##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended March 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 Commission File Number: 001-08205
 Rand Capital Corporation
 (Exact Name of Registrant as specified in its Charter)
 New York
    
    16-0961359(State or Other Jurisdiction of Incorporation
    
    (IRS Employeror organization)
    
    Identification No.)2200 Rand Building, Buffalo, NY
    
    14203(Address of Principal executive offices)
    
    (Zip Code)
 (716) 853-0802  (Registrants Telephone No. Including Area Code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



RAND CAPITAL CORPORATION  TABLE OF CONTENTS FOR FORM 10-Q
 PART I.  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements and Supplementary Data (Unaudited)Consolidated Statements of Financial Position as of March 31, 2008 and
December 31, 2007Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2008 and 2007Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2008 and 2007Condensed Consolidated Statements of Changes in Net Assets for the
Three Months Ended March 31, 2008 and 2007Condensed Consolidated Schedule of Portfolio Investments as of March
31, 2008Notes to the Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures about Market RiskItem 4.
    
    Controls and ProceduresPART II  OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements and Supplementary Data
 
 RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of March 31, 2008 and December 31, 2007
 March 31, 2008
    
    
    December 31,(Unaudited)
    
    
    2007ASSETSInvestments
at fair value (identified cost: 3/31/08  $13,367,135; 12/31/07  $13,390,644)
    
    $
    26,375,281
    
    
    $
    26,528,490Cash and cash equivalents
    
    
    3,206,341
    
    
    
    4,396,595Interest receivable (net of allowance $122,000)
    
    
    858,550
    
    
    
    647,001Prepaid income taxes
    
    
    43,157
    
    
    
    Other assets
    
    
    1,280,749
    
    
    
    1,150,065Total assets
    
    $
    31,764,078
    
    
    $
    32,722,151LIABILITIES AND STOCKHOLDERS EQUITY (NET ASSETS)Liabilities:Debentures guaranteed by the SBA
    
    $
    8,100,000
    
    
    $
    8,100,000Deferred tax liability
    
    
    3,756,000
    
    
    
    3,955,000Income taxes payable
    
    
    
    
    
    
    474,465Accounts payable and accrued expenses
    
    
    152,348
    
    
    
    321,210Deferred revenue
    
    
    29,723
    
    
    
    53,653Total liabilities
    
    
    12,038,071
    
    
    
    12,904,328Stockholders equity (net assets):Common stock, $.10 par; shares authorized 10,000,000; shares issued 5,763,034
    
    
    576,304
    
    
    
    576,304Capital in excess of par value
    
    
    6,973,454
    
    
    
    6,973,454Accumulated net investment (loss)
    
    
    (3,887,900
    )
    
    
    (3,940,409
    )Undistributed net realized gain on investments
    
    
    7,735,477
    
    
    
    7,796,289Net unrealized appreciation on investments
    
    
    8,375,878
    
    
    
    8,459,391Treasury stock, at cost, 44,100 shares
    
    
    (47,206
    )
    
    
    (47,206
    )Net assets (per share 3/31/08  $3.45 , 12/31/07  $3.47)
    
    
    19,726,007
    
    
    
    19,817,823Total liabilities and stockholders equity (net assets)
    
    $
    31,764,078
    
    
    $
    32,722,151




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
 Three months ended
    
    Three months endedMarch 31, 2008
    
    March 31, 2007Investment income:Interest from portfolio companies
    
    $
    251,764
    
    
    $
    199,717Interest from other investments
    
    
    34,584
    
    
    
    46,047Dividend and other investment income
    
    
    84,934
    
    
    
    229,420Other income
    
    
    7,083
    
    
    
    5,228378,365
    
    
    
    480,412Operating expenses:Salaries
    
    
    108,384
    
    
    
    106,970Employee benefits
    
    
    43,630
    
    
    
    42,313Directors fees
    
    
    11,750
    
    
    
    12,250Professional fees
    
    
    60,290
    
    
    
    31,678Stockholders and office operating
    
    
    24,508
    
    
    
    32,413Insurance
    
    
    10,500
    
    
    
    10,920Corporate development
    
    
    16,562
    
    
    
    14,790Other operating
    
    
    1,978
    
    
    
    2,479277,602
    
    
    
    253,813Interest on SBA obligations
    
    
    125,766
    
    
    
    125,766Total expenses
    
    
    403,368
    
    
    
    379,579Investment (loss) gain before income taxes
    
    
    (25,003
    )
    
    
    100,833Current income tax expense
    
    
    136,113
    
    
    
    98,297Deferred income tax benefit
    
    
    (152,813
    )
    
    
    (98,668
    )Net investment (loss) gain
    
    
    (8,303
    )
    
    
    101,204Realized and unrealized gain (loss) on investments:Net loss on sales and dispositions
    
    
    
    
    
    
    (39,236
    )Unrealized appreciation on investments:Beginning of period
    
    
    13,137,846
    
    
    
    9,616,025End of period
    
    
    13,008,146
    
    
    
    9,725,646Change in unrealized appreciation
before income taxes
    
    
    (129,700
    )
    
    
    109,621Deferred income tax (benefit) expense
    
    
    (46,187
    )
    
    
    40,121Net (decrease) increase in unrealized appreciation
    
    
    (83,513
    )
    
    
    69,500Net realized and unrealized (loss) gain on investments
    
    
    (83,513
    )
    
    
    30,264Net (decrease) increase in net assets from operations
    
    $
    (91,816
    )
    
    $
    131,468Weighted average shares outstanding
    
    
    5,718,934
    
    
    
    5,718,934Basic and diluted net (decrease) increase in net assets per
share from operations
    
    $
    (0.02
    )
    
    $
    0.02




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
 March 31, 2008
    
    March 31, 2007Cash flows from operating activities:Net (decrease) increase in net assets from
operations
    
    $
    (91,816
    )
    
    $
    131,468Adjustments to reconcile net (decrease)
increase in net assets to net cash used in
operating activities:Depreciation and amortization
    
    
    8,195
    
    
    
    8,496Original issue discount accretion
    
    
    
    
    
    
    (62,333
    )Decrease (increase) in unrealized
appreciation of
investments
    
    
    129,700
    
    
    
    (109,621
    )Deferred tax benefit
    
    
    (199,000
    )
    
    
    (58,547
    )Net realized loss on portfolio investments
    
    
    
    
    
    
    39,236Non-cash conversion of debenture interest
    
    
    
    
    
    
    (40,000
    )Changes in operating assets and liabilities:(Increase) decrease in interest receivable
    
    
    (211,549
    )
    
    
    3,381Increase in other assets
    
    
    (137,689
    )
    
    
    (314,910
    )Increase in prepaid income taxes
    
    
    (43,157
    )
    
    
    Decrease in income taxes payable
    
    
    (474,465
    )
    
    
    (Decrease) in accounts payable and accrued
expenses
    
    
    (168,862
    )
    
    
    (644,886
    )Decrease in deferred revenue
    
    
    (23,930
    )
    
    
    (5,228
    )Total adjustments
    
    
    (1,120,757
    )
    
    
    (1,184,412
    )Net cash used in operating activities
    
    
    (1,212,573
    )
    
    
    (1,052,944
    )Cash flows from investing activities:Investments originated
    
    
    (524,990
    )
    
    
    Proceeds from loan repayments
    
    
    548,499
    
    
    
    970,015Capital expenditures
    
    
    (1,190
    )
    
    
    (1,350
    )Net cash provided by investing activities
    
    
    22,319
    
    
    
    968,665Net decrease in cash and cash equivalents
    
    
    (1,190,254
    )
    
    
    (84,279
    )Cash and cash equivalents:Beginning of period
    
    
    4,396,595
    
    
    
    4,299,852End of period
    
    $
    3,206,341
    
    
    $
    4,215,573




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
 Three months
    
    Three monthsended
    
    endedMarch 31, 2008
    
    March 31, 2007Net assets at beginning of period
    
    $
    19,817,823
    
    
    $
    16,782,405Cumulative effect adjustment for
uncertain tax positions  FIN 48
    
    
    
    
    
    
    316,253Net investment (loss) gain
    
    
    (8,303
    )
    
    
    101,204Net realized loss on investments
    
    
    
    
    
    
    (39,236
    )Net change in unrealized appreciation
of investments
    
    
    (83,513
    )
    
    
    69,500Net (decrease) increase in net assets
from operations
    
    
    (91,816
    )
    
    
    447,721Net assets at end of period
    
    $
    19,726,007
    
    
    $
    17,230,126




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2008
(Unaudited)
 (b)Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandAdampluseve, Inc. (g)
New York, NY. Luxury sports wear company for
men and women.
www.adampluseve.com
    
    Warrants to
purchase 1,715
Series A
convertible
preferred shares.
    
    7/14/06
    
    
    3
    %
    
    $
    68,000
    
    
    $
    133,341
    
    
    
    .02APF Group, Inc. (e)(g)
Mount Vernon, NY. Manufacturer of museum
quality picture frames and framed mirrors for
museums, art galleries, retail frame shops,
upscale designers and prominent collectors.
www.apfgroup.com
    
    $566,504
consolidated senior
subordinated note
at 12.74% due
December 30, 2010.
Warrants to
purchase 10.2941
shares of common
stock.
    
    7/8/04
    
    
    6
    %
    
    
    566,504
    
    
    
    566,504
    
    
    
    .10Associates Interactive, LLC (e)(g)
Buffalo, NY. Provider of training content and
certifications used to train retail sales
associates.
www.associatesinteractive.com
    
    $247,812.50
promissory note at
8% due December 19,
2012. Investor
units totaling
21.88% of company.
    
    10/15/07
    
    
    22
    %
    
    
    250,000
    
    
    
    250,000
    
    
    
    .04Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer of fresh water,
ocean fishing and pleasure boats.
www.carolinaskiff.com
    
    $985,000 Class A
preferred
membership interest
at 7.5%.
Redeemable January
31, 2010. 5%
common membership
interest.
    
    1/30/04
    
    
    5
    %
    
    
    1,000,000
    
    
    
    1,227,000
    
    
    
    .22Contract Staffing (e)(h)
Buffalo, NY. PEO
providing human resource
administration for small
businesses.
www.contract-staffing.com
    
    Preferred stock repurchase agreement
through March 31, 2010 at 5%. 11 shares
of common stock.
    
    11/8/99
    
    
    10
    %
    
    
    117,815
    
    
    
    117,815
    
    
    
    .02EmergingMed.com, Inc. (g)
New York, NY. Cancer
clinical trial matching
and referral service.
www.emergingmed.com
    
    $500,000 senior subordinated note at 10%
due December 19, 2010. Warrants for 5.5%
of common stock.
    
    12/19/05
    
    
    5
    %
    
    
    500,000
    
    
    
    500,000
    
    
    
    .09Gemcor II, LLC (e)(g)(h)
West Seneca, NY.
Designs and sells
automatic riveting
machines used in the
assembly of aircraft
components.
www.gemcor.com
    
    $250,000 subordinated note at 8% due June
28, 2010 with warrant to purchase 6.25
membership units. 25 membership units.
    
    6/28/04
    
    
    31
    %
    
    
    650,350
    
    
    
    4,150,350
    
    
    
    .73Golden Goal LLC (g)
Fort Ann, NY. Youth
soccer and lacrosse
tournament park.
www.goldengoalpark.com
    
    191,811 Class C units at 4%.
    
    12/10/07
    
    
    6
    %
    
    
    637,414
    
    
    
    637,414
    
    
    
    .11G-TEC Natural Gas Systems 
Buffalo, NY.
Manufactures and
distributes systems that
allow natural gas to be
used as an alternative
fuel to gases.
www.gas-tec.com
    
    28.925% Class A membership interest. 8%
cumulative dividend.
    
    8/31/99
    
    
    29
    %
    
    
    400,000
    
    
    
    198,000
    
    
    
    .03Innov-X Systems, Inc. (g)
Woburn, MA.
Manufactures portable
x-ray fluorescence (XRF)
analyzers used in
metals/alloy analysis.
www.innovxsys.com
    
    2,642 Series A convertible preferred
stock. Warrants for 21,596 common shares.
8% cumulative dividend
    
    9/27/04
    
    
    9
    %
    
    
    1,000,000
    
    
    
    8,761,700
    
    
    
    1.53Kionix, Inc.
Ithaca, NY. Develops
innovative MEMS based
technology applications.
www.kionix.com
    
    30,241 shares Series B preferred stock.
696,296 shares Series C preferred stock.(g)2,862,091 shares Series A preferred
stock. 714,285 shares Series B preferred
stock.
    
    5/17/02
    
    
    2
    %
    
    
    1,506,043
    
    
    
    1,221,567
    
    
    
    .21




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2008 (Continued)
(Unaudited)
 (b)Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandMezmeriz, Inc. (g)
Ithaca, NY. Developer of micro mirror
technology that replaces silicon with
carbon fibers in micro-electronic
mechanical systems (MEMS), which enables
a new generation of high definition
displays.
www.mezmeriz.com
    
    $100,000 convertible note at
9% due January 9, 2010.
    
    1/9/08
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    .02New Monarch Machine Tool, Inc. (e)(g)(h)
Cortland, NY. Manufactures and services
vertical/horizontal machining centers.
www.monarchmt.com
    
    22.84 shares of common stock.
    
    9/24/03
    
    
    15
    %
    
    
    22,841
    
    
    
    22,841
    
    
    
    .00Niagara Dispensing Technologies, Inc. (e)
Amherst, NY. Beverage dispensing
technology development and products
manufacturer, specializing in rapid pour
beer dispensing systems for high volume
stadium and concession operations.
www.exactpour.com
    
    $50,000 bridge note at 14%
due March 7, 2009.(g)$500,000 senior
subordinated note at 9% due
March 7, 2011. $250,000
promissory note at 14% due
July 10, 2008. $75,000
bridge note at 14% due
December 10, 2008. $25,000
bridge note at 14% due
January 9, 2009. $45,000
bridge note at 14% due
January 17, 2009. $10,000
bridge note at 14% due
February 4, 2009. $94,990
bridge note at 14% due
February 14, 2009. 200
shares common stock.
Contingent warrants.
    
    3/8/06
    
    
    4
    %
    
    
    1,090,000
    
    
    
    979,000
    
    
    
    .17Photonic Products Group, Inc
(OTC:PHPG.OB) (a)(i)
Northvale, NJ. Develops and
manufactures products for laser
photonics industry.
www.inrad.com
    
    66,000 shares common stock.
    
    10/31/00
    
    <1%
    
    
    165,000
    
    
    
    272,000
    
    
    
    .05RAMSCO (e)(g)
Albany, NY. Distributor of water,
sanitary, storm sewer and specialty
construction materials to the
contractor, highway and municipal
construction markets.
www.ramsco.com
    
    $300,000 promissory notes at
8% due October 20, 2010.
Warrants for 5.99% of common
stock.
    
    11/19/02
    
    
    6
    %
    
    
    300,000
    
    
    
    300,000
    
    
    
    .05Rocket Broadband Networks, Inc. (g)
Amherst, NY. Communications service
provider of satellite TV, broadband
internet and VoIP digital phone
targeting multiple dwelling units.
www.rocketbroadband.com
    
    285,829 Series A preferred
shares. 247,998 Series A-1
preferred shares. 996,441
Series B preferred shares
    
    12/20/05
    
    
    11
    %
    
    
    680,000
    
    
    
    680,000
    
    
    
    .12Somerset Gas Transmission Company, LLC
(e)
Columbus, OH. Natural gas
transportation company.
www.somersetgas.com
    
    26.5337 units.
    
    7/10/02
    
    
    2
    %
    
    
    719,097
    
    
    
    786,748
    
    
    
    .14Synacor Inc. (g)
Buffalo, NY. Develops provisioning
platforms for aggregation and delivery
of content for broadband access
providers.
www.synacor.com
    
    78,186 Series A preferred
shares. 200,000 shares of
Series B preferred stock.
80,126 Series C preferred
shares. 299,146 common
shares.
    
    11/18/02
    
    
    4
    %
    
    
    1,349,479
    
    
    
    4,168,001
    
    
    
    .73Ultra  Scan Corporation
Amherst, NY. Biometrics application
developer of ultrasonic fingerprint
technology.
www.ultra-scan.com
    
    536,596 common shares.
107,104 Series A-1 preferred
shares.(g) 95,284 Series A-1
preferred shares.
    
    12/11/92
    
    
    4
    %
    
    
    938,164
    
    
    
    1,203,000
    
    
    
    .21




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RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2008 (Continued)
(Unaudited)
 (b)Date
    
    (c)
    
    
    
    
    
    (d)
    
    Per ShareCompany and Business
    
    Type of Investment
    
    Acquired
    
    Equity
    
    Cost
    
    Value
    
    of RandWineIsIt.com, Corp.
Williamsville, NY.
Marketing company
specializing in
customer loyalty
programs supporting
the wine and spirit
industry.
www.wineisit.com
    
    (g) $500,000 senior
subordinated note at 10%
due December 17, 2009.
$250,000 note at 10% due
April 16, 2005. Warrants
to purchase 100,000 shares
Class B common stock.
(e)$20,000 note at 18%
due April 1, 2009.
    
    12/18/02
    
    
    2
    %
    
    
    821,918
    
    
    
    100,000
    
    
    
    .02Other Investments
    
    Various
    
    
    
    
    
    
    
    
    484,510
    
    
    
    .00
    
    
    
    .00Total portfolio investments
    
    
    
    
    
    
    
    $
    13,367,135
    
    
    $
    26,375,281
    
    
    $
    4.61




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##### Table of Contents



RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 2008 (Continued)
(Unaudited)
 Notes to Consolidated Schedule of Portfolio Investments




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Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
 Note 1. ORGANIZATION
   Formation of SBIC Subsidiary




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##### Table of Contents



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




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##### Table of Contents



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




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




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Income Taxes  
     Concentration of Credit Risk 
 Subsequent Events 




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##### Table of Contents



Note 3. INVESTMENTS
    Assets Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reported Date UsingQuoted Prices in
    
    
    
    
    
    Other SignificantActive Markets for
    
    Significant
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsDescription
    
    March 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Venture Capital
Investments
    
    $
    26,375,281
    
    
    $
    272,000
    
    
    $
    0
    
    
    $
    26,103,281
 Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
 Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Venture Capital InvestmentsBeginning Balance, December 31, 2007,
of Level 3 Assets
    
    
    
    
    
    $
    26,265,790Realized Gains or Losses included in net change
in net assets from operations
    
    
    
    
    
    
    Unrealized gains or losses included in net change
in net assets from operationsBioWorks
    
    
    ($28,000
    )Niagara Dispensing Technologies, Inc.
    
    
    ($111,000
    )
    
    
    ($139,000
    )




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##### Table of Contents



Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Venture Capital InvestmentsPurchases of SecuritiesMezmeriz, Inc.
    
    $
    100,000Niagara Dispensing Technologies, Inc.
    
    $
    224,990Associates Interactive, LLC
    
    $
    200,000
    
    
    $
    524,990Repayments of SecuritiesNew Monarch Machine Tool, Inc.
    
    
    ($520,147
    )Gemcor II, LLC
    
    
    ($15,102
    )Contract Staffing
    
    
    ($13,251
    )
    
    
    ($548,500
    )Transfers in or out of Level 3
    
    
    
    
    
    
    Other
    
    
    
    
    
    $
    1.00Ending Balance, March 31, 2008, of Level 3 Assets
    
    
    
    
    
    $
    26,103,281The amount of total gains or losses for the
period included in earnings (or changes in net
assets) attributable to the change in unrealized
gains or losses relating to assets still held
at the reporting date.
    
    
    
    
    
    
    ($139,000
    )Gains and losses (realized and unrealized)
included in Net Increase (decrease) in net assets
from operations for the period above are reported
as follows:Net Gain (Loss) on Sales and Dispositions
    
    
    
    
    
    $
    0Change in unrealized gains or losses relating
to assets still held at reporting date
    
    
    
    
    
    
    ($139,000
    )




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##### Table of Contents



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




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##### Table of Contents



Financial Condition
  3/31/08
    
    12/31/07
    
    Decrease
    
    % DecreaseTotal assets
    
    $
    31,764,078
    
    
    $
    32,722,151
    
    
    
    ($958,073
    )
    
    
    (2.9
    %)Total liabilities
    
    
    12,038,071
    
    
    
    12,904,328
    
    
    
    (866,257
    )
    
    
    (6.7
    %)Net assets
    
    $
    19,726,007
    
    
    $
    19,817,823
    
    
    
    ($91,816
    )
    
    
    (0.5
    %)
  3/31/08
    
    12/31/07
    
    Decrease
    
    % DecreaseInvestments, at cost
    
    $
    13,367,135
    
    
    $
    13,390,644
    
    
    
    ($23,509
    )
    
    
    (0.2
    %)Unrealized appreciation, net
    
    
    13,008,146
    
    
    
    13,137,846
    
    
    
    (129,700
    )
    
    
    (1.0
    %)Investments at fair value
    
    $
    26,375,281
    
    
    $
    26,528,490
    
    
    
    ($153,209
    )
    
    
    (0.6
    %)
  AmountNew Investments:Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    $
    224,990Associates Interactive
    
    
    200,000Mezmeriz, Inc.
    
    
    100,000Total of investments made during the three months
ended March 31, 2008
    
    $
    524,990Investment Repayments:New Monarch Machine Tool, Inc. (Monarch)
    
    $
    (520,147
    )Gemcor II, LLC (Gemcor)
    
    
    (15,102
    )Contract Staffing
    
    
    (13,250
    )Total of sales and investment repayments
during the three months ended March 31, 2008
    
    
    (548,499
    )Total change in investment balance, at cost,
during the three months ended March 31, 2008
    
    
    ($23,509
    )
    Results of Operations
 Investment Income




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##### Table of Contents



Comparison of the three months ended March 31, 2008 to the three months ended March 31, 2007
 Increase
    
    % IncreaseMarch 31, 2008
    
    March 31, 2007
    
    (Decrease)
    
    (Decrease)Interest from portfolio companies
    
    $
    251,764
    
    
    $
    199,717
    
    
    $
    52,047
    
    
    
    26.1
    %Interest from other investments
    
    
    34,584
    
    
    
    46,047
    
    
    
    (11,463
    )
    
    
    (24.9
    %)Dividend and other investment income
    
    
    84,934
    
    
    
    229,420
    
    
    
    (144,486
    )
    
    
    (63.0
    %)Other income
    
    
    7,083
    
    
    
    5,228
    
    
    
    1,855
    
    
    
    35.5
    %Total investment income
    
    $
    378,365
    
    
    $
    480,412
    
    
    
    ($102,047
    )
    
    
    (21.2
    %)
 Interest from portfolio companies
    Year that InterestCompany
    
    Interest Rate
    
    Investment Cost
    
    Accrual CeasedG-Tec
    
    
    8
    %
    
    
    400,000
    
    
    
    2004UStec
    
    
    5
    %
    
    
    100,000
    
    
    
    2006WineIsIt.com
    
    
    10
    %
    
    
    801,918
    
    
    
    2005




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##### Table of Contents



Interest from other investments
 Dividend and other investment income
  Other income
   Operating Expenses
 Comparison of the three months ended March 31, 2008 to the three months ended March 31, 2007
 March 31, 2008
    
    March 31, 2007
    
    Increase
    
    % IncreaseTotal Expenses
    
    $
    403,368
    
    
    $
    379,579
    
    
    $
    23,789
    
    
    
    6.3
    %
   Net Realized Gains and Losses on Investments




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##### Table of Contents



Net Change in Unrealized Appreciation of Investments
  March 31, 2008Niagara Dispensing Technologies, Inc. (Niagara Dispensing)
    
    
    ($111,000
    )Bioworks
    
    
    (28,000
    )Photonic Products Group, Inc (Photonic)
    
    
    9,300Total change in net unrealized appreciation
during the three months ended March 31, 2008
    
    
    ($129,700
    )
      March 31, 2007Adampluseve warrants
    
    $
    65,341Reclass UStec to realized loss
    
    
    39,000Photonic
    
    
    5,280Total increase in net unrealized appreciation
During the three months ended March 31, 2007
    
    $
    109,621




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



The Corporation is Subject to Risks Created by its Regulated Environment
  The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
  The Corporation is Dependent Upon Key Management Personnel for Future Success
  The Corporation Operates in a Competitive Market for Investment Opportunities
  Fluctuations of Quarterly Results




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information




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##### Table of Contents



Item 6. Exhibits
 (a) Exhibits
  (3)(i)
    
    Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997.(3)(ii)
    
    By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.(4)
    
    Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997.(10.1)
    
    Employee Stock Option Plan  incorporated by reference to Appendix B to
the Corporations definitive Proxy Statement filed on June 1, 2002.*(10.3)
    
    Agreement of Limited Partnership for Rand Capital SBIC, L.P. 
incorporated by reference to Exhibit 10.3 to the Corporations Form 10-K
filed for the year ended December 31, 2001.(10.4)
    
    Certificate of Formation of Rand Capital SBIC, L.P.  incorporated by
reference to Exhibit 10.4 to the Corporations Form10-K filed for the year
ended December 31, 2001(10.5)
    
    Limited Liability Corporation Agreement of Rand Capital Management, LLC
  incorporated by reference to Exhibit 10.5 to the Corporations Form
10-K Report filed for the year ended December 31, 2001.(10.6)
    
    Certificate of Formation of Rand Capital Management, LLC incorporated
by reference to Exhibit 10.6 to the Corporations Form 10-K Report filed
for the year ended December 31, 2001.(10.7)
    
    N/A(10.8)
    
    Profit Sharing Plan  incorporated by reference to Exhibit 10.8 to the
Corporations Form 10-K Report filed for the year ended December 31,
2002.*(21)
    
    Subsidiaries of the Corporation  incorporated by
reference to Exhibit 21 to the Corporations Form 10-K Report filed for
the year ended December 31, 2001.(31.1)
    
    Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(31.2)
    
    Certification of Chief Financial Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith(32.1)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital Corporation  furnished herewith(32.2)
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Rand Capital SBIC, L.P.  furnished herewith
 
 *
    
    Management contract or compensatory plan.




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##### Table of Contents



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