    |                              |  |   | (1,225,192                   | ) |  |   | 778,567    |  
|Income tax (benefit) expense                                           |  |                                | (142,701  | ) |                                |   | 41,410    |                              |  |   | (422,226                     | ) |  |   | 291,100    |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Net realized (loss) gain on investments                                |  |                                | (301,471  | ) |                                |   | 45,495    |                              |  |   | (802,966                     | ) |  |   | 487,467    |  
|Net increase (decrease) in unrealized appreciation on investments:     |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Control investments                                                    |  |                                |          |   |                                |   |          |                              |  |   |                             |   |  |   | 6,652      |  
|Affiliate investments                                                  |  |                                | (356,900  | ) |                                |   |          |                              |  |   | 29,980                       |   |  |   | 1,063,698  |  
|Non-Control/Non-Affiliate investments                                  |  |                                | 1,236,251 |   |                                |   | (7,100    | )                            |  |   | 1,236,251                    |   |  |   | (2,593,870 | )
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Change in unrealized appreciation before income taxes                  |  |                                | 879,351   |   |                                |   | (7,100    | )                            |  |   | 1,266,231                    |   |  |   | (1,523,520 | )
|Deferred income tax expense (benefit)                                  |  |                                | 305,299   |   |                                |   | (1,393    | )                            |  |   | 448,445                      |   |  |   | (570,836   | )
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Net increase (decrease) in unrealized appreciation on investments      |  |                                | 574,052   |   |                                |   | (5,707    | )                            |  |   | 817,786                      |   |  |   | (952,684   | )
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Net realized and unrealized gain (loss) on investments                 |  |                                | 272,581   |   |                                |   | 39,788    |                              |  |   | 14,820                       |   |  |   | (465,217   | )
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Net increase in net assets from operations                             |  | $                              | 519,776   |   |                                | $ | 275,072   |                              |  | $ | 350,163                      |   |  | $ | 78,007     |  
|                                                                       |  |                                |           |   |                                |   |           |                              |  |   |                              |   |  |   |            |  
|Weighted average shares outstanding                                    |  |                                | 6,411,892 |   |                                |   | 6,575,184 |                              |  |   | 6,411,892                    |   |  |   | 6,592,522  |  
|Basic and diluted net increase in net assets per share from operations |  | $                              | 0.08      |   |                                | $ | 0.04      |                              |  | $ | 0.05                         |   |  | $ | 0.01       |  

See accompanying notes



4



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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2014 and 2013

(Unaudited)



|                                                                                              |  |                              |            |   |                              |   |            |  
|--------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | - | ---------- | -
|                                                                                              |  | Six monthsendedJune 30, 2014 |            |   | Six monthsendedJune 30, 2013 |  
|Cash flows from operating activities:                                                         |  |                              |            |   |                              |   |            |  
|Net increase in net assets from operations                                                    |  | $                            | 350,163    |   |                              | $ | 78,007     |  
|Adjustments to reconcile net increase in net assets to net cash used in operating activities: |  |                              |            |   |                              |   |            |  
|Depreciation and amortization                                                                 |  |                              | 12,668     |   |                              |   | 28,428     |  
|Original issue discount amortization                                                          |  |                              | (7,746     | ) |                              |   | (7,746     | )
|Change in interest receivable allowance                                                       |  |                              | 6,311      |   |                              |   | (74,795    | )
|(Increase) decrease in unrealized appreciation on investments                                 |  |                              | (1,266,231 | ) |                              |   | 1,523,520  |  
|Deferred tax benefit                                                                          |  |                              | (170,401   | ) |                              |   | (790,877   | )
|Realized loss (gain) on portfolio investments, net                                            |  |                              | 1,225,192  |   |                              |   | (778,567   | )
|Non-cash conversion of debenture interest                                                     |  |                              | (89,271    | ) |                              |   | (203,945   | )
|Changes in operating assets and liabilities:                                                  |  |                              |            |   |                              |   |            |  
|(Increase) decrease in interest receivable                                                    |  |                              | (34,484    | ) |                              |   | 22,167     |  
|Decrease (increase) in other assets                                                           |  |                              | 770,375    |   |                              |   | (206,518   | )
|(Increase) in prepaid income taxes                                                            |  |                              |           |   |                              |   | (65,036    | )
|Decrease in accounts payable and accrued expenses                                             |  |                              | (972,576   | ) |                              |   | (416,389   | )
|Decrease in income taxes payable                                                              |  |                              | (1,218,428 | ) |                              |   | (27,695    | )
|Increase (decrease) in deferred revenue                                                       |  |                              | 9,744      |   |                              |   | (3,700     | )
|                                                                                              |  |                              |            |   |                              |   |            |  
|Total adjustments                                                                             |  |                              | (1,734,847 | ) |                              |   | (1,001,153 | )
|                                                                                              |  |                              |            |   |                              |   |            |  
|Net cash used in operating activities                                                         |  |                              | (1,384,684 | ) |                              |   | (923,146   | )
|Cash flows from investing activities:                                                         |  |                              |            |   |                              |   |            |  
|Investments originated                                                                        |  |                              | (4,501,152 | ) |                              |   | (1,575,000 | )
|Proceeds from sale of investments                                                             |  |                              | 62,645     |   |                              |   | 2,977,145  |  
|Proceed from loan repayments                                                                  |  |                              | 150,469    |   |                              |   | 305,371    |  
|Capital expenditures                                                                          |  |                              | (1,065     | ) |                              |   |           |  
|                                                                                              |  |                              |            |   |                              |   |            |  
|Net cash (used in) provided by investing activities                                           |  |                              | (4,289,103 | ) |                              |   | 1,707,516  |  
|Cash flows from financing activities:                                                         |  |                              |            |   |                              |   |            |  
|Repayment of SBA debentures                                                                   |  |                              |           |   |                              |   | (900,000   | )
|Purchase of treasury stock                                                                    |  |                              | (80        | ) |                              |   | (339,091   | )
|                                                                                              |  |                              |            |   |                              |   |            |  
|Net cash used in financing activities                                                         |  |                              | (80        | ) |                              |   | (1,239,091 | )
|                                                                                              |  |                              |            |   |                              |   |            |  
|Net decrease in cash and cash equivalents                                                     |  |                              | (5,673,867 | ) |                              |   | (454,721   | )
|Cash and cash equivalents:                                                                    |  |                              |            |   |                              |   |            |  
|Beginning of period                                                                           |  |                              | 9,764,810  |   |                              |   | 4,224,763  |  
|                                                                                              |  |                              |            |   |                              |   |            |  
|End of period                                                                                 |  | $                            | 4,090,943  |   |                              | $ | 3,770,042  |  
|                                                                                              |  |                              |            |   |                              |   |            |  

See accompanying notes



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

For the Three Months and the Six Months Ended June 30, 2014 and 2013

(Unaudited)



|                                                                  |  |                                |            |   |                                |   |            |                              |  |   |                              |   |  |   |            |  
|----------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ------------------------------ | - | ---------- | ---------------------------- |  | - | ---------------------------- | - |  | - | ---------- | -
|                                                                  |  | Three monthsendedJune 30, 2014 |            |   | Three monthsendedJune 30, 2013 |   |            | Six monthsendedJune 30, 2014 |  |   | Six monthsendedJune 30, 2013 |  
|Net assets at beginning of period                                 |  | $                              | 27,899,639 |   |                                | $ | 25,585,235 |                              |  | $ | 28,069,332                   |   |  | $ | 25,782,300 |  
|Net investment gain                                               |  |                                | 247,195    |   |                                |   | 235,284    |                              |  |   | 335,343                      |   |  |   | 543,224    |  
|Net realized (loss) gain on sales and dispositions of investments |  |                                | (301,471   | ) |                                |   | 45,495     |                              |  |   | (802,966                     | ) |  |   | 487,467    |  
|Net increase (decrease) in unrealized appreciation                |  |                                | 574,052    |   |                                |   | (5,707     | )                            |  |   | 817,786                      |   |  |   | (952,684   | )
|                                                                  |  |                                |            |   |                                |   |            |                              |  |   |                              |   |  |   |            |  
|Net increase in net assets from operations                        |  |                                | 519,776    |   |                                |   | 275,072    |                              |  |   | 350,163                      |   |  |   | 78,007     |  
|Purchase of treasury stock                                        |  |                                |           |   |                                |   | (339,091   | )                            |  |   | (80                          | ) |  |   | (339,091   | )
|                                                                  |  |                                |            |   |                                |   |            |                              |  |   |                              |   |  |   |            |  
|Total increase (decrease) in net assets                           |  |                                | 519,776    |   |                                |   | (64,019    | )                            |  |   | (350,083                     | ) |  |   | (261,084   | )
|                                                                  |  |                                |            |   |                                |   |            |                              |  |   |                              |   |  |   |            |  
|Net assets at end of period                                       |  | $                              | 28,419,415 |   |                                | $ | 25,521,216 |                              |  | $ | 28,419,415                   |   |  | $ | 25,521,216 |  
|                                                                  |  |                                |            |   |                                |   |            |                              |  |   |                              |   |  |   |            |  

See accompanying notes



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2014

(Unaudited)



|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- | - | --------- | ---- |  | - | --------------- |  |  | --------------- | --------- |  |  | - | --- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                                                                |  | Type of Investment                                                                                                                                                      |  | (b)DateAcquired |          |  | (c)Equity |   |           | Cost |  |   | (d)(f)FairValue |  |  | PerShareof Rand |          
|Non-Control/Non-Affiliate Investments: (j)                                                                                                                                                                                                                   |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      | 
|BinOptics Corporation (e)(g) Ithaca, NY.
Design and manufacture of semiconductor FP and DFB lasers. (Electronics Developer) www.binoptics.com                                                                                                                |  | 20,891,357 Series 2 convertible preferred shares.                                                                                                                       |  |                 | 11/8/11  |  |           |   | 4         | %    |  | $ | 1,799,999       |  |  | $               | 3,000,000 |  |  | $ | .47 | 
|Empire Genomics, LLC (g) Buffalo, NY. A
molecular diagnostics company that develops and offers a comprehensive menu of assay services for use in diagnosing and guiding precise therapeutic treatments for patients. (Health Care)
www.empiregenomics.com    |  | $600,000 senior secured convertible term note at 10% due December 1, 2015.                                                                                              |  |                 | 6/13/14  |  |           |   | <1        | %    |  |   | 600,000         |  |  |                 | 600,000   |  |  |   | .09 | 
|KnowledgeVision Systems, Inc. (e)(g)
Lincoln, MA. Online presentation software. (Software)
www.knowledgevision.com                                                                                                                                           |  | 200,000 Series A-1 preferred shares.                                                                                                                                    |  |                 | 11/13/13 |  |           |   | 3         | %    |  |   | 250,000         |  |  |                 | 250,000   |  |  |   | .04 | 
|Mercantile Adjustment Bureau, LLC (g)
Williamsville, NY. Full service accounts receivable management and collections company. (Accounts Receivable)
www.mercantilesolutions.com                                                                              |  | $1,099,039 subordinated secured note at 13% due October 30, 2017. $150,000 subordinated debenture at 8% due June 30, 2018. Warrant for 3.29% membership interests.      |  |                 | 10/22/12 |  |           |   | 2         | %    |  |   | 1,307,241       |  |  |                 | 1,307,241 |  |  |   | .20 | 
|SocialFlow, Inc. (e)(g) New York, NY.
Provides instant analysis of current opportunities on social networks using proprietary, predictive analytic algorithm to determine best time for its customers to publish or advertise. (Software)
www.socialflow.com |  | 1,049,538 Series B preferred shares. 1,204,819 Series B-1 preferred shares.                                                                                             |  |                 | 4/5/13   |  |           |   | 4         | %    |  |   | 1,250,000       |  |  |                 | 1,250,000 |  |  |   | .20 | 
|Somerset Gas Transmission Company, LLC
Columbus, OH. Natural gas transportation company. (Oil and Gas)
www.somersetgas.com                                                                                                                                   |  | 26.5337 units.                                                                                                                                                          |  |                 | 7/10/02  |  |           |   | 3         | %    |  |   | 719,097         |  |  |                 | 786,748   |  |  |   | .12 | 
|Synacor, Inc. NASDAQ: SYNC (e)(g)(n)(o)
Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software)
www.synacor.com                                                        |  | 403,643 unrestricted common shares valued at $2.62 per share.                                                                                                           |  |                 | 11/18/02 |  |           |   | 2         | %    |  |   | 592,427         |  |  |                 | 1,057,500 |  |  |   | .17 | 
|Other Non-Control/Non-Affiliate Investments                                                                                                                                                                                                                  |  |                                                                                                                                                                         |  |                 |          |  |           |   | 410,857   |      |  |   | 0               |  |  |                 | .00       | 
|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                                                               |  |                                                                                                                                                                         |  |                 |          |  |           | $ | 6,929,621 |      |  | $ | 8,251,489       |  |  | $               | 1.29      | 
|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|Affiliate Investments: (k)                                                                                                                                                                                                                                   |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |     
|Carolina Skiff LLC (g) Waycross, GA.
Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com                                                                                                                    |  | $985,000 Class A preferred membership interest at 9.8%. $250,000 subordinated promissory note at 14% due December 31, 2016. 6.0825% Class A common membership interest. |  |                 | 1/30/04  |  |           |   | 7         | %    |  | $ | 1,250,000       |  |  | $               | 1,835,000 |  |  | $ | .29 | 
|Chequed.com, Inc. (e)(g) Saratoga Springs,
NY. Predictive employee selection and development software. (Software) www.chequed.com                                                                                                                            |  | 408,476 Series A preferred shares.                                                                                                                                      |  |                 | 11/18/10 |  |           |   | 16        | %    |  |   | 1,383,222       |  |  |                 | 1,383,222 |  |  |   | .22 | 



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2014 (Continued)

(Unaudited)



|                                                                                                                                                                                                                                                                |  |                                                                                                                                                         |  |                 |          |  |           |  |    |      |  |  |                 |  |  |                 |           |  |  |  |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  |  | --------------- |  |  | --------------- | --------- |  |  |  | --- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                                                                   |  | Type of Investment                                                                                                                                      |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |  | (d)(f)FairValue |  |  | PerShareof Rand |          
|CrowdBouncer, LLC (e)(g) Buffalo, NY.
Platform-as-a-Service (PaaS) solution for JOBS Act compliance and back-end transactional processing for broker-dealers, equity crowdfunding portals and other financial institutions. (Software)
www.crowdbouncer.com     |  | 270,000 Series A preferred shares.                                                                                                                      |  |                 | 1/22/14  |  |           |  | 12 | %    |  |  | 270,000         |  |  |                 | 270,000   |  |  |  | .04 | 
|First Wave Products Group, LLC (e)(g)
Batavia, NY. Develops medical devices including First Crush, a dual action pill crusher that crushes and grinds medical pills. (Manufacturing)
www.firstwaveproducts.com                                                  |  | $500,000 senior term notes at 10% due December 31, 2016. $200,000 junior term note at 10% due December 31, 2016. Warrant for 37,732 capital securities. |  |                 | 4/19/12  |  |           |  | 7  | %    |  |  | 840,838         |  |  |                 | 840,838   |  |  |  | .13 | 
|GiveGab, Inc. (e)(g) Ithaca, NY. Social
network dedicated to helping volunteers and nonprofit organizations interact, on a local level, in their communities. (Software) www.givegab.com                                                                        |  | 2,254,822 Series A preferred shares.                                                                                                                    |  |                 | 3/13/13  |  |           |  | 6  | %    |  |  | 403,388         |  |  |                 | 403,388   |  |  |  | .06 | 
|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                                                                              |  | 18.545% Class A membership interest. 8% cumulative dividend.                                                                                            |  |                 | 8/31/99  |  |           |  | 19 | %    |  |  | 400,000         |  |  |                 | 100,000   |  |  |  | .02 | 
|Intrinsiq Materials, Inc. (e)(g)
Rochester, NY. Produces a variety of printable electronics utilizing a unique process of making nanomaterial based ink used in a room-temperature manufacturing
environment. (Manufacturing) www.intrinsiqmaterials.com        |  | 599,055 Series 2 Preferred shares.                                                                                                                      |  |                 | 9/19/13  |  |           |  | 7  | %    |  |  | 600,002         |  |  |                 | 600,002   |  |  |  | .09 | 
|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. (Fully diluted common share equivalent of 3,336,010)              |  |                 | 11/20/12 |  |           |  | 7  | %    |  |  | 1,229,155       |  |  |                 | 872,255   |  |  |  | .14 | 
|Mezmeriz, Inc. (e)(g) Ithaca, NY.
Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules to be embedded into mobile electronics for projection, gesture recognition and 3D scanning. (Electronics Developer)
www.mezmeriz.com |  | 360,526 Series A preferred shares. $200,000 convertible notes at 8% due December 31, 2014.                                                              |  |                 | 1/9/08   |  |           |  | 10 | %    |  |  | 591,373         |  |  |                 | 200,000   |  |  |  | .03 | 
|Microcision LLC (g) Philadelphia, PA.
Custom manufacturer of medical and dental implants. (Manufacturing). www.microcision.com                                                                                                                                  |  | $1,500,000 subordinated promissory note at 11% due January 31, 2017. 15% Class A common membership interest.                                            |  |                 | 9/24/09  |  |           |  | 15 | %    |  |  | 1,891,965       |  |  |                 | 1,891,965 |  |  |  | .30 | 
|QuaDPharma, LLC (g) Clarence, NY. Small
scale pre-commercial and commercial manufacturing for the Pharmaceutical industry. (Manufacturing) www.quadpharmainc.com                                                                                                |  | $556,285.22 second note allonge at 14% due November 1, 2017. 141.75 Class A units of membership interest.                                               |  |                 | 6/26/12  |  |           |  | 14 | %    |  |  | 906,285         |  |  |                 | 906,285   |  |  |  | .14 | 
|Rheonix, Inc. (e)(g) Ithaca, NY. Developer
of microfluidic testing devices including channels, pumps, reaction vessels, & diagnostic chambers, for testing of small volumes of chemicals and biological fluids. (Manufacturing)
www.rheonix.com                 |  | 9,676 common shares. (g)1,839,422 Series
A preferred shares. 50,593 common shares.                                                                      |  |                 | 10/29/09 |  |           |  | 5  | %    |  |  | 2,099,999       |  |  |                 | 2,235,999 |  |  |  | .35 | 



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2014 (Continued)

(Unaudited)



|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- |  | --------- |  | -- | ---- |  | - | --------------- |  |  | --------------- | ---------- |  |  | - | ---- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                                                                                |  | Type of Investment                                                                                                                                               |  | (b)DateAcquired |         |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue |  |  | PerShareof Rand |           
|SciAps, Inc. (e)(g) Woburn, MA.
Instrumentation company specializing in portable analytical instruments. Provides durable, field-tested, portable instruments to identify any compound, any mineral, and any element, anyplace on the planet. (Manufacturing)
www.sciaps.com |  | 187,500 Series A preferred shares.                                                                                                                               |  |                 | 7/12/13 |  |           |  | 9  | %    |  |   | 1,500,000       |  |  |                 | 1,500,000  |  |  |   | .23  | 
|SOMS Technologies, LLC (e)(g) Valhalla,
NY. Produces and markets the microGreen Extended Performance Oil Filter. (Auto Parts Developer) www.microgreenfilter.com                                                                                                             |  | 5,959,490 Series B membership interests.                                                                                                                         |  |                 | 12/2/08 |  |           |  | 10 | %    |  |   | 472,632         |  |  |                 | 528,348    |  |  |   | .08  | 
|Teleservices Solutions Holdings, LLC (e)(g)
Montvale, NJ. Customer contact center specializing in customer acquisition and retention for selected industries. (Contact Center)
www.ipacesetters.com                                                                          |  | 250,000 Class B shares. 1,000,000 Class C shares.                                                                                                                |  |                 | 5/30/14 |  |           |  | 9  | %    |  |   | 1,250,000       |  |  |                 | 1,250,000  |  |  |   | .19  | 
|Other Affiliate Investments                                                                                                                                                                                                                                                  |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   | 22,841          |  |  |                 | 22,841     |  |  |   | .00  | 
|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Subtotal Affiliate Investments                                                                                                                                                                                                                                               |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  | $ | 15,111,700      |  |  | $               | 14,840,143 |  |  | $ | 2.31 | 
|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Control Investments: (l)                                                                                                                                                                                                                                                     |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Gemcor II, LLC (g)(h)(m) West Seneca, NY.
Designs and sells automatic riveting machines used in the assembly of aircraft components. (Manufacturing) www.gemcor.com                                                                                                          |  | $500,000 subordinated promissory note at 15% due November 1, 2014. $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units. |  |                 | 6/28/04 |  |           |  | 31 | %    |  | $ | 1,384,849       |  |  | $               | 10,059,849 |  |  |   | 1.57 | 
|Other Control Investments                                                                                                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   | 104,837         |  |  |                 | 99,500     |  |  |   | .02  | 
|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Subtotal Control Investments                                                                                                                                                                                                                                                 |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  | $ | 1,489,686       |  |  | $               | 10,159,349 |  |  | $ | 1.59 | 
|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|                                                                                                                                                                                                                                                                             |  | Total portfolio investments                                                                                                                                      |  |                 |         |  |           |  |    |      |  | $ | 23,531,007      |  |  | $               | 33,250,981 |  |  | $ | 5.19 | 
|                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

June 30, 2014 (Continued)

(Unaudited)



Notes to the Condensed Consolidated Schedule of Portfolio Investments

a) At June 30, 2014 restricted securities represented approximately 97% 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. Individual securities with a fair value less than $100,000 are included in Other
Investments.

(b) The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a predecessor
company. Freed Maxick CPAs, P.C. has not audited the date acquired of the portfolio companies.

(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. Freed Maxick CPAs, P.C. has not audited the equity percentages of the portfolio companies. 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 which defines fair value and establishes guidelines for measuring fair value. At June 30, 2014, ASC 820 designates 3% of the Corporations investments as Level
1 and 97% 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 which 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 Condensed 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 June 30, 2014, the total cost of investment securities approximated $23.5 million. Net unrealized appreciation was approximately $9.7 million,
which was comprised of $11.2 million of unrealized appreciation of investment securities and ($1.5) million related to unrealized depreciation of investment securities.

(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. As of June 30, 2014 there were no interest receivable amounts exceeding $50,000.

(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.

(l) Control investments are defined by the 1940 Act as investments in companies in which
more than 25% of the voting securities are owned 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) Publicly owned company.

(o) On June 30, 2014, the Corporations shares of Synacor were valued at $2.62 per share in accordance with the Corporations valuation policy
for unrestricted publicly held securities (Level 1). See Synacors publicly disclosed financial reports at SEC.gov for additional information on Synacors industry, financial results and business operations.



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2013



|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- | - | --------- | ---- |  | - | --------------- |  |  | --------------- | --------- |  |  | - | --- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                                                                |  | Type of Investment                                                                                                                                                      |  | (b)DateAcquired |          |  | (c)Equity |   |           | Cost |  |   | (d)(f)FairValue |  |  | PerShareof Rand |          
|Non-Control/Non-Affiliate Investments: (j)                                                                                                                                                                                                                   |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      | 
|BinOptics Corporation (e)(g) Ithaca, NY.
Design and manufacture of semiconductor FP and DFB lasers. (Electronics Developer) www.binoptics.com                                                                                                                |  | 20,891,357 Series 2 convertible preferred shares.                                                                                                                       |  |                 | 11/8/11  |  |           |   | 4         | %    |  | $ | 1,799,999       |  |  | $               | 1,799,999 |  |  | $ | .28 | 
|KnowledgeVision Systems, Inc. (e)(g)
Lincoln, MA. Online presentation software. (Software)
www.knowledgevision.com                                                                                                                                           |  | 200,000 Series A-1 preferred shares.                                                                                                                                    |  |                 | 11/13/13 |  |           |   | 3         | %    |  |   | 250,000         |  |  |                 | 250,000   |  |  |   | .04 | 
|Mercantile Adjustment Bureau, LLC (g)
Williamsville, NY. Full service accounts receivable management and collections company. (Accounts Receivable)
www.mercantilesolutions.com                                                                              |  | $1,075,000 subordinated secured note at 13% due October 30, 2017. Warrant for 2.47% membership interests.                                                               |  |                 | 10/22/12 |  |           |   | 2         | %    |  |   | 1,104,618       |  |  |                 | 1,104,618 |  |  |   | .17 | 
|SocialFlow, Inc. (e)(g) New York, NY.
Provides instant analysis of current opportunities on social networks using proprietary, predictive analytic algorithm to determine best time for its customers to publish or advertise. (Software)
www.socialflow.com |  | 1,049,538 Series B preferred shares.                                                                                                                                    |  |                 | 4/5/13   |  |           |   | 2         | %    |  |   | 500,000         |  |  |                 | 500,000   |  |  |   | .08 | 
|Somerset Gas Transmission Company, LLC
Columbus, OH. Natural gas transportation company. (Oil and Gas)
www.somersetgas.com                                                                                                                                   |  | 26.5337 units.                                                                                                                                                          |  |                 | 7/10/02  |  |           |   | 3         | %    |  |   | 719,097         |  |  |                 | 786,748   |  |  |   | .12 | 
|Synacor, Inc. NASDAQ: SYNC (e)(g)(n)(o)
Buffalo, NY. Develops provisioning platforms for aggregation and delivery of content and services across multiple digital devices. (Software)
www.synacor.com                                                        |  | 428,643 unrestricted common shares valued at $2.46 per share.                                                                                                           |  |                 | 11/18/02 |  |           |   | 2         | %    |  |   | 625,677         |  |  |                 | 1,054,500 |  |  |   | .16 | 
|Other Non-Control/Non-Affiliate Investments                                                                                                                                                                                                                  |  |                                                                                                                                                                         |  |                 |          |  |           |   | 410,857   |      |  |   | 0               |  |  |                 | .00       | 
|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|Subtotal Non-Control/Non-Affiliate Investments                                                                                                                                                                                                               |  |                                                                                                                                                                         |  |                 |          |  |           | $ | 5,410,248 |      |  | $ | 5,495,865       |  |  | $               | .85       | 
|                                                                                                                                                                                                                                                             |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |      |  |   |                 |  |  |                 |           |  |  |   |     | 
|Affiliate Investments: (k)                                                                                                                                                                                                                                   |  |                                                                                                                                                                         |  |                 |          |  |           |   |           |     
|Carolina Skiff LLC (g) Waycross, GA.
Manufacturer of fresh water, ocean fishing and pleasure boats. (Manufacturing) www.carolinaskiff.com                                                                                                                    |  | $985,000 Class A preferred membership interest at 9.8%. $250,000 subordinated promissory note at 14% due December 31, 2016. 6.0825% Class A common membership interest. |  |                 | 1/30/04  |  |           |   | 7         | %    |  | $ | 1,250,000       |  |  | $               | 1,835,000 |  |  | $ | .29 | 
|Chequed.com, Inc. (e)(g) Saratoga Springs,
NY. Predictive employee selection and development software. (Software) www.chequed.com                                                                                                                            |  | 305,118 Series A preferred shares.                                                                                                                                      |  |                 | 11/18/10 |  |           |   | 12        | %    |  |   | 1,033,222       |  |  |                 | 1,033,222 |  |  |   | .16 | 
|First Wave Products Group, LLC (e)(g)
Batavia, NY. Develops medical devices including First Crush, a dual action pill crusher that crushes and grinds medical pills. (Manufacturing)
www.firstwaveproducts.com                                               |  | $500,000 senior term notes at 10% due December 31, 2016. $200,000 junior term note at 10% due December 31, 2016. Warrant for 34,228 capital securities.                 |  |                 | 4/19/12  |  |           |   | 5         | %    |  |   | 797,834         |  |  |                 | 797,834   |  |  |   | .12 | 



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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2013 (Continued)



|                                                                                                                                                                                                                                                                             |  |                                                                                                                                   |  |                 |          |  |           |  |    |      |  |  |                 |  |  |                 |           |  |  |  |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- |  | --------- |  | -- | ---- |  |  | --------------- |  |  | --------------- | --------- |  |  |  | --- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                                                                                                                                |  | Type of Investment                                                                                                                |  | (b)DateAcquired |          |  | (c)Equity |  |    | Cost |  |  | (d)(f)FairValue |  |  | PerShareof Rand |          
|GiveGab, Inc. (e)(g) Ithaca, NY. Social
network dedicated to helping volunteers and nonprofit organizations interact, on a local level, in their communities. (Software) www.givegab.com                                                                                     |  | 1,397,428 Series A preferred shares.                                                                                              |  |                 | 3/13/13  |  |           |  | 6  | %    |  |  | 250,000         |  |  |                 | 250,000   |  |  |  | .04 | 
|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                                                                                           |  | 19.081% Class A membership interest. 8% cumulative dividend.                                                                      |  |                 | 8/31/99  |  |           |  | 19 | %    |  |  | 400,000         |  |  |                 | 100,000   |  |  |  | .02 | 
|Intrinsiq Materials, Inc. (e)(g)
Rochester, NY. Produces a variety of printable electronics utilizing a unique process of making nanomaterial based ink used in a room-temperature manufacturing
environment. (Manufacturing) www.intrinsiqmaterials.com                     |  | 599,055 Series 2 Preferred shares.                                                                                                |  |                 | 9/19/13  |  |           |  | 7  | %    |  |  | 600,002         |  |  |                 | 600,002   |  |  |  | .09 | 
|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.                                                                                  |  |                 | 11/20/12 |  |           |  | 6  | %    |  |  | 750,000         |  |  |                 | 750,000   |  |  |  | .12 | 
|Mezmeriz, Inc. (e)(g) Ithaca, NY.
Micro-electronic mechanical systems (MEMS) developer of carbon fiber MEMS mirror modules to be embedded into mobile electronics for projection and gesture recognition. (Electronics Developer)
www.mezmeriz.com                           |  | 360,526 Series A preferred shares. $200,000 convertible notes at 8% due December 31, 2014.                                        |  |                 | 1/9/08   |  |           |  | 8  | %    |  |  | 591,373         |  |  |                 | 591,373   |  |  |  | .09 | 
|Microcision LLC (g) Philadelphia, PA.
Custom manufacturer of medical and dental implants. (Manufacturing). www.microcision.com                                                                                                                                               |  | $1,500,000 subordinated promissory note at 5%, 6% deferred interest due January 31, 2014. 15% Class A common membership interest. |  |                 | 9/24/09  |  |           |  | 15 | %    |  |  | 1,891,965       |  |  |                 | 1,891,965 |  |  |  | .29 | 
|QuaDPharma, LLC (g)(h) Clarence, NY. Small
scale pre-commercial and commercial manufacturing for the Pharmaceutical industry. (Manufacturing) www.quadpharmainc.com                                                                                                          |  | $556,285.22 second note allonge at 10% due November 1, 2017. 141.75 Class A units of membership interest.                         |  |                 | 6/26/12  |  |           |  | 14 | %    |  |  | 906,285         |  |  |                 | 906,285   |  |  |  | .14 | 
|Rheonix, Inc. (e)(g) Ithaca, NY. Developer
of microfluidic testing devices including channels, pumps, reaction vessels, & diagnostic chambers, for testing of small volumes of chemicals and biological fluids. (Manufacturing)
www.rheonix.com                              |  | 9,676 common shares. (g)1,839,422 Series
A preferred shares. 50,593 common shares.                                                |  |                 | 10/29/09 |  |           |  | 5  | %    |  |  | 2,099,999       |  |  |                 | 2,235,999 |  |  |  | .35 | 
|SciAps, Inc. (e)(g) Woburn, MA.
Instrumentation company specializing in portable analytical instruments. Provides durable, field-tested, portable instruments to identify any compound, any mineral, and any element, anyplace on the planet. (Manufacturing)
www.sciaps.com |  | 125,000 Series A preferred shares.                                                                                                |  |                 | 7/12/13  |  |           |  | 6  | %    |  |  | 1,000,000       |  |  |                 | 1,000,000 |  |  |  | .16 | 



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##### Table of Contents

RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2013 (Continued)



|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- |  | --------- |  | -- | ---- |  | - | --------------- |  |  | --------------- | ---------- |  |  | - | ---- | 
|(a)
Company, Geographic Location, BusinessDescription, (Industry) and Website                                                                                       |  | Type of Investment                                                                                                                                               |  | (b)DateAcquired |         |  | (c)Equity |  |    | Cost |  |   | (d)(f)FairValue |  |  | PerShareof Rand |           
|SOMS Technologies, LLC (e)(g) Valhalla,
NY. Produces and markets the microGreen Extended Performance Oil Filter. (Auto Parts Developer) www.microgreenfilter.com    |  | 5,959,490 Series B membership interests.                                                                                                                         |  |                 | 12/2/08 |  |           |  | 10 | %    |  |   | 472,632         |  |  |                 | 528,348    |  |  |   | .08  | 
|Other Affiliate Investments                                                                                                                                         |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   | 801,094         |  |  |                 | 22,841     |  |  |   | .00  | 
|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Subtotal Affiliate Investments                                                                                                                                      |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  | $ | 12,844,406      |  |  | $               | 12,542,869 |  |  | $ | 1.95 | 
|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Control Investments (l)                                                                                                                                             |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Gemcor II, LLC (g)(h)(m) West Seneca, NY.
Designs and sells automatic riveting machines used in the assembly of aircraft components. (Manufacturing) www.gemcor.com |  | $500,000 subordinated promissory note at 15% due November 1, 2014. $1,000,000 subordinated promissory note at 15% due September 1, 2017. 31.25 membership units. |  |                 | 6/28/04 |  |           |  | 31 | %    |  | $ | 1,535,319       |  |  | $               | 10,210,319 |  |  |   | 1.59 | 
|Other Control Investments                                                                                                                                           |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   | 104,837         |  |  |                 | 99,500     |  |  |   | .02  | 
|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|Subtotal Control Investments                                                                                                                                        |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  | $ | 1,640,156       |  |  | $               | 10,309,819 |  |  | $ | 1.61 | 
|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 
|                                                                                                                                                                    |  | Total portfolio investments                                                                                                                                      |  |                 |         |  |           |  |    |      |  | $ | 19,894,810      |  |  | $               | 28,348,553 |  |  | $ | 4.41 | 
|                                                                                                                                                                    |  |                                                                                                                                                                  |  |                 |         |  |           |  |    |      |  |   |                 |  |  |                 |            |  |  |   |      | 



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RAND CAPITAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2013 (Continued)



Notes to the Condensed Consolidated Schedule of Portfolio Investments

(a) At December 31, 2013 restricted securities represented approximately 96% 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. Individual securities with a fair value less than $100,000 are included in
Other Investments.

(b) The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a
predecessor company. Freed Maxick CPAs, P.C. has not audited the date acquired of the portfolio companies.

(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. Freed Maxick CPAs, P.C. has not audited the equity percentages of the portfolio companies. The symbol <1% indicates that the
Corporation holds an equity interest of less than one percent. As of December 31, 2013, the Corporation held no equity interests 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 which defines fair value and establishes guidelines for measuring fair value. At December 31, 2013, ASC 820 designates 4% of the Corporations investments as Level 1 and 96% 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 which 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 (also 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, 2013, the total cost of investment securities approximated $19.9 million. Net unrealized appreciation was approximately $8.5
million, which was comprised of $9.9 million of unrealized appreciation of investment securities and ($1.49) million related to unrealized depreciation of investment securities.

(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. As of December 31, 2013 there were no interest receivable amounts exceeding $50,000.

(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.

(l) Control investments are defined by the 1940 Act as investments in companies in which
more than 25% of the voting securities are owned 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) Publicly owned company.

(o) On December 31, 2013, the Corporations shares of Synacor were valued at $2.46 per share in accordance with the Corporations valuation
policy for unrestricted publicly held securities (Level 1). See Synacors publicly disclosed financial reports at SEC.gov for additional information on Synacors industry, financial results and business operations.



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Rand Capital Corporation and Subsidiary

Notes to the Consolidated Financial Statements

For the Six Months Ended June 30, 2014 and 2013

(Unaudited)

Note 1. ORGANIZATION

Rand Capital Corporation (Rand) was incorporated under the laws of New York in February 1969. Rand operates as a
publicly traded, closed-end, diversified management company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). Rand Capital SBIC, Inc.
(Rand SBIC) is a wholly-owned subsidiary of Rand, operating as a small business investment company (SBIC) and licensed by the U.S. Small Business Administration (SBA). The predecessor of Rand SBIC had originally
been organized as a Delaware limited partnership, and was converted into a New York corporation on December 31, 2008, at which time its operations as a licensed SBIC were continued by the newly formed corporation under its current name. 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. Rand and its wholly-owned subsidiary Rand SBIC are referred to herein, collectively, as the
Corporation.

The Corporation is listed on the NASDAQ Capital Market under the symbol Rand.

Rand operates Rand SBIC for the same investment purposes and with investments in similar loan and equity securities as Rand. The operations of
Rand SBIC are consolidated with those of Rand for both financial reporting and tax purposes.

On February 28, 2012, the Securities
and Exchange Commission (the SEC) granted an Order of Exemption for Rand with respect to the operations of Rand SBIC to permit certain joint transactions that would otherwise be prohibited by the 1940 Act, but which would not be
prohibited if Rand and Rand SBIC were a single entity and to permit an exemption from separate reporting requirements for Rand SBIC under Section 13(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act). At that
time, although Rand SBIC was operated as if it were a BDC, it was registered as an investment company under the 1940 Act. Upon the Corporations receipt of the order granting the exemption, on March 28, 2012, Rand SBIC filed an election to
be regulated as a BDC under the 1940 Act pursuant to which it may engage in certain transactions which would be permitted if Rand and Rand SBIC were operated as a single entity, but which are not permitted between a parent BDC and a wholly-owned
subsidiary BDC without specific exemptions.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of PresentationIn Managements opinion, the accompanying consolidated financial statements
include all adjustments necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the interim periods presented. Certain information and note disclosures normally included in audited annual
consolidated financial statements prepared in accordance with United States generally accepted accounting principles (GAAP) have been omitted; however, the Corporation believes that the disclosures made are adequate to make the
information presented not misleading. The interim results for the six months ended June 30, 2014 are not necessarily indicative of the results for the full year.

These statements should be read in conjunction with the consolidated financial statements and the notes included in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2013. Information contained in this filing should also be reviewed in conjunction with the Corporations related filings with the SEC prior to the date of this report. Those
filings include, but are not limited to, the following:



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##### Table of Contents

N-54A

Election to Adopt Business Development Company statusDEF-14A

Definitive Proxy Statement submitted to shareholdersForm 10-K

Annual Report on Form 10-K for the year ended December 31, 2013Form 10-Q

Quarterly Report on Form 10-Q for the quarters ended March 31, 2014, September 30, 2013 and June 30, 2013


The Corporations website is www.randcapital.com. The Corporations annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, charters for the Corporations Board committees and other reports filed with the SEC are available through the Corporations website.

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.

Cash and Cash
EquivalentsTemporary cash investments having an original maturity of three months or less when purchased are considered to be cash equivalents.

Fair Value of Financial Instruments  The carrying amounts reported in the consolidated statement of financial position of
cash and cash equivalents, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying value of 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. The Corporation is deemed to control a portfolio company if 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
submitted to the Board of Directors for approval. 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 for each investment. 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 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 security has 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.

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, the loan is placed on non-accrual status and interest income is recognized at the time of receipt. A reserve for possible losses on interest receivables is maintained when appropriate.

The Rand SBIC 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 the 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.



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##### Table of Contents

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

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 $7,746 in OID income for each of the six months ended June 30,
2014 and 2013.

Deferred Debenture CostsSBA debenture origination and commitment costs, which are included in other
assets, are amortized ratably over the terms of the SBA debentures and are expensed when the debt is repaid. Amortization expense for the six months ended June 30, 2014 and 2013 was $11,438 and $28,428, respectively. Future amortization over
the next five years is estimated to be approximately $23,000 per year.

SBA LeverageThe Corporation had
$7,000,000 in outstanding SBA leverage at June 30, 2014 and December 31, 2013. The $7,000,000 in outstanding leverage at June 30, 2014 matures in 2022 through 2024. The remaining undrawn SBA commitment at June 30, 2014 is
$1,000,000 and expires on September 30, 2016.

Net Assets per ShareNet assets per share are based on the number
of shares of common stock outstanding. There are no common stock equivalents.

Supplemental Cash Flow
InformationIncome taxes paid, net of refunds, during the six months ended June 30, 2014 and 2013 were $1,512,891 and $886,988, respectively. Interest paid during the six months ended June 30, 2014 and 2013 was $98,913 and
$67,525, respectively. The Corporation converted $89,271 and $203,944 of interest receivable into investments during the six months ended June 30, 2014 and 2013, 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 June 30, 2014 and
December 31, 2013, there were 500,000 shares of $10.00 par value preferred stock authorized and unissued.

On October 24, 2013
the Board of Directors increased the repurchase authorization from 500,000 to 1,000,000 shares of the Corporations outstanding common stock on the open market through October 24, 2014 at prices no greater than current net asset value. The
Corporation repurchased 26 shares during the six months ended June 30, 2014 for a total cost of $80 and an average cost of $3.06/share. The Corporation had previously purchased 451,116 shares as of December 31, 2013. At June 30, 2014
the total shares held in treasury were 451,142 with a total cost of $1,190,199.



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##### Table of Contents

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 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 June 30, 2014 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 options will be granted under the
Option Plan while any profit sharing plan is in effect with respect to the Corporation.

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. The profit sharing payments are split equally between the Corporations two executive officers, each of whom is fully vested in the Plan.

There were no amounts earned pursuant to the Plan for the six months ended June 30, 2014 and June 30, 2013, respectively. During the
six months ended June 30, 2014 the Corporation adjusted the escrow receivable amount for Liazon Corporation to reflect the amount that was actually received. Due to this adjustment the amount accrued for profit sharing from fiscal year 2013 had
to be adjusted and resulted in a reduction of ($45,635) to profit sharing expense. During the year ended December 31, 2013, the Corporation approved and accrued $887,244 under the Plan, of which $784,560 was paid during the six months ended
June 30, 2014.

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.

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 six months ended June 30, 2014 or
2013, respectively.

The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the
years ended December 31, 2011 through 2013. In general, the Corporations state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2009 through 2013. The Corporations uncertain
tax positions are not material and are not expected to change significantly within the next 12 months.

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 the banks.

At June 30, 2014, Gemcor II, LLC (Gemcor), BinOptics Corporation (Binoptics), Rheonix, Inc. (Rheonix),
Microcision, LLC (Microcision), and Carolina Skiff LLC (Carolina Skiff) represented 30%, 9%, 7%, 6% and 6%, respectively, of the fair value of the Corporations investment portfolio.



18



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##### Table of Contents

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.

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 an 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 may also be valued at an amount other than the price the security
would command in order to provide a yield to maturity equivalent to the current yield of similar debt securities. 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 market approach or income approach. The market approach uses observable prices and other relevant information generated by similar market
transactions. It may include the use of market multiples derived from a set of comparables to assist in pricing the investment. Additionally, the Corporation adjusts valuations if a subsequent significant equity financing has occurred that includes
a meaningful portion of the financing by a sophisticated, unrelated new investor. The income approach employs a cash flow and discounting methodology to value an investment.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 appreciation on investments.

Under the valuation policy, the Corporation values unrestricted publicly traded
companies at the average closing bid price for the last three trading days of the month.



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##### Table of Contents

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



| |  |  | Financial information obtained from each portfolio company, including 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Current information regarding any offers to purchase the investment; or past sales 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 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 which 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 Interests.

The significant unobservable inputs used in the fair value measurement of the Corporations equity investments are EBITDA and revenue
multiples, where applicable, the financial and operational performance of the business, and the senior equity preferences which 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.

Another key factor used in valuing equity investments is recent arms-length
equity transactions with unrelated new investors 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 increases or decreases in any of these unobservable inputs would result in a significantly higher or lower fair value measurement.



20



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##### Table of Contents

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 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 provide an
indicator as to the probability of principal recovery of the investment. The Corporations 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 significantly higher or lower fair value measurement. 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 level.

The following table provides a summary
of the significant unobservable inputs used to fair value the Corporations Level 3 portfolio investments as of June 30, 2014:



|                          |  |                            |            |  |                    |                            |                                |                              |       |               
|------------------------- |  | -------------------------- | ---------- |  | ------------------ | -------------------------- | ------------------------------ | ---------------------------- | ----- | --------------
|Investment Type           |  | Fair Value atJune 30, 2014 |            |  | ValuationTechnique |                            | Significant UnobservableInputs |                              | Range
|Equity Investments        |  | $                          | 11,671,748 |  |                    | Market Approach            |                                | EBITDA Multiple              |       | 5X - 12X      
|                          |  |                            | 22,841     |  |                    | Market Approach            |                                | Liquidation Seniority        |       | 1X            
|                          |  |                            | 3,099,500  |  |                    | Market Approach            |                                | Revenue Multiple             |       | 1X  1.5X     
|                          |  |                            | 10,993,214 |  |                    | Market Approach            |                                | Transaction Pricing          |       | Not applicable
|                          |  |                            | 119,625    |  |                    | Black ScholesPricing Model |                                | Stock pricing and volatility |       | $1.13         
|Loan and Debt Investments |  |                            | 6,286,553  |  |                    | Face Value                 |                                | Liquidation Seniority        |       | Not applicable
|                          |  |                            |            |  |                    |                            |                                |                              |       |               
|Total                     |  | $                          | 32,193,481 |  |                    |                            |                                |                              |       |               
|                          |  |                            |            |  |                    |                            |                                |                              |       |               

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 June 30, 2014:



|                   |  |               |                                                |  |                                                             |   |           |                                      |  |   |                                              |  |  |   |            | 
|------------------ |  | ------------- | ---------------------------------------------- |  | ----------------------------------------------------------- | - | --------- | ------------------------------------ |  | - | -------------------------------------------- |  |  | - | ---------- | 
|                   |  |               | Fair Value Measurements at Reported Date Using | 
|Description        |  | June 30, 2014 |                                                |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |           | SignificantObservableInputs(Level 2) |  |   | Other SignificantUnobservableInputs(Level 3) | 
|Loan investments   |  | $             | 1,316,135                                      |  |                                                             | $ |          |                                      |  | $ |                                             |  |  | $ | 1,316,135  | 
|Debt investments   |  |               | 4,970,418                                      |  |                                                             |   |          |                                      |  |   |                                             |  |  |   | 4,970,418  | 
|Equity investments |  |               | 26,964,428                                     |  |                                                             |   | 1,057,500 |                                      |  |   |                                             |  |  |   | 25,906,928 | 
|                   |  |               |                                                |  |                                                             |   |           |                                      |  |   |                                              |  |  |   |            | 
|Total              |  | $             | 33,250,981                                     |  |                                                             | $ | 1,057,500 |                                      |  | $ | 0                                            |  |  | $ | 32,193,481 | 
|                   |  |               |                                                |  |                                                             |   |           |                                      |  |   |                                              |  |  |   |            | 



21



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##### Table of Contents

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, 2013:





|                   |  |                  |                                                |  |                                                            |   |           |                                       |  |   |                                              |  |  |   |            | 
|------------------ |  | ---------------- | ---------------------------------------------- |  | ---------------------------------------------------------- | - | --------- | ------------------------------------- |  | - | -------------------------------------------- |  |  | - | ---------- | 
|                   |  |                  | Fair Value Measurements at Reported Date Using | 
|Description        |  | December 31,2013 |                                                |  | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |   |           | SignificantObservable Inputs(Level 2) |  |   | Other SignificantUnobservableInputs(Level 3) | 
|Loan investments   |  | $                | 1,466,604                                      |  |                                                            | $ |          |                                       |  | $ |                                             |  |  | $ | 1,466,604  | 
|Debt investments   |  |                  | 4,172,417                                      |  |                                                            |   |          |                                       |  |   |                                             |  |  |   | 4,172,417  | 
|Equity investments |  |                  | 22,709,532                                     |  |                                                            |   | 1,054,500 |                                       |  |   |                                             |  |  |   | 21,655,032 | 
|                   |  |                  |                                                |  |                                                            |   |           |                                       |  |   |                                              |  |  |   |            | 
|Total              |  | $                | 28,348,553                                     |  |                                                            | $ | 1,054,500 |                                       |  | $ | 0                                            |  |  | $ | 27,294,053 | 
|                   |  |                  |                                                |  |                                                            |   |           |                                       |  |   |                                              |  |  |   |            | 

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 six months ended June 30, 2014:



|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|---------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | --------- | - | --------------- | - | --------- | ----------------- |  | - | ---------- | - |  | - | ----------- | -
|                                                                                   |  | Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital Investments |          
|Description                                                                        |  | LoanInvestments                                                                                   |           |   | DebtInvestments |   |           | EquityInvestments |  |   | Total      |  
|Ending Balance, December 31, 2013, of Level 3 Assets                               |  | $                                                                                                 | 1,466,604 |   |                 | $ | 4,172,417 |                   |  | $ | 21,655,032 |   |  | $ | 27,294,053  |  
|Realized Losses included in net change in net assets from operations               |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|EmergingMed.com, Inc. (Emerging Med)                                               |  |                                                                                                   |          |   |                 |   | (778,253  | )                 |  |   |           |   |  |   | (778,253    | )
|Liazon Corporation (Liazon)                                                        |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (476,334   | ) |  |   | (476,334    | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Total Realized Losses                                                              |  |                                                                                                   |          |   |                 |   | (778,253  | )                 |  |   | (476,334   | ) |  |   | (1,254,587  | )
|Unrealized Gains or Losses included in net change in net assets from operations    |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|BinOptics Corporation (Binoptics)                                                  |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 1,200,001  |   |  |   | 1,200,001   |  
|Emerging Med                                                                       |  |                                                                                                   |          |   |                 |   | 778,253   |                   |  |   |           |   |  |   | 778,253     |  
|Knoa Software, Inc. (Knoa)                                                         |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (356,900   | ) |  |   | (356,900    | )
|Mezmeriz, Inc. (Mezmeriz)                                                          |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (391,373   | ) |  |   | (391,373    | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Total Unrealized Gains and Losses                                                  |  |                                                                                                   |          |   |                 |   | 778,253   |                   |  |   | 451,728    |   |  |   | 1,229,981   |  
|Purchases of Securities/Changes to Securities/Non-cash conversions:                |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Chequed.com, Inc. (Chequed)                                                        |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 350,000    |   |  |   | 350,000     |  
|CrowdBouncer, LLC (Crowdbouncer)                                                   |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 270,000    |   |  |   | 270,000     |  
|Empire Genomics, LLC (Empire Genomics)                                             |  |                                                                                                   |          |   |                 |   | 600,000   |                   |  |   |           |   |  |   | 600,000     |  
|First Wave Products Group, LLC (First Wave)                                        |  |                                                                                                   |          |   |                 |   | 43,003    |                   |  |   |           |   |  |   | 43,003      |  
|GiveGab, Inc (Give Gab)                                                            |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 153,388    |   |  |   | 153,388     |  
|Knoa                                                                               |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 479,155    |   |  |   | 479,155     |  
|Liazon                                                                             |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 476,334    |   |  |   | 476,334     |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                     |  |                                                                                                   |          |   |                 |   | 154,998   |                   |  |   | 47,625     |   |  |   | 202,623     |  
|SciAps, Inc. (Sciaps)                                                              |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000     |  
|SocialFlow, Inc. (Social Flow)                                                     |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 750,000    |   |  |   | 750,000     |  
|Teleservices Solutions Holdings, LLC (Teleservices Holdings)                       |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 1,250,000  |   |  |   | 1,250,000   |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Total Purchases of Securities/Changes to Securities/Non-cash conversions           |  |                                                                                                   |          |   |                 |   | 798,001   |                   |  |   | 4,276,502  |   |  |   | 5,074,503   |  
|Repayments of Securities                                                           |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Gemcor II, LLC (Gemcor)                                                            |  |                                                                                                   | (150,469  | ) |                 |   |          |                   |  |   |           |   |  |   | (150,469    | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Total Repayments of Securities                                                     |  |                                                                                                   | (150,469  | ) |                 |   |          |                   |  |   |           |   |  |   | (150,469    | )
|Transfers within Level 3                                                           |  |                                                                                                   |          |   |                 |   |          |                   |  |   |           |   |  |   |            |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Ending Balance, June 30, 2014, of Level 3 Assets                                   |  | $                                                                                                 | 1,316,135 |   |                 | $ | 4,970,418 |                   |  | $ | 25,906,928 |   |  | $ | 32,193,481  |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |             |  
|Change in unrealized appreciation for the period included in changes in net assets |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  | $ | 1,229,981   |  
|Total realized (losses) for the period included in changes in net assets           |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   | ($1,254,587 | )



---

##### Table of Contents

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 six months ended June 30, 2013:



|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | --------- | - | --------------- | - | --------- | ----------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                   |  | Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Venture Capital Investments |          
|Description                                                                        |  | LoanInvestments                                                                                   |           |   | DebtInvestments |   |           | EquityInvestments |  |   | Total      |  
|Ending Balance, December 31, 2012, of Level 3 Assets                               |  | $                                                                                                 | 1,504,986 |   |                 | $ | 4,082,174 |                   |  | $ | 20,652,226 |   |  | $ | 26,239,386 |  
|Realized Losses included in net change in net assets from operations               |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Mid America Brick & Structural Clay                                                |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Products, LLC (Mid America Brick)                                                  |  |                                                                                                   |          |   |                 |   | (126,698  | )                 |  |   | (937,000   | ) |  |   | (1,063,698 | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Realized Losses                                                              |  |                                                                                                   |          |   |                 |   | (126,698  | )                 |  |   | (937,000   | ) |  |   | (1,063,698 | )
|Unrealized Gains or Losses included in net change in net assets from operations    |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Mid America Brick                                                                  |  |                                                                                                   |          |   |                 |   | 126,698   |                   |  |   | 937,000    |   |  |   | 1,063,698  |  
|NDT Acquisitions, LLC (NDT)                                                        |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 6,652      |   |  |   | 6,652      |  
|Ultra-Scan Corporation (UltraScan)                                                 |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (561,836   | ) |  |   | (561,836   | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Unrealized Gains and Losses                                                  |  |                                                                                                   |          |   |                 |   | 126,698   |                   |  |   | 381,816    |   |  |   | 508,514    |  
|Purchases of Securities/Changes to Securities/Non-cash conversions:                |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Chequed.com, Inc. (Chequed)                                                        |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|EmergingMed.com, Inc. (Emerging Med)                                               |  |                                                                                                   |          |   |                 |   | 103,207   |                   |  |   |           |   |  |   | 103,207    |  
|First Wave Products Group, LLC (First Wave)                                        |  |                                                                                                   |          |   |                 |   | 29,742    |                   |  |   |           |   |  |   | 29,742     |  
|GiveGab, Inc                                                                       |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 250,000    |   |  |   | 250,000    |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                     |  |                                                                                                   |          |   |                 |   | 79,998    |                   |  |   |           |   |  |   | 79,998     |  
|Mezmeriz, Inc. (Mezmeriz)                                                          |  |                                                                                                   |          |   |                 |   | 100,000   |                   |  |   | 19,864     |   |  |   | 119,864    |  
|Microcision LLC (Microcision)                                                      |  |                                                                                                   |          |   |                 |   | 53,879    |                   |  |   |           |   |  |   | 53,879     |  
|Mid America Brick                                                                  |  |                                                                                                   | 150,000   |   |                 |   |          |                   |  |   |           |   |  |   | 150,000    |  
|SocialFlow, Inc. (Social Flow)                                                     |  |                                                                                                   |          |   |                 |   |          |                   |  |   | 500,000    |   |  |   | 500,000    |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Purchases/Changes to Securities                                              |  |                                                                                                   | 150,000   |   |                 |   | 366,826   |                   |  |   | 1,269,864  |   |  |   | 1,786,690  |  
|Repayments of Securities                                                           |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Gemcor II, LLC (Gemcor)                                                            |  |                                                                                                   | (121,835  | ) |                 |   |          |                   |  |   |           |   |  |   | (121,835   | )
|Mid America Brick                                                                  |  |                                                                                                   |          |   |                 |   | (150,000  | )                 |  |   |           |   |  |   | (150,000   | )
|NDT                                                                                |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (6,652     | ) |  |   | (6,652     | )
|QuaDPharma, LLC (Quadpharma)                                                       |  |                                                                                                   | (26,885   | ) |                 |   |          |                   |  |   |           |   |  |   | (26,885    | )
|UltraScan                                                                          |  |                                                                                                   |          |   |                 |   |          |                   |  |   | (938,164   | ) |  |   | (938,164   | )
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Total Repayments of Securities                                                     |  |                                                                                                   | (148,720  | ) |                 |   | (150,000  | )                 |  |   | (944,816   | ) |  |   | (1,243,536 | )
|Transfers within Level 3                                                           |  |                                                                                                   |          |   |                 |   | (249,999  | )                 |  |   | 250,000    |   |  |   | 1          |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Ending Balance, June 30, 2013, of Level 3 Assets                                   |  | $                                                                                                 | 1,506,266 |   |                 | $ | 4,049,001 |                   |  | $ | 20,672,090 |   |  | $ | 26,227,357 |  
|                                                                                   |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   |            |  
|Change in unrealized appreciation for the period included in changes in net assets |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  | $ | 508,514    |  
|Total realized (losses) for the period included in changes in net assets           |  |                                                                                                   |           |   |                 |   |           |                   |  |   |            |   |  |   | ($385,978  | )



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##### Table of Contents

Note 4. UNCONSOLIDATED SIGNIFICANT SUBSIDIARY

In accordance with the SECs Regulation S-X, the Corporation has an unconsolidated significant subsidiary that is not
required to be consolidated. Accordingly, comparative financial information is presented below.



|                  |  |                                   |        |  |                |   |        | 
|----------------- |  | --------------------------------- | ------ |  | -------------- | - | ------ | 
|                  |  | For the periods ended (Unaudited) |       
|                  |  | 6/30/2014(000)                    |        |  | 6/30/2013(000) |  
|Income Statement: |  |                                   |        |  |                |   |        | 
|Net sales         |  | $                                 | 13,166 |  |                | $ | 17,420 | 
|Gross profit      |  |                                   | 4,686  |  |                |   | 6,469  | 
|Net income        |  |                                   | 1,742  |  |                |   | 3,547  | 



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##### Table of Contents

Note 5. FINANCIAL HIGHLIGHTS

The following schedule provides the financial highlights, calculated based on weighted average shares outstanding, for the
six months ended June 30, 2014 and the year ended December 31, 2013:



|                                                            |  |                                          |            |   |                            |   |            |  
|----------------------------------------------------------- |  | ---------------------------------------- | ---------- | - | -------------------------- | - | ---------- | -
|                                                            |  | Six months endedJune 30, 2014(Unaudited) |            |   | Year endedDecember 31,2013 |  
|Income from investment operations (1):                      |  |                                          |            |   |                            |   |            |  
|Investment income                                           |  | $                                        | 0.19       |   |                            | $ | 0.38       |  
|Expenses                                                    |  |                                          | 0.12       |   |                            |   | 0.37       |  
|                                                            |  |                                          |            |   |                            |   |            |  
|Investment gain before income taxes                         |  |                                          | 0.07       |   |                            |   | 0.01       |  
|Income tax expense (benefit)                                |  |                                          | 0.02       |   |                            |   | (0.01      | )
|                                                            |  |                                          |            |   |                            |   |            |  
|Net investment gain                                         |  |                                          | 0.05       |   |                            |   | 0.02       |  
|Purchase of treasury stock (2)                              |  |                                          | 0.00       |   |                            |   | 0.04       |  
|Net realized and unrealized gain on investments             |  |                                          | 0.00       |   |                            |   | 0.42       |  
|                                                            |  |                                          |            |   |                            |   |            |  
|Increase in net asset value                                 |  |                                          | 0.05       |   |                            |   | 0.48       |  
|Net asset value, beginning of period                        |  |                                          | 4.38       |   |                            |   | 3.90       |  
|                                                            |  |                                          |            |   |                            |   |            |  
|Net asset value, end of period                              |  | $                                        | 4.43       |   |                            | $ | 4.38       |  
|                                                            |  |                                          |            |   |                            |   |            |  
|Per share market price, end of period                       |  | $                                        | 3.11       |   |                            | $ | 3.07       |  
|                                                            |  |                                          |            |   |                            |   |            |  
|Total return based on market value                          |  |                                          | 1.30       | % |                            |   | 31.2       | %
|Total return based on net asset value                       |  |                                          | 1.25       | % |                            |   | 8.87       | %
|Supplemental data:                                          |  |                                          |            |   |                            |   |            |  
|Ratio of expenses before income taxes to average net assets |  |                                          | 2.68       | % |                            |   | 8.76       | %
|Ratio of expenses including taxes to average net assets     |  |                                          | 3.02       | % |                            |   | 8.53       | %
|Ratio of net investment income to average net assets        |  |                                          | 1.19       | % |                            |   | 0.57       | %
|Portfolio turnover                                          |  |                                          | 14.9       | % |                            |   | 17.9       | %
|Net assets, end of period                                   |  | $                                        | 28,419,415 |   |                            | $ | 28,069,332 |  
|Weighted shares outstanding, end of period                  |  |                                          | 6,411,892  |   |                            |   | 6,513,385  |  



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

|(2) | Net increase is due to purchase of common stock at prices less than beginning of period net asset value per share
|--- | -----------------------------------------------------------------------------------------------------------------

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 in future periods.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

You should read the following discussion and analysis of the Corporations financial condition and results
of operations in conjunction with the Corporations 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, and in Section 21F of the Exchange Act. Additional oral
or written forward-looking statements may be made by the Corporation 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 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 under the caption Risk
Factors contained in Part II, Item 1A of this report.

There may be other factors not identified that affect the accuracy of
the Corporations forward-looking statements. Further, any forward-looking statement speaks only as of the date it is made and, except as required by law, the Corporation undertakes 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 the Corporations business not to
develop as we expect, and we cannot predict all of them.

Overview

The following discussion describes the financial position and operations of Rand Capital Corporation (Rand) and its wholly-owned
subsidiary Rand SBIC, Inc. (Rand SBIC and, together with Rand, collectively, the Corporation).

Rand is
incorporated in New York and has elected to operate as a business development company (BDC) under the 1940 Act. Its wholly-owned subsidiary, Rand SBIC, operates as a small business investment company (SBIC) regulated by the
Small Business Administration (SBA). On February 28, 2012, the SEC granted an Order of Exemption for Rand with respect to the operations of Rand SBIC under which Rand SBIC was permitted to elect BDC status. On March 28, 2012,
Rand SBIC elected BDC status with the SEC pursuant to which it may now engage in certain transactions which would be permitted if Rand and Rand SBIC were operated as a single entity, but which are not permitted between a parent BDC and a
wholly-owned subsidiary BDC without specific exemption.

The Corporation anticipates that most, if not all, of its investments in the next
year will be originated through the SBIC subsidiary.



26



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##### Table of Contents

Business Developments

The United States and global economic conditions continued to improve throughout the first six months of 2014. To the extent the financial
market conditions continue to improve, the Corporation believes its financial condition and the financial condition of the portfolio companies will improve. It remains difficult to forecast when future investment exits will happen.

Critical Accounting Policies

The
Corporation prepares its consolidated financial statements in accordance with U.S. 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 the Corporations critical accounting policies can be found in the Corporations 2013 Form 10-K under Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations.



27



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##### Table of Contents

Financial Condition



|                  |  |         |            |  |          |   |            |                    |  |    |                     |   |  |  |       |   
|----------------- |  | ------- | ---------- |  | -------- | - | ---------- | ------------------ |  | -- | ------------------- | - |  |  | ----- | --
|Overview:         |  | 6/30/14 |            |  | 12/31/13 |   |            | (Decrease)Increase |  |    | %(Decrease)Increase |  
|Total assets      |  | $       | 37,748,792 |  |          | $ | 39,750,370 |                    |  | ($ | 2,001,578           | ) |  |  | (5.0  | %)
|Total liabilities |  |         | 9,329,377  |  |          |   | 11,681,038 |                    |  |    | (2,351,661          | ) |  |  | (20.1 | %)
|                  |  |         |            |  |          |   |            |                    |  |    |                     |   |  |  |       |   
|Net assets        |  | $       | 28,419,415 |  |          | $ | 28,069,332 |                    |  | $  | 350,083             |   |  |  | 1.2   | % 
|                  |  |         |            |  |          |   |            |                    |  |    |                     |   |  |  |       |   

Net asset value per share (NAV) was $4.43 at June 30, 2014 and $4.38 at December 31, 2013.

The outstanding SBA leverage at June 30, 2014 is $7,000,000 and will mature from 2022 to 2024. Cash and cash equivalents approximated 14%
of net assets at June 30, 2014 and 35% at December 31, 2013.

Composition of the Corporations Investment Portfolio

The Corporations financial condition is dependent on the success of its portfolio holdings. It has invested substantially all of its
assets in small to medium-sized companies. The following summarizes the Corporations investment portfolio at the period-ends indicated.



|                             |  |         |            |  |          |   |            |          |  |   |           |  |  |  |      |  
|---------------------------- |  | ------- | ---------- |  | -------- | - | ---------- | -------- |  | - | --------- |  |  |  | ---- | -
|                             |  | 6/30/14 |            |  | 12/31/13 |   |            | Increase |  |   | %Increase | 
|Investments, at cost         |  | $       | 23,531,007 |  |          | $ | 19,894,810 |          |  | $ | 3,636,197 |  |  |  | 18.3 | %
|Unrealized appreciation, net |  |         | 9,719,974  |  |          |   | 8,453,743  |          |  |   | 1,266,231 |  |  |  | 15.0 | %
|                             |  |         |            |  |          |   |            |          |  |   |           |  |  |  |      |  
|Investments at fair value    |  | $       | 33,250,981 |  |          | $ | 28,348,553 |          |  | $ | 4,902,428 |  |  |  | 17.3 | %
|                             |  |         |            |  |          |   |            |          |  |   |           |  |  |  |      |  

The Corporations total investments at fair value, as estimated by management and approved by the Board
of Directors, approximated 117% of net assets at June 30, 2014 and 101% of net assets at December 31, 2013.

The change in
investments during the six months ended June 30, 2014, at cost, is comprised of the following:



|                                                                                     |  |                        |           |  
|------------------------------------------------------------------------------------ |  | ---------------------- | --------- | -
|                                                                                     |  | CostIncrease(Decrease) |          
|New investments:                                                                     |  |                        |           |  
|Teleservices Solutions Holdings, LLC (Teleservices Holdings)                         |  | $                      | 1,250,000 |  
|SocialFlow, Inc. (Socialflow)                                                        |  |                        | 750,000   |  
|Empire Genomics, LLC (Empire Genomics)                                               |  |                        | 600,000   |  
|SciAps, Inc. (Sciaps)                                                                |  |                        | 500,000   |  
|Knoa Software, Inc. (Knoa)                                                           |  |                        | 477,764   |  
|Chequed.com, Inc. (Chequed)                                                          |  |                        | 350,000   |  
|CrowdBouncer, LLC (Crowdbouncer)                                                     |  |                        | 270,000   |  
|GiveGab, Inc. (Give Gab)                                                             |  |                        | 153,388   |  
|Mercantile Adjustment Bureau, LLC (Mercantile)                                       |  |                        | 150,000   |  
|                                                                                     |  |                        |           |  
|Total of new investments                                                             |  |                        | 4,501,152 |  
|Other changes to investments:                                                        |  |                        |           |  
|Mercantile interest conversion and OID amortization                                  |  |                        | 52,623    |  
|First Wave Products Group, LLC (First Wave) interest conversion and OID amortization |  |                        | 43,003    |  
|Knoa interest conversion                                                             |  |                        | 1,391     |  
|                                                                                     |  |                        |           |  
|Total of other changes to investments                                                |  |                        | 97,017    |  
|Investments repaid, sold or liquidated                                               |  |                        |           |  
|EmergingMed.com, Inc. (Emerging Med)                                                 |  |                        | (778,253  | )
|Gemcor II, LLC (Gemcor) repayment                                                    |  |                        | (150,469  | )
|Synacor, Inc. (Synacor)                                                              |  |                        | (33,250   | )
|                                                                                     |  |                        |           |  
|Total of investments repaid, sold or liquidated                                      |  |                        | (961,972  | )
|                                                                                     |  |                        |           |  
|Net change in investments, at cost                                                   |  | $                      | 3,636,197 |  
|                                                                                     |  |                        |           |  



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##### Table of Contents

Results of Operations

Investment Income

The Corporations
investment objective is to achieve long-term capital appreciation on its equity investments while investing in a mixture of debenture and equity instruments, which provide a current return on a portion of the investment portfolio. The equity
features contained in the Corporations investment portfolio are structured to realize capital appreciation over the long-term and may not generate current income in the form of dividends or interest. In addition, the Corporation earns interest
income from investing its idle funds in money market instruments held at well capitalized financial institutions.

Comparison of the six months
ended June 30, 2014 to the six months ended June 30, 2013



|                                     |  |              |           |  |              |   |           |                    |  |  |                     |   |  |  |       |   
|------------------------------------ |  | ------------ | --------- |  | ------------ | - | --------- | ------------------ |  |  | ------------------- | - |  |  | ----- | --
|                                     |  | June 30,2014 |           |  | June 30,2013 |   |           | (Decrease)Increase |  |  | %(Decrease)Increase |  
|Interest from portfolio companies    |  | $            | 394,476   |  |              | $ | 412,170   |                    |  |  | ($17,694            | ) |  |  | (4.3  | %)
|Interest from other investments      |  |              | 8,197     |  |              |   | 5,342     |                    |  |  | 2,855               |   |  |  | 53.4  | % 
|Dividend and other investment income |  |              | 775,577   |  |              |   | 1,074,392 |                    |  |  | (298,815            | ) |  |  | (27.8 | %)
|Other income                         |  |              | 11,256    |  |              |   | 10,700    |                    |  |  | 556                 |   |  |  | 5.2   | % 
|                                     |  |              |           |  |              |   |           |                    |  |  |                     |   |  |  |       |   
|Total investment income              |  | $            | 1,189,506 |  |              | $ | 1,502,604 |                    |  |  | ($313,098           | ) |  |  | (20.8 | %)
|                                     |  |              |           |  |              |   |           |                    |  |  |                     |   |  |  |       |   

Interest from portfolio companies  The portfolio interest income decrease is due to the fact the Corporation
recognized a realized loss on Emerging Med during the fourth quarter of 2013. This investment had generated approximately $39,000 in interest income during the six months ended June 30, 2013.

After reviewing the portfolio companys performance and the circumstances surrounding the Corporations investment, the Corporation
ceased accruing interest income on Mezmeriz in 2014.

Interest from other investmentsThe increase in interest from other investments is
primarily due to higher average cash balances during the six months ending June 30, 2014 versus the same six month period in 2013.

Dividend and
other investment incomeDividend income is comprised of distributions from Limited Liability Companies (LLCs) in which the Corporation has invested. The Corporations investment agreements with certain LLCs require the LLCs to
distribute funds to the Corporation for payment of income taxes on its allocable share of the LLCs profits. These portfolio companies may also elect to distribute additional discretionary distributions. These dividends will fluctuate based
upon the profitability of the LLCs and the timing of the distributions.

Dividend income for the six months ended June 30, 2014
consisted of a distribution from Gemcor for $682,981, Monarch Machine Tool LLC for $45,682, Carolina Skiff LLC (Carolina Skiff) for $44,383 and Somerset Gas Transmission Company, LLC (Somerset) for $2,531. Dividend income for the six months ended
June 30, 2013 consisted of a distribution from Gemcor for $1,012,925, Carolina Skiff for $44,797 and Somerset for $16,670.



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##### Table of Contents

Other incomeOther 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 $4,256 and $3,700 for the six
months ended June 30, 2014 and 2013, respectively. The board fees were $7,000 for both the six months ended June 30, 2014 and 2013.

Operating Expenses

Comparison of the six months
ended June 30, 2014 to the six months ended June 30, 2013



|               |  |               |         |  |               |   |         |          |  |  |            |  |  |  |      |  
|-------------- |  | ------------- | ------- |  | ------------- | - | ------- | -------- |  |  | ---------- |  |  |  | ---- | -
|               |  | June 30, 2014 |         |  | June 30, 2013 |   |         | Increase |  |  | % Increase | 
|Total Expenses |  | $             | 756,320 |  |               | $ | 676,264 |          |  |  | 80,056     |  |  |  | 11.8 | %

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

The 12% or
$80,056 increase in operating expenses for the six months ended June 30, 2014 as compared to the same six month period in 2013 is due, in part, to the fact that the Corporation had a bad debt recovery for $64,654 in the six months ended
June 30, 2013, whereas the Corporation incurred a bad debt expense of $6,311 for the six months ended June 30, 2014. In addition, the bonus and profit sharing expense was ($45,635) for the six months ended June 30, 2014 due to the
fact that the Corporation adjusted the escrow receivable amount for Liazon Corporation to reflect the amount that was actually received in the second quarter of 2014 and therefore, incurred a realized loss and a related adjustment to the profit
sharing and benefit accrual.

The SBA borrowings increased from $4,000,000 at June 30, 2013 to $7,000,000 at June 30, 2014. The
increase in outstanding leverage caused a 32% or $30,493 increase in SBA interest expense for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.

Net Realized Gains and Losses on Investments

Comparison of the six months ended June 30, 2014 to the six months ended June 30, 2013



|                         |  |               |           |   |               |   |         |          |  |    |           |  
|------------------------ |  | ------------- | --------- | - | ------------- | - | ------- | -------- |  | -- | --------- | -
|                         |  | June 30, 2014 |           |   | June 30, 2013 |   |         | Decrease | 
|Net realized (loss) gain |  | ($            | 1,225,192 | ) |               | $ | 778,567 |          |  | ($ | 2,003,759 | )

During the six months ended June 30, 2014, the Corporation recognized a realized loss of $778,253 on
Emerging Med when it was sold during January 2014 and the Corporation did not receive proceeds from the sale. This investment had been valued at $0 at December 31, 2013.

The Corporation also recognized a loss of $476,334 on an adjustment of the Liazon Corporation escrow receivable.

During the six months ended June 30, 2014, the Corporation recognized a realized gain of $29,395 on the sale of 25,000 shares of Synacor,
Inc. (Synacor). Synacor trades on the NASDAQ Global Market under the symbol SYNC. The Corporation owned 403,643 shares of Synacor at June 30, 2014 following such sale.

During the six months ended June 30, 2013, the Corporation recognized a net realized gain of $1,164,545 on the sale of 252,200 shares of
Synacor. At June 30, 2013, the Corporation owned 428,643 shares of Synacor.



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##### Table of Contents

In addition, the Corporation recognized a realized gain of $670,808 on the sale of its shares in
Ultra-Scan to a strategic acquirer during the six months ended June 30, 2013. The Corporation also recognized a realized loss of $1,063,698 on its investment in Mid-America Brick when the company announced in February 2013 that it had filed for
bankruptcy.

Net Change in Unrealized Appreciation of Investments

The Corporation recorded a net increase in unrealized appreciation on investments of $1,266,231 during the six months ended June 30, 2014
as compared to a net decrease in unrealized appreciation on investments of ($1,523,520) during the same six month period in 2014.

The
increase in unrealized appreciation for the six months ended June 30, 2014 was comprised of the following:



|                                                                                      |  |               |           |  
|------------------------------------------------------------------------------------- |  | ------------- | --------- | -
|                                                                                      |  | June 30, 2014 |          
|BinOptics Corporation (Binoptics)                                                     |  | $             | 1,200,001 |  
|EmergingMed.com, Inc. (Emerging Med)  reclass to a realized loss                     |  |               | 778,253   |  
|Synacor, Inc. (Synacor)                                                               |  |               | 36,250    |  
|Mezmeriz, Inc. (Mezmeriz)                                                             |  |               | (391,373  | )
|Knoa Software, Inc. (Knoa)                                                            |  |               | (356,900  | )
|                                                                                      |  |               |           |  
|Total change in net unrealized appreciation during the six months ended June 30, 2014 |  | $             | 1,266,231 |  
|                                                                                      |  |               |           |  

Binoptics was written up in accordance with ASC 820 due to an overall improvement in the revenues and
financial performance of the company.

The Emerging Med investment was written off during the six months ended June 30, 2014, after
the company was sold and the Corporation did not receive proceeds.

Synacor, as a publicly traded stock, is marked to market at the end of
each quarter. The Corporation valued its 403,643 shares of Synacor at a three day average bid price of $2.62 as of June 30, 2014.

The Mezmeriz investment was revalued during the six months ended June 30, 2014 after the Corporations management reviewed the
portfolio company and its financials and determined that the business of this portfolio company had deteriorated since the time of the original funding. The portfolio company remains in operation and is developing new business strategies.

The valuation of Knoa was decreased during the second quarter of 2014 to value the Corporations equity holdings at the price of the most
recent insider round of financing.

The decrease in unrealized appreciation for the six months ended June 30, 2013 was comprised of:



|                                                                                                 |  |               |             |  
|------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | -
|                                                                                                 |  | June 30, 2013 |            
|Mid America Brick & Structural Clay Products, LLC (Mid America Brick)reclass to a realized loss |  | $             | 1,063,698   |  
|NDT Acquisition, LLC (NDT)                                                                       |  |               | 6,652       |  
|Ultra-Scan Corporation (Ultra-Scan)reclass to realized gain                                     |  |               | (561,836    | )
|Synacor, Inc. (Synacor)                                                                          |  |               | (2,032,034  | )
|                                                                                                 |  |               |             |  
|Total change in net unrealized appreciation during the six months ended June 30, 2013            |  |               | ($1,523,520 | )
|                                                                                                 |  |               |             |  



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Synacor, as a publicly traded stock, is marked to market at the end of each quarter. The
Corporation valued its 428,643 shares of Synacor at a three day average bid price of $3.06 as of June 30, 2013.

The NDT investment
value was adjusted for royalties received.

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

Net Increase in Net Assets from Operations

The Corporation accounts for its operations under GAAP for investment companies. The principal measure of its financial performance is
net increase in net assets from operations on its consolidated statements of operations. For the six months ended June 30, 2014 and 2013, the net increase in net assets from operations was $350,163 and $78,007, respectively.

Liquidity and Capital Resources

The
Corporations principal objective is to achieve growth in net asset value per share through capital appreciation. Therefore, a significant portion of the 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.

As
of June 30, 2014, the Corporations total liquidity, consisting of cash and cash equivalents, was $4,090,943.

Management
expects that the cash and cash equivalents at June 30, 2014, coupled with the $1,000,000 of available SBA leverage and the scheduled interest and dividend payments on its portfolio investments, will be sufficient to meet the Corporations
cash needs throughout the next twelve months. The Corporation is also evaluating potential exits from portfolio companies to 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

The Corporations investment activities contain elements of risk. The portion of the Corporations investment portfolio consisting of
equity and debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the equity interests in the portfolio is
stated at fair value as determined in good faith by the management of the Corporation and submitted to the Board of Directors for approval. This is in accordance with the Corporations 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 Corporations 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 in the
Corporations consolidated statement of operations as Net unrealized appreciation on investments.

At times the
Corporations portfolio may include marketable securities, including marketable securities traded in the over-the-counter market. In addition, there may be securities in the Corporations 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, the Corporation may not be able to realize the fair value of its marketable investments or other investments in a timely manner.



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As of June 30, 2014, the Corporation 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 Exchange Act 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 June 30, 2014. 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 June 30, 2014.

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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##### Table of Contents

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, 2013. The Risk
Factors from our 2013 report on Form 10-K remain applicable with the exception of the following addition:

Fluctuations of Quarterly Results

The Corporations quarterly operating results could fluctuate as a result of a number of factors. These factors include, among others,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which portfolio companies encounter competition in their markets and general economic conditions and the market value of publicly traded
securities. As a result of these factors, results for any one quarter should not be relied upon as being indicative of performance in future quarters.

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 yet bepurchased under the sharerepurchase program | 
|4/1/2014  4/30/2014 |  |                                     |  |  |                                 |  |  |                                                                      |  |  |                                                                                   |  |  |  | 548,858 | 
|5/1/2014  5/31/2014 |  |                                     |  |  |                                 |  |  |                                                                      |  |  |                                                                                   |  |  |  | 548,858 | 
|6/1/2014  6/30/2014 |  |                                     |  |  |                                 |  |  |                                                                      |  |  |                                                                                   |  |  |  | 548,858 | 



|(1) | No treasury shares were purchased in the second quarter of 2014.
|--- | ----------------------------------------------------------------

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

|(3) | On October 24, 2013, the Board of Directors authorized the repurchase of up to 1,000,000 shares of the Corporations outstanding Common Stock on the open market at prices no greater than the then current net
asset value through October 24, 2014.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults upon Senior Securities

None

Item 4.
Mine Safety Disclosures

None

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) of Form N-2 filed with the Securities Exchange Commission on April 22, 1997. (File No. 814-00235).
|        | 
|(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. (File No. 814-00235).                          
|        | 
|(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. (File No. 814-00235).   
|        | 
|(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                                                                         



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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: August 1, 2014



RAND CAPITAL CORPORATIONBy:

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

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




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