Rand Capital Corporation (RAND) 2011年年度報告「NASDAQ」.pdf

《Rand Capital Corporation (RAND) 2011年年度報告「NASDAQ」.pdf》由會員分享，可在線閱讀，更多相關《Rand Capital Corporation (RAND) 2011年年度報告「NASDAQ」.pdf（58頁珍藏版）》請在三個皮匠報告上搜索。

1、Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31,2011 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT

2、OF 1934For the Transition Period from to Commission File Number:814-00235Rand Capital Corporation(Exact name of registrant as specified in its charter)New York 16-0961359(State or Other Jurisdiction ofIncorporation or organization)(IRS Employer Identification No.)2200 Rand Building,Buffalo,NY 14203(

3、Address of Principal executive offices)(Zip Code)Registrants telephone number,including area code):(716)853-0802Securities registered pursuant to Section 12(b)of the Act:Title of Each Class Name of Exchange on Which RegisteredCommon Stock,$0.10 par value NASDAQ Capital MarketSecurities registered pu

4、rsuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 under the SecuritiesAct.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of theAct.Yes No Indica

5、te by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the SecuritiesExchange 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 requ

6、irements for the past 90 days.Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will notbe contained,to the best of registrants knowledge,in definitive proxy or information statements incorporated by reference in Part

7、III ofthis Form 10-K or any amendment to this Form 10-K.Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer or a smallerreporting company.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do

8、not check if a 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 The aggregate market value of the registrants outstanding common stock held by non-affiliates of the registrant as of June 30,2011was approximately$17

9、,738,010 based upon the last sale price as quoted by NASDAQ Capital Market on such date.As of March 7,2012 there were 6,818,934 shares of the registrants common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Corporations definitive proxy statement for the Annual Meeting of Stoc

10、kholders to be held on April 26,2012 areincorporated by reference into Part III of this report.Table of ContentsRAND CAPITAL CORPORATIONTABLE OF CONTENTS FOR FORM 10-K PART I Item 1.Business 1 Item 1A.Risk Factors 5 Item 1B.Unresolved Staff Comments 7 Item 2.Properties 7 Item 3.Legal Proceedings 7 I

11、tem 4.Mine Safety Disclosures 7 PART II Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 7 Item 6.Selected Financial Data 10 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations 10 Item 7A.Quantit

12、ative and Qualitative Disclosures about Market Risk 24 Item 8.Financial Statements and Supplementary Data 25 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49 Item 9A.Controls and Procedures 49 Item 9B.Other Information 49 PART III Item 10.Directors,Execu

13、tive Officers and Corporate Governance 49 Item 11.Executive Compensation 50 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 50 Item 13.Certain Relationships and Related Transactions,and Director Independence 50 Item 14.Principal Accountant Fees

14、and Services 50 PART IV Item 15.Exhibits,Financial Statement Schedules 50 Table of ContentsPART IItem 1.BusinessCorporation FormationRand Capital Corporation(“Rand”)was incorporated under the laws of New York in 1969.Beginning in 1971,Rand operated as apublicly traded,closed-end,diversified manageme

15、nt company that was registered under Section 8 of the Investment Company Act of 1940(the“1940 Act”).In 2001 Rand elected to be treated as a business development company(“BDC”)under the 1940 Act.In 2002,Randformed a wholly-owned subsidiary for the purpose of operating it as a small business investmen

16、t company(“SBIC”)licensed by the U.S.Small Business Administration(“SBA”).The subsidiary received an SBA license to operate as an SBIC in August 2002.The subsidiary,which had been organized as a Delaware limited partnership,was converted into a New York corporation on December 31,2008,at whichtime i

17、ts operations as a licensed small business investment company were continued by the newly formed corporation under the name ofRand Capital SBIC,Inc.(“Rand SBIC”).The following discussion describes the operations of Rand and its wholly-owned subsidiary RandSBIC,and the predecessor wholly-owned limite

18、d partnership(collectively,the“Corporation”).Throughout the Corporations history,its principal business has been to make venture capital investments in small to medium sizedcompanies that are engaged in the exploitation of new or unique products or services with a sustainable competitive advantage,t

19、ypically inNew York and its surrounding states.The Corporations principal investment objective is to achieve long-term capital appreciation whilemaintaining a current cash flow from its debt instruments.The Corporation invests in a mixture of debt and equity instruments.The debtsecurities typically

20、have an equity component in the form of stock,warrants,and options to acquire stock or the right to convert the debtsecurities into stock.Rand SBIC has been the primary investment vehicle since its formation and it is anticipated that will continue to bethe case in 2012.Consistent with its status as

21、 a BDC and the purposes of the regulatory framework for BDCs under the 1940 Act,theCorporation provides managerial assistance,often in the form of a board of directors seat,to the portfolio companies in which it invests.The Corporation operates as an internally managed investment company whereby its

22、 officers and employees conduct its operationsunder the general supervision of its Board of Directors.It has not elected to qualify to be taxed as a regulated investment company asdefined under Subchapter M of the Internal Revenue Code.The Corporation is listed on the NASDAQ Capital Market under the

23、 symbol“Rand”.The Corporations website is .The Corporations annual report on Form 10-K and its Proxy Statement areavailable at the following web address:http:/ addition,the annual report on Form 10-K,the quarterlyreports on Form 10-Q,current reports on Form 8-K,charters for the Corporations committe

24、es and other reports filed with the Securitiesand Exchange Commission(“SEC”)are available through the Corporations website.Regulation as a Business Development CompanyAlthough the 1940 Act exempts a BDC from registration under that Act,it contains significant limitations on the operations of BDCs.Am

25、ong other things,the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates,principalunderwriters and affiliates of its affiliates or underwriters,and it requires that a majority of the BDCs directors be persons other than“interested persons,”as def

26、ined under the 1940 Act.The 1940 Act also prohibits a BDC from changing the nature of its business so as tocease to be,or to withdraw its election as,a BDC unless so authorized by a vote of the holders of a majority of its outstanding votingsecurities.BDCs are not required to maintain fundamental in

27、vestment policies relating to diversification and concentration of investmentswithin a single industry.More specifically,in order to qualify as a BDC,a company must:(1)be a domestic company;(2)have registered a class of its equity securities or have filed a registration statement with the SEC pursua

28、nt to Section 12 of theSecurities Exchange Act of 1934;1Table of Contents(3)operate for the purpose of investing in the securities of certain types of portfolio companies,namely immature or emergingcompanies and businesses suffering or just recovering from financial distress.Generally,a BDC must be

29、primarily engaged in thebusiness of furnishing capital and providing managerial expertise to companies that do not have ready access to capital throughconventional financial channels.Such portfolio companies are termed“eligible portfolio companies.”(4)extend significant managerial assistance to such

30、 portfolio companies;and(5)have a majority of“disinterested”directors(as defined in the 1940 Act).An eligible portfolio company is,generally,a private domestic operating company,or a public domestic operating company whosesecurities are not listed on a national securities exchange.In addition,any sm

31、all business investment company that is licensed by the SBAand is a wholly owned subsidiary of a BDC is an eligible portfolio company.The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies,such as brokeragefirms,insurance companies,investme

32、nt banking firms and investment companies.Moreover,the 1940 Act limits the type of assets thatBDCs may acquire to“qualifying assets”and certain assets necessary for its operations(such as office furniture,equipment and facilities)if,at the time of acquisition,less than 70%of the value of the BDCs as

33、sets consist of qualifying assets.Qualifying assets include:(1)securities of companies that were eligible portfolio companies at the time the BDC acquired their securities;(2)securities of bankrupt orinsolvent companies that were eligible at the time of the BDCs initial acquisition of their securiti

34、es but are no longer eligible,provided thatthe BDC has maintained a substantial portion of its initial investment in those companies;(3)securities received in exchange for ordistributed on or with respect to any of the foregoing;and(4)cash items,government securities and high-quality short-term debt

35、.The 1940Act also places restrictions on the nature of the transactions in which,and the persons from whom,securities can be purchased in order forthe securities to be considered qualifying assets.These restrictions include limiting purchases to transactions not involving a public offeringand not ac

36、quiring securities from the portfolio company or its officers,directors,or affiliates.A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets,but those kindsof investments may not exceed 30%of the BDCs total asset value at the time of t

37、he investment.At December 31,2011 the Corporationwas in compliance with this rule.A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests.Makingavailable significant managerial assistance means,among other things,any arrangement

38、 whereby the BDC,through its directors,officers oremployees,offers to provide,and,if accepted does provide,significant guidance and counsel concerning the management,operations orbusiness objectives and policies of a portfolio company.SBIC SubsidiarySince 2002,Rand has operated a wholly-owned SBIC s

39、ubsidiary in order to have access to the various forms of leverage provided bythe SBA to SBICs.Rand operates Rand SBIC,and Rand formerly operated the limited partnership SBIC predecessor of Rand SBIC,for thesame investment purposes and with investments in the same kinds of securities as Rand.The ope

40、rations of the SBIC predecessor were,andthe operations of Rand SBIC are,consolidated with those of Rand for both financial reporting and tax purposes.In 2002 Rand and the predecessor SBIC subsidiary filed an initial Exemption Application with the Securities and ExchangeCommission(SEC)seeking an orde

41、r for a number of operating exemptions that the SEC has commonly granted from certain restrictionsunder the 1940 Act that would otherwise limit the operations of the wholly-owned subsidiary.After the filing of the ExemptionApplication,the Corporation had extensive discussions with the staff of the D

42、ivision of Investment Management of the SEC concerning theapplication.The principal substantive issue in these discussions was the structure of the predecessor of Rand SBIC as a limited partnership.2Table of ContentsRand formed the predecessor SBIC in 2002 as a limited partnership because that was t

43、he organizational form that the SBA stronglyencouraged for all new entities seeking licenses as SBICs.Rand organized the SBIC subsidiary in a manner that was consistent with theSBAs model limited partnership forms for licensed SBICs.In that structure,the general partner of Rand SBIC was a limited li

44、abilitycompany whose managers were the principal executive officers of Rand.Under the rules and interpretations of the SEC applicable to BDCs(which the subsidiary SBIC intended to become),if a BDC isstructured in limited partnership form,then it must have general partners who serve as a board of dir

45、ectors,or a general partner with verylimited authority and a separate board of directors,all of the persons who serve on the board of directors must be natural persons,and amajority of the directors must not be“interested persons”of the BDC.Since the managers of the limited liability company general

46、 partnerof the SBIC subsidiary were the principal executive officers of Rand,and since both the limited liability company general partner and thesubsidiary SBIC were wholly-owned by Rand,Rand believed that the board of directors of Rand was the functional equivalent of a board ofdirectors for both t

47、he general partner limited liability company and for the SBIC limited partnership.Nevertheless,the staff of the Divisionof Investment Management of the SEC maintained the view that if the limited partnership subsidiary was to be operated as a limitedpartnership BDC in compliance with the 1940 Act,th

48、en the organizational documents of the limited partnership would have to specificallyprovide that it would have a board of directors consisting of natural persons,a majority of whom would not be“interested persons.”With the approval of the SBA,effective December 31,2008 Rand merged the Rand SBIC lim

49、ited partnership into a new corporationwhose board of directors is the same as that of Rand.The SBA formally approved the re-licensing of the new corporation as an SBIC inFebruary 2009.As a result of the merger,Rand SBIC is a wholly-owned corporate subsidiary of Rand,and its board of directors iscom

50、prised of the directors of Rand,a majority of whom are not“interested persons”of Rand or Rand SBIC.Following this merger,in February 2009,the Corporation filed a new Exemption Application with the SEC,which was amended inAugust 2009,September 2011,and again in January 2012 in response to comments fr

51、om the Staff of the SEC.As amended,the ExemptionApplication seeks an order under Sections 6(c),12(d)(1)(J)and 57(c)of the 1940 Act for exemptions from the application of Sections 12(d)(1)(A)and(C),18(a),21(b),57(a)(1)through(3),and 61(a)of the 1940 Act,and under Section 57(i)of the 1940 Act and Rule

52、 17d-1 underthe 1940 Act to permit certain joint transactions that would otherwise be prohibited by Section 57(a)(4)of the 1940 Act,but which wouldnot be prohibited if Rand and Rand SBIC were a single entity.The application also seeks an order under Section 12(h)of the SecuritiesExchange Act of 1934

53、 Act(the“Exchange Act”)for an exemption from separate reporting requirements for Rand SBIC underSection 13(a)of the Exchange Act.In general,the Corporations application seeks exemptions that would permit:Rand and Rand SBIC to engage in certain related party transactions that the Corporation would ot

54、herwise be permitted to engage inas 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 aconsolidated basis;and Rand SBIC,as a BDC/SBIC subsidiary of Rand as a BDC,to f

55、ile Exchange Act reports on a consolidated basis as part of RandsExchange Act reports.On February 1,2012,the SEC issued Release No.29941 thereby giving notice of application for the grant of an order permitting thejoint operations of Rand and Rand SBIC under the exemptions from the provisions of the

56、 1940 Act described above in the ExemptionApplication.On February 28,2012,the SEC granted an Order of Exemption for Rand with respect to the operations of Rand SBIC.Although Rand SBIC is operated as if it were a BDC,it is currently registered as an investment company under the 1940 Act.Nowthat the C

57、orporation has received the order granting the exemptions described above,Rand SBIC will promptly file an election to beregulated as a BDC under the 1940 Act.3Table of ContentsRegulation of the SBIC SubsidiarySBA Lending RestrictionsThe SBA licenses SBICs as part of a program designed to stimulate t

58、he flow of private debt and/or equity capital to small businesses.SBICs use funds borrowed from the SBA,together with their own capital,to provide loans to,and make equity investments in,concernsthat:(a)have a tangible net worth not in excess of$18 million and average net income after U.S.federal in

59、come taxes for thepreceding two completed fiscal years not in excess of$6 million,or(b)meet size standards set by the SBA that are measured by either annual receipts or number of employees,depending on theindustry in which the concerns are primarily engaged.The types and dollar amounts of the loans

60、and other investments an SBIC that is a BDC may make are limited by the 1940 Act,theSBA Act and SBA regulations.The SBA is authorized to examine the operations of SBICs,and an SBICs ability to obtain funds from theSBA is also governed by SBA regulations.In addition,at the end of each fiscal year,an

61、SBIC must have at least 20%(in total dollars)invested in“Smaller Enterprises.”TheSBA defines“Smaller Enterprises”as concerns that:(a)do not have a net worth in excess of$6 million and have average net income after U.S.federal income taxes for the precedingtwo years no greater than$2 million,or(b)mee

62、t size standards set by the SBA that are measured by either annual receipts or number of employees,depending on theindustry in which the concerns are primarily engaged.The Corporation complied with this requirement since the inception of the SBIC subsidiary.SBICs may invest directly in the equity of

63、 portfolio companies,but they may not become a general partner of a non-incorporatedentity or otherwise become jointly or severally liable for the general obligations of a non-incorporated entity.An SBIC may acquire optionsor warrants in portfolio companies,and the options or warrants may have redem

64、ption provisions,subject to certain restrictions.SBA LeverageThe SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold topurchasers of the government guaranteed securities.The amount of funds that the SBA may lend to SBICs is determi

65、ned by annualCongressional appropriations.To reserve the approved SBA debenture leverage the Corporation must pay an upfront 1%commitment fee to the SBA as a partialprepayment of the SBAs nonrefundable 3%leverage fee.These fees are then expensed over the life of the corresponding debentureinstrument

66、s.The Corporation paid$100,000 to reserve the original$10,000,000 in SBA leverage.When this original SBA commitmentexpired in December 2008,Rand SBIC re-applied for the remaining$1,900,000 in leverage and paid the SBA an additional commitmentfee of$19,000 to reserve this leverage.During 2011,the Cor

67、poration repaid$6,000,000 in existing SBA leverage and contributed$1,000,000 of Regulatory Capital into the Rand SBIC,Inc.subsidiary.Additionally,during 2011 the SBA approved$8,000,000 in newSBA leverage and the Corporation paid the$80,000 commitment fee to reserve this leverage.The total outstandin

68、g leverage was$4,000,000 at December 31,2011 and the total remaining SBA commitment at December 31,2011 is$8,000,000.This outstandingleverage commitment expires on September 30,2016.SBA debentures are issued with ten year maturities.Interest only is payable semi-annually until maturity.All of the Co

69、rporationsoutstanding SBA debentures may be prepaid without penalty.Rand initially capitalized Rand SBIC with$5,000,000 in Regulatory Capitaland contributed another$1,000,000 in Regulatory Capital to the SBIC subsidiary during 2011.Rand SBICs Regulatory Capital totaled$6,000,000 at December 31,2011.

70、Regulatory Capital is defined by the SBA as private capital,excluding non-cash assets,contributed to aSBIC licensee.The Corporation expects to use Rand SBIC as its primary investment vehicle.EmployeesAs of December 31,2011,the Corporation had four employees.4Table of ContentsItem 1A.Risk FactorsThe

71、Corporation is Subject to Risks Created by the Valuation of its Portfolio InvestmentsAt December 31,2011 all of the Corporations portfolio investments are private securities and are not publicly traded.There istypically no public market for securities of the small privately held companies in which t

72、he Corporation invests.Investments are valued inaccordance with the Corporations established valuation policy and are stated at fair value as determined in good faith by the managementof the Corporation and submitted to the Board of Directors for approval.In the absence of a readily ascertainable ma

73、rket value,theestimated value of the Corporations portfolio of securities may differ significantly,favorably or unfavorably,from the values that wouldbe placed on the portfolio if a ready market for the securities existed.Any changes in estimated value are recorded in the statement ofoperations as“N

74、et increase(decrease)in unrealized appreciation.”The Corporations Portfolio Investments are IlliquidMost of the investments of the Corporation are or will be either equity securities or subordinated debt securities acquired directlyfrom small companies.The Corporations portfolio of equity and debt s

75、ecurities is,and will usually be,subject to restrictions on resale andhas no established trading market.The illiquidity of most of the Corporations portfolio may adversely affect the ability of the Corporationto dispose of the securities at times when it may be advantageous for the Corporation to li

76、quidate investments.Investing in Private Companies involves a High Degree of RiskThe Corporation typically invests a substantial portion of its assets in small and medium sized private companies.These privatebusinesses may be thinly capitalized,unproven companies with risky technologies,may lack man

77、agement depth,and may not have attainedprofitability.Because of the speculative nature and the lack of a public market for these investments,there is significantly greater risk ofloss than is the case with traditional investment securities.The Corporation expects that some of its venture capital inv

78、estments will be acomplete loss or will be unprofitable and that some will appear likely to become successful but never realize their potential.TheCorporation has been risk seeking rather than risk averse in its approach to venture capital and other investments.Even if the Corporations portfolio com

79、panies are able to develop commercially viable products,the market for new products andservices is highly competitive and rapidly changing.Commercial success is difficult to predict and the marketing efforts of the portfoliocompanies may not be successful.Investing in the Corporations Shares May be

80、Inappropriate for the Investors Risk ToleranceThe Corporations investments,in accordance with its investment objective and principal strategies,result in a greater than averageamount of risk and volatility and may result in loss of principal.Its investments in portfolio companies are highly speculat

81、ive andaggressive and,therefore,an investment in its shares may not be suitable for investors for whom such risk is inappropriate.Neither theCorporations investments nor an investment in the Corporation constitutes a balanced investment program.Corporation is Subject to Risks Created by its Regulate

82、d EnvironmentThe Corporation is regulated by the SBA and the SEC.Changes in the laws or regulations that govern SBICs and BDCs couldsignificantly affect the Corporations business.Regulations and laws may be changed periodically,and the interpretations of the relevantregulations and laws are also sub

83、ject to change.Any change in the regulations and laws governing the Corporations business could have amaterial impact on its financial condition or its results of operations.Moreover,the laws and regulations that govern BDCs and SBICs mayplace conflicting demands on the manner in which the Corporati

84、on operates,and the resolution of those conflicts may restrict or otherwiseadversely affect the operations of the Corporation.5Table of ContentsThe Corporation is Subject to Risks Created by Borrowing Funds from the SBAThe Corporations liabilities may include large amounts of debt securities issued

85、through the SBA which have fixed interest rates.Until and unless the Corporation is able to invest substantially all of the proceeds from debentures at annualized interest or other rates ofreturn that substantially exceed annualized interest rates that Rand SBIC must pay the SBA,the Corporations ope

86、rating results may beadversely affected which may,in turn,depress the market price of the Corporations common stock.The Corporation Operates in a Competitive Market for Investment OpportunitiesThe Corporation faces competition in its investing activities from many entities including other SBICs,priv

87、ate venture capital funds,investment affiliates of large companies,wealthy individuals and other domestic or foreign investors.The competition is not limited toentities that operate in the same geographical area as the Corporation.As a regulated BDC,the Corporation is required to disclose quarterlya

88、nd annually the name and business description of portfolio companies and the value of its portfolio securities.Most of its competitors arenot subject to this disclosure requirement.The Corporations obligation to disclose this information could hinder its ability to invest incertain portfolio compani

89、es.Additionally,other regulations,current and future,may make the Corporation less attractive as a potentialinvestor to a given portfolio company than a private venture capital fund.The Corporation is Dependent Upon Key Management Personnel for Future SuccessThe Corporation is dependent on the skill

90、,diligence,and the network of business contacts of its two senior officers,Allen F.Grumand Daniel P.Penberthy,for the selection,structuring,closing,monitoring and valuation of its investments.The future success of theCorporation depends to a significant extent on the continued service and coordinati

91、on of its senior management.The departure of either ofits senior officers could materially adversely affect its ability to implement its business strategy.The Corporation does not maintain keyman life insurance on any of its officers or employees.The Corporations Portfolio Has a Limited Number of Co

92、mpanies,and May be Subjected to Greater Risk if Any of These CompaniesDefaultThe Corporations portfolio investment values are concentrated in a small number of companies and as such,it may experience asignificant loss in Net Asset Value if one or more of these companies perform poorly or go out of b

93、usiness.The unrealized or realized writedown of any one of these companies would negatively impact the Corporations Net Asset Value.The Corporation May be Negatively Affected by Adverse Changes in General Economic ConditionsDuring the last several years the global economy experienced an economic dow

94、nturn and this may continue to have an impact on theCorporations portfolio companies and the overall financial condition of the Corporation.The portfolio companies may experience residualeffects from this financial crisis and any future slowdowns or recessions and not be able to repay their debt ins

95、truments to the Corporation,which could have a material adverse effect on Net Asset Value of the Corporation.Fluctuations of Quarterly ResultsThe Corporations quarterly operating results could fluctuate significantly as a result of a number of factors.These factors include,among others,variations in

96、 and the timing of the recognition of realized and unrealized gains or losses,the degree to which portfoliocompanies encounter competition in their markets,and general economic conditions.As a result of these factors,results for any quartercannot be relied upon as being indicative of performance in

97、future quarters.6Table of ContentsItem 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesThe Corporation maintains its offices at 2200 Rand Building,Buffalo,New York 14203,where it leases approximately 1,300 squarefeet of office space pursuant to a lease agreement that expires December 31,

98、2015.The Corporation believes that its leased facilities areadequate to support its current staff and expected future needs.Item 3.Legal ProceedingsNone.Item 4.Mine Safety DisclosuresNot applicable.Part II Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases o

99、f Equity SecuritiesThe Corporations common stock,par value$0.10 per share(“Common Stock”),is traded on the NASDAQ Capital Market(“NASDAQ”)under the symbol“RAND.”The following table sets forth,for the periods indicated,the range of high and low closing sales prices pershare as reported by NASDAQ:2011

100、 Quarter ending:High Low March 31st$3.50$2.81 June 30th$3.00$2.75 September 30th$3.05$2.65 December 31st$3.12$2.65 2010 Quarter ending:High Low March 31st$3.84$3.20 June 30th$3.77$3.00 September 30th$3.39$2.70 December 31st$3.80$2.97 The Corporation has not paid any cash dividends in its most recent

101、 two fiscal years,and it has no intention of paying cash dividends inthe 2012 fiscal year.Profit Sharing and Stock Option PlansIn 2001 the stockholders of the Corporation authorized the establishment of an Employee Stock Option Plan(the“Option Plan”).TheOption Plan provides for the award of options

102、to purchase up to 200,000 common shares to eligible employees.In 2002 the Corporationplaced the Option Plan on inactive status as it developed a new profit sharing plan for the Corporations employees in connection with theformation of its SBIC subsidiary.As of December 31,2011,no stock options had b

103、een awarded under the Option Plan.BecauseSection 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 an

104、y profitsharing plan is in effect with respect to the Corporation.7Table of ContentsIn 2002 the Corporation established a Profit Sharing Plan(the“Plan”)for its executive officers in accordance with Section 57(n)ofthe 1940 Act.Under the Plan,the Corporation will pay its executive officers aggregate p

105、rofit sharing payments equal to 12%of the netrealized capital gains of its SBIC subsidiary,net of all realized capital losses and unrealized depreciation of the SBIC subsidiary,for thefiscal year,computed in accordance with the Plan and the Corporations interpretation of the Plan.Any profit sharing

106、paid or accruedcannot exceed 20%of the Corporations net income,as defined.The profit sharing payments will be split equally between theCorporations two executive officers,each of whom are fully vested in the Plan.There were no amounts earned pursuant to the Plan for theyear ended December 31,2011.Du

107、ring the year ended December 31,2010 the Corporation approved and accrued$584,634 under the Plan,of which$568,694 was paid during the year ended December 31,2011.The remaining$15,940 is related to an escrow receivable and willbe paid when the escrow is collected.During the year ended December 31,200

108、9,the Corporation approved and accrued$133,013 underthe Plan,which was paid during the year ended December 31,2010.The amounts approved do not exceed the defined limits.Shareholders of RecordOn March 7,2012 the Corporation had a total of 837 shareholders,which included 106 record holders of its comm

109、on stock,and anestimated 731 shareholders with shares beneficially owned in nominee name or under clearinghouse positions of brokerage firms or banks.Stock Repurchase PlanThe Board of Directors has authorized the repurchase of up to 340,946 shares of the Corporations outstanding Common Stock on theo

110、pen market at prices that are no greater than current net asset value through October 28,2012.During 2002 and 2003 the Corporationrepurchased 44,100 shares of its Common Stock for a total cost of$47,206.No additional shares have been repurchased since 2003.8Table of ContentsCompany Performance Graph

111、The following graph shows a five-year comparison of cumulative total shareholder returns for the Companys Common Stock,theNASDAQ Market Index,and a Peer Group,assuming a base index of$100 at the end of 2006.The cumulative total return for each annualperiod within the five years presented is measured

112、 by dividing(1)the sum of(A)the cumulative amount of dividends for the measurementperiod,assuming dividend investment,and(B)the difference between share prices at the end and at the beginning of the measurementperiod by(2)the share price at the beginning of the measurement period.Comparison of 5 Yea

113、r Cumulative Total ReturnAssumes Initial Investment of$100December 2011 Comparison of cumulative total return of one or more companies,peer groups,industry indexes and/or broad marketsFISCAL YEAR ENDING Company/Index/Market 2006 2007 2008 2009 2010 2011 Rand Capital Corporation$100.00$102.80$100.00$

114、113.71$92.29$88.57 NASDAQ Market Index$100.00$110.55$66.30$96.34$113.70$112.76 Peer Group Index$100.00$71.80$28.88$51.32$74.03$71.31 The peer group is comprised of the following companies:Ameritrans Capital Corp(NasdaqCM:AMTC)Gladstone Investment Corporation(NasdaqGS:GAIN)Harris&Harris Group,Inc.(Na

115、sdaqGM:TINY)Hercules Technology Growth Capital,Inc.(NasdaqGS:HTGC)Main Street Capital Corporation(NasdaqGS:MAIN)MCG Capital Corporation(NasdaqGS:MCGC)Triangle Capital Corporation(NasdaqGM:TCAP)The Corporation selected the Peer Group on the basis of its belief that the seven issuers in the group are

116、closed end investmentcompanies that have elected to be regulated as BDCs and have investment objectives that are similar to those of the Corporation,and thatamong the publicly traded companies that have those attributes,they are relatively similar in size to the Corporation.The performance graph inf

117、ormation provided above will not be deemed to be“soliciting material”or“filed”with the SEC or subjectto Regulations 14A or 14C,or to the liabilities of section 18 of the Securities Exchange Act,9Table of Contentsunless in the future the Corporation specifically requests that the information be treat

118、ed as soliciting material or specifically incorporates itby reference into any filing under the Securities Act or the Securities Exchange Act.Item 6.Selected Financial DataThe following table provides selected consolidated financial data of the Corporation for the periods indicated.You should read t

119、heselected financial data set forth below in conjunction with Item 7,“Managements Discussion and Analysis of Financial Condition andResults of Operations,”and with our consolidated financial statements and related notes appearing elsewhere in this report.Balance Sheet Data as of December 31:2011 201

120、0 2009 2008 2007 Total assets$31,331,957$35,091,260$35,631,371$32,228,797$32,722,151 Total liabilities$6,932,836$12,040,442$12,425,490$12,001,831$12,904,328 Net assets$24,399,121$23,050,818$23,205,881$20,226,966$19,817,823 Net asset value per outstanding share$3.58$3.38$3.40$3.54$3.47 Common stock s

121、hares outstanding 6,818,934 6,818,934 6,818,934 5,718,934 5,718,934 Operating Data for the year ended December 31:2011 2010 2009 2008 2007 Investment income 1,292,352$847,283$1,749,525$1,757,003$2,302,870 Total expenses 1,661,674$2,367,911$1,850,113$1,721,555$1,650,947 Net investment(loss)gain$(81,7

122、38)$(973,189)$(63,878)$135,689$398,703 Net realized(loss)gain on sales and dispositions ofinvestments,net of tax$(1,515,885)$3,222,688$2,007,974$(42,045)Net increase(decrease)in unrealized appreciation,netof tax$2,945,926$(2,404,562)$(2,683,516)$273,454$2,362,507 Net increase(decrease)in net assets

123、from operations$1,348,303$(155,063)$(739,420)$409,143$2,719,165 Item 7.Managements Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with ourfinancial state

124、ments and related notes included elsewhere in this report.FORWARD LOOKING STATEMENTSStatements included in this Managements Discussion and Analysis of Financial Condition and Results of Operations andelsewhere in this report that do not relate to present or historical conditions are“forward-looking

125、statements”within the meaning ofthat term in Section 27A of the Securities Act of 1933,and in Section 21F of the Securities Exchange Act of 1934.Additional oral orwritten forward-looking statements may be made by the Corporation from time to time,and forward-looking statements may be includedin docu

126、ments that are filed with the Securities and Exchange Commission.Forward-looking statements involve risks and uncertaintiesthat could cause results or outcomes to differ materially from those expressed in the forward-looking statements.Forward-lookingstatements may include,without limitation,stateme

127、nts relating to the Corporations plans,strategies,objectives,expectations andintentions 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,”“anticipat

128、es,”or“plans”and similar 10Table of Contentsexpressions are intended to identify forward-looking statements.Among the important factors on which such statements are based areassumptions concerning the state of the national economy and the local markets in which the Corporations portfolio companiesop

129、erate,the state of the securities markets in which the securities of the Corporations portfolio company trade or could be traded,liquidity within the national financial markets,and inflation.Forward-looking statements are also subject to the risks and uncertaintiesdescribed under the caption“Risk Fa

130、ctors”contained in Part I,Item 1A of this report.There may be other factors not identified that affect the accuracy of the Corporations forward-looking statements.Further,anyforward-looking statement speaks only as of the date it is made and,except as required by law,the Corporation undertakes noobl

131、igation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect theoccurrence of anticipated or unanticipated events or circumstances.New factors emerge from time to time that may cause theCorporations business not to develop as we

132、expect,and we cannot predict all of them.Business OverviewRand Capital Corporation(“Rand”)was incorporated under the law of New York in 1969.Beginning in 1971,Rand operated as apublicly traded,closed-end,diversified management company that was registered under Section 8 of the Investment Company Act

133、 of 1940(the“1940 Act”).In 2001,Rand elected to be treated as a business development company(“BDC”)under the 1940 Act.In 2002,Randformed a wholly-owned subsidiary for the purpose of operating it as a small business investment company(“SBIC”)licensed by the U.S.Small Business Administration(“SBA”).Th

134、e subsidiary received an SBA license to operate as an SBIC in August 2002.The subsidiary,which had been organized as a Delaware limited partnership,was converted into a New York corporation on December 31,2008,at whichtime its operations as a licensed small business investment company were continued

135、 by a newly formed corporation under the name of RandCapital SBIC,Inc.(“Rand SBIC”).On February 28,2012 the SEC granted an Order of Exemption for Rand with respect to the operation ofRand SBIC.Although Rand SBIC is operated as if it were a BDC,it is currently registered as an investment company unde

136、r the 1940 Act.Now that the Corporation has received the order granting the exemptions described above,Rand SBIC will promptly file an election to beregulated as a BDC under the 1940 Act.The following discussion describes the operations of Rand,its wholly-owned subsidiary RandSBIC,and the predecesso

137、r wholly-owned limited partnership(collectively,the“Corporation”).The Corporation anticipates that most,if not all,of its investments in the next year will be originated through Rand SBIC.The Corporations primary business is making subordinated debt and equity investments in small and medium-sized c

138、ompanies thatmeet certain criteria,including:1)a qualified and experienced management team2)a new or unique product or service with a sustainable competitive advantage3)high potential for growth in revenue and cash flow4)potential to realize appreciation in an equity position,if any.The Corporation

139、typically makes investments that range from$500,000 to$1,000,000 directly to a company through equity shares orin debt or loan instruments.The debt instruments generally have a maturity of not more than five years and usually have detachable equitywarrants.Interest is either paid currently or deferr

140、ed.The Corporations management team identifies investment opportunities through a network of investment referral relationships.Investment proposals may,however,come to the Corporation from many other sources,including unsolicited proposals from the public andreferrals from banks,lawyers,accountants

141、and other members of the financial community.The Corporation believes that its reputation inthe investment community and experience provide a competitive advantage in originating qualified new investments.In a typical private financing,the management team of the Corporation will review,analyze,and c

142、onfirm,through due diligence,thebusiness plan and operations of the potential portfolio company.Additionally,the 11Table of ContentsCorporation will become familiar with the portfolio companys industry and competitive landscape and may conduct reference checks withcustomers and suppliers of the port

143、folio company.Following an initial investment in a portfolio company,the Corporation may make follow-on investments in the portfolio company.Follow-on investments may be made to take advantage of warrants or other preferential rights granted to the Corporation or to increase ormaintain the Corporati

144、ons position in a promising portfolio company.The Corporation may also be called upon to provide an additionalinvestment to a portfolio company in order for that company to fully implement its business plans,to develop a new line of business or torecover from unexpected business problems.Follow-on i

145、nvestments in a portfolio company are evaluated individually and may be subjectto regulatory restrictions.The Corporation may exit investments through the maturation of a debt security or when a liquidity event takes place,such as thesale,recapitalization,or initial public offering of a portfolio co

146、mpany.The method and timing of the disposition of the Corporationsportfolio investments can be critical to the realization of maximum total return.The Corporation generally expects to dispose of its equitysecurities through private sales of securities to other investors or through an outright sale o

147、f the company or a merger.The Corporationanticipates its debt investments will be repaid with interest and hopes to realize further appreciation from the warrants or other equity typeinstruments it receives in connection with the origination of the investment.The Corporation anticipates generating c

148、ash for newinvestments and operating expenses through existing cash balances,investment returns and interest and principal payments from itsportfolio companies.2011 Highlights and OutlookDuring 2011 the economy continued to improve following the recession that ended in late 2009.Despite an improveme

149、nt in theglobal economy over the last two years,the recovery may take longer than expected due to a weak labor market and continued tight creditmarkets,particularly for small businesses.To the extent the financial market conditions continue to improve,the Corporation believes itsfinancial condition

150、and the financial condition of the portfolio companies should improve.It remains difficult to forecast when future exitswill happen.The Corporations net asset value increased$0.20,or 5.9%during 2011,closing the year at$3.58 per share.At December 31,2011,the Corporations total investment portfolio wa

151、s valued at$23.9 million,which exceeds its cost basis of$13.4 million,reflecting$10.5million in net unrealized appreciation.The Corporations common stock traded in a range that was above and below its net asset value per share during 2011 and 2010.Theyear closed with the stock trading at$3.10,a disc

152、ount to the net asset value of$3.58.During 2011 the Corporation recognized$1,292,352 in total investment income,an increase of$445,069 from$847,283 ofinvestment income in 2010.The 53%increase is attributable to a large increase in dividend income from$120,071 in 2010 to$516,189during 2011.The Corpor

153、ation received dividends from portfolio companies that are limited liability companies,which as a group compriseapproximately 73%of the value of the Corporations portfolio at December 31,2011.Dividends from these portfolio companies mayfluctuate from period to period based not only on the profitabil

154、ity of the portfolio company but also on the timing of distributions thecompanies make.The Corporation had several significant portfolio valuation changes that resulted in a net increase in unrealized appreciation of$2,945,926.Total expenses were$1,661,674 for the year ended December 31,2011 and thi

155、s represents a$(706,237)or 30%decrease fromthe 2010 expense amount of$2,367,911 for the year ended December 31,2010.Critical Accounting PoliciesThe Corporation prepares its financial statements in accordance with United States generally accepted accounting principles(GAAP),which requires the use of

156、estimates and assumptions that affect the reported amounts of assets and liabilities.For a summary of allsignificant accounting policies,including critical accounting policies,see Note 1 to the consolidated financial statements in Item 8 of thisreport.12Table of ContentsThe increasing complexity of

157、the business environment and applicable authoritative accounting guidance require the Corporation to closelymonitor its accounting policies and procedures.The Corporation has two critical accounting policies that require significant judgment.Thefollowing summary of critical accounting policies is in

158、tended to enhance your ability to assess the Corporations financial condition andresults of operations and the potential volatility due to changes in estimates.Valuation of InvestmentsThe most important estimate inherent in the preparation of the Corporations consolidated financial statements is the

159、 valuation of itsinvestments and the resulting unrealized appreciation or depreciation.Investments are valued at fair value as determined in good faith by the management of the Corporation and submitted to the Board ofDirectors for approval.The Corporation invests in loan,debt,and equity instruments

160、.There is no single standard for determining fair valuein good faith.As a result,determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolioinvestment while employing a consistent valuation process for each investment.The Corporation analyzes an

161、d values each investment on aquarterly basis,and records unrealized depreciation for an investment that it believes has become impaired,including where collection of aloan or realization of the recorded value of an equity security is doubtful.Conversely,the Corporation will record unrealized appreci

162、ationif it believes that the 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 thesedifferences coul

163、d be material if our assumptions and judgments differ from results of actual liquidation events.In September 2006,the Financial Accounting Standards Board(FASB)issued guidance on Fair Value Measurements.This statementdefines fair value,establishes a framework for measuring fair value in GAAP,and exp

164、ands disclosures about fair value measurements.Thisstatement was effective for financial statements issued for fiscal years beginning after November 15,2007,and interim periods within thoseyears.On January 1,2008,the Corporation adopted Accounting Standards Codification(ASC)820.The Corporation uses

165、several approaches to determine the fair value of investments.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 orliquidation proceeds exists from a sale of a portfolio company at its estimated fair v

166、alue.The loan and debt securities may be valued at an amount other than a similar level yielding market securities.A loan or debtinstrument may be reduced in value if it is judged to be of poor quality,collection is in doubt or insufficient liquidation proceedsexist.Equity securities may be valued u

167、sing the“market approach”or“income approach.”The market approach uses observable pricesand other relevant information generated by similar market transactions.It may include the use of market multiples derived from aset of comparables to assist in pricing the investment.Additionally,the Corporation

168、adjusts valuations if a subsequent significantequity financing has occurred that includes a meaningful portion of the financing by a sophisticated,unrelated new investor.Theincome approach employs a cash flow and discounting methodology to value an investment.ASC 820 classifies the inputs used to me

169、asure fair value into the following hierarchy:Level 1:Quoted prices in active markets for identical assets or liabilities,used in the Corporations valuation at themeasurement date.Level 2:Quoted prices for similar assets or liabilities in active markets,or quoted prices for identical or similar asse

170、ts orliabilities 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.13Table of ContentsAll of the Corporations investments at December 31,2011 are classified in Level 3 due to their privately he

171、ld restricted nature.In the valuation process,the Corporation uses financial information received monthly,quarterly,and annually from its portfoliocompanies,which includes both audited and unaudited financial statements,annual projections and budgets prepared by the portfoliocompany and other financ

172、ial and non-financial business information supplied by the portfolio companies management.This information isused to determine financial condition,performance,and valuation of the portfolio investments.The valuation may be reduced if acompanys performance and potential have significantly deteriorate

173、d.If the factors which led to the reduction in valuation are overcome,the valuation may be restored.Another key factor used in valuing equity investments is recent arms-length equity transactions with unrelated new investors enteredinto by the portfolio company.Many times the terms of these equity t

174、ransactions may not be identical to the equity transactions betweenthe portfolio company and the Corporation,and the impact of the discrepancy in transaction terms on the market value of the portfoliocompany may be difficult or impossible to quantify.Any changes in estimated fair value are recorded

175、in our statement of operations as“Net increase(decrease)in unrealizedappreciation.”Revenue Recognition(Interest Income)Interest income generally is recognized on the accrual basis except where the investment is in default or otherwise presumed to be indoubt.In such cases,interest is recognized at th

176、e time of receipt.A reserve for possible losses on interest receivable is maintained whenappropriate.The Rand SBIC interest accrual is also regulated by the SBAs“Accounting Standards and Financial Reporting Requirements forSmall Business Investment Companies.”Under these rules interest income cannot

177、 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 portfoliocompanys ability to continue as a going concern or the loan is in default more than 120 days.Management also uses othe

178、r qualitative andquantitative measures to determine the value of a portfolio investment and the collectability of any accrued interest.The Corporation may receive distributions from portfolio companies that are limited liability companies.These distributions areclassified as dividend income on the s

179、tatement of operations and are recognized when the amount can be reasonably estimated.Recent Accounting PronouncementsIn May,2011 the Financial Accounting Standards Board(FASB)issued Accounting Standards Update(ASU)No.2011-04,FairValue Measurement(Topic 820):Amendments to Achieve Common Fair Value M

180、easurement and Disclosure Requirements in U.S.GAAPand International Financial Reporting Standards(IFRS).This update results in common principles and requirements for measuring fairvalue and for disclosing information about fair value measurements in accordance with U.S.GAAP and IFRS.ASU 2011-04 is r

181、equired tobe applied prospectively in interim and annual periods beginning after December 15,2011.Early application is not permitted.Managementdoes not anticipate that the implementation of this standard will have a material impact on the process for measuring fair values or on theconsolidated finan

182、cial statements.Financial ConditionOverview:12/31/11 12/31/10 (Decrease)Increase%(Decrease)Increase Total assets$31,331,957$35,091,260 ($3,759,303)(10.7%)Total liabilities 6,932,836 12,040,442 (5,107,606)(42.4%)Net assets$24,399,121$23,050,818$1,348,303 5.8%14Table of ContentsNet asset value per sha

183、re(NAV)was$3.58 per share at December 31,2011 versus$3.38 per share at December 31,2010.The Corporation paid off$6,000,000 in SBA outstanding leverage during the third quarter of 2011 and the outstanding SBA leverageat December 31,2011 was$4,000,000.These debentures bear a fixed interest rate and an

184、 annual fee,averaging 4.8%,payable semi-annually.Cash and cash equivalents approximated 19%of net assets at December 31,2011 compared to 51%at December 31,2010.The effect of investment income,realized losses and the change in unrealized appreciation on investments resulted in an increase of$1,639,32

185、4 in the net deferred tax liability from$1,044,315 at December 31,2010 to$2,683,639 at December 31,2011.Composition of the Corporations Investment PortfolioThe Corporations financial condition is dependent on the success of its portfolio holdings.It has invested substantially all of its assetsin sma

186、ll to medium-sized companies.The following summarizes the Corporations investment portfolio at the year-ends indicated.12/31/11 12/31/10 (Decrease)Increase%(Decrease)Increase Investments,at cost$13,408,682$13,573,041 ($164,359)(1.2%)Unrealized appreciation,net 10,523,179 5,791,584 4,731,595 81.7%Inv

187、estments,at fair value$23,931,861$19,364,625$4,567,236 23.6%The Corporations total investments at fair value,as estimated by management and approved by the Board of Directors,approximated98%of net assets at December 31,2011 and 84%of net assets at December 31,2010.The changes in investments during t

188、he year ended December 31,2011,at cost,are comprised of the following:New Investments BinOptics Corporation(Binoptics)$1,190,569 Liazon Corporation(Liazon)819,999 C,Inc(Chequed)250,000 SOMS Technologies,LLC(SOMS)101,945 Total of new investments during the year ended December 31,2011$2,362,513 Other

189、Changes to Investments:Microcision LLC(Microcision)interest conversion$97,237 Liazon note accretion 37,000 Chequed interest conversion 33,222 Total of other changes to investments during the year ended December 31,2011$167,459 Investment Repaid/Sold or Liquidated:Niagara Dispensing Technologies,Inc.

190、(Niagara Dispensing)($1,814,328)Liazon (500,000)Associates Interactive LLC(Associates)(293,518)Gemcor II,LLC(Gemcor)(86,485)Total of investments repaid,sold or liquidated during the year ended December 31,2011 ($2,694,331)Total change in investments,at cost,during the year ended December 31,2011 ($1

191、64,359)15Table of ContentsThe Corporations top five portfolio companies represented 55%of total assets at December 31,2011:Company Industry Fair Value atDecember 31,2011%of Total Assetsat December 31,2011 Gemcor Manufacturing AerospaceMachinery$7,327,110 23%Synacor Inc.(Synacor)Software$5,700,000 18

192、%Microcision Manufacturing MedicalProducts$1,679,517 5%Carolina Skiff LLC(Carolina Skiff)Manufacturing Boats$1,500,000 5%BinOptics Manufacturing semiconductor$1,190,569 4%The Corporations top five portfolio companies represented 42%of total assets at December 31,2010:Company Industry Fair Value atDe

193、cember 31,2010%of Total Assetsat December 31,2010 Gemcor Manufacturing AerospaceMachinery$6,113,596 17%Synacor Software$4,168,001 12%Microcision Manufacturing MedicalProducts$1,582,282 5%Carolina Skiff Manufacturing Boats$1,500,000 4%Ultra-Scan Corporation(Ultra-Scan)Electronics Hardware/Software$1,

194、203,000 3%Below is the geographic breakdown of the Corporations investments at fair value as of December 31,2011 and 2010:Geographic Region%of Net Asset ValueatDecember 31,2011%of Net Asset ValueatDecember 31,2010 USA East 94%92%USA South 6%8%100%100%16Table of ContentsAs of December 31,2011 and 201

195、0,the Corporations investment portfolio consisted of the following investments:Cost Percentage ofTotal Portfolio Fair Value Percentage ofTotal Portfolio December 31,2011:Subordinated Debt and Promissory Notes$3,181,675 24%$3,181,675 13%Convertible Debt Equity and Membership Interests 10,227,007 76 2

196、0,750,186 87 Equity Warrants Total$13,408,682 100%$23,931,861 100%December 31,2010:Subordinated Debt and Promissory Notes$3,792,655 28%$3,345,326 17%Convertible Debt 663,596 5 663,596 4 Equity and Membership Interests 9,078,590 67 15,317,503 79 Equity Warrants 38,200 38,200 Total$13,573,041 100%$19,

197、364,625 100%Results of OperationsInvestment IncomeThe Corporations investment objective is to achieve long-term capital appreciation on its equity investments while maintaining acurrent cash flow from its debt and pass through equity instruments.Therefore,the Corporation invests in a mixture of debt

198、 and equityinstruments,which will provide a current return on a portion of the investment portfolio.The equity features contained in the Corporationsinvestment portfolio are structured to realize capital appreciation over the long-term and may not generate current income in the form ofdividends or i

199、nterest.In addition,the Corporation earns interest income from investing its idle funds in money market instruments held athigh grade financial institutions.Investment income for the year ended December 31,2011 increased to$1,292,352 from$847,283 for the year ended December 31,2010.This 52.5%increas

200、e was almost entirely attributable to an increase in the dividend income distributed to the Corporation.Comparison of the years ended December 31,2011 and 2010 December 31,2011 December 31,2010 Increase%Increase Interest from portfolio companies$728,118$688,177$39,941 5.8%Interest from other investm

201、ents 30,364 23,574 6,790 28.8%Dividend and other investment income 516,189 120,071 396,118 329.9%Other income 17,681 15,461 2,220 14.4%Total investment income$1,292,352$847,283$445,069 52.5%Interest from portfolio companies The portfolio interest income increase during 2011 is due to the origination

202、 of new debentureinstruments from C and Liazon during late 2010 and 2011 and the accretion of$37,000 of Original Issue Discount(OID)income on the Liazon investment.OID income is created when the Corporation invests in a debenture instrument that has a warrantattached to the instrument.This transacti

203、on requires an allocation of a portion of the investment cost to the warrant and reduces the debt 17Table of Contentsinstrument by an equal amount in the form of a note discount or OID.The note is then reported net of the discount and the discount isaccreted into income over the life of the debentur

204、e instrument.The debt instrument associated with this OID was paid in full during thesecond quarter of 2011 and therefore all of the remaining OID was recognized as income.After reviewing the portfolio companies performance and the circumstances surrounding the investments,the Corporation has ceased

205、accruing interest income on the following investment instrument:Company Interest Rate Investment Cost Year that InterestAccrual Ceased G-Tec Natural Gas Systems(G-Tec)8%$400,000 2004 Interest from other investments The increase in interest from other investments is primarily due to higher cash balan

206、ces and higherinterest yields throughout the first nine months of the current year.The cash balance at December 31,2011 and 2010 was$4,517,985 and$11,698,653,respectively.The Corporation paid off$6,000,000 in outstanding SBA leverage in early September 2011 therefore reducingthe cash balance at Dece

207、mber 31,2011 and decreasing interest revenue in the fourth quarter of 2011.Dividend and other investment income Dividend income is comprised of distributions from Limited Liability Companies(LLCs)inwhich the Corporation has invested.The Corporations investment agreements with certain LLCs require th

208、e LLCs to distribute funds tothe Corporation for payment of income taxes on its allocable share of the LLCs profits.These dividends will fluctuate based upon theprofitability of the LLCs and the timing of the distributions.In addition,in the current year the Corporation has begun to receive dividend

209、sfrom a non-LLC portfolio company.Dividend income for the year ended December 31,2011 consisted of a distribution from Gemcor II,LLC(Gemcor)for$262,284,New Monarch Machine Tool,Inc.(Monarch)for$185,011,Somerset Gas Transmission Company(Somerset)for$63,160,Carolina SkiffLLC(Carolina Skiff)for$4,317 a

210、nd NDT Acquisition LLC(NDT)for$1,417.The Corporation exited its debt investment in Monarch in2008 and retains ownership in the company.Monarch started distributing its profits to its investors during 2011.Dividend income for the year ended December 31,2010 consisted of distributions from Gemcor for$

211、87,880 and Somerset for$32,191.Other income Other income consists of the revenue associated with the amortization of financing fees charged to the portfoliocompanies upon successful closing of Rand SBIC financings.The SBA regulations limit the amount of fees that can be charged to aportfolio company

212、,and the Corporation typically charges 1%to 3%to the portfolio concerns.These fees are amortized ratably over the lifeof the instrument associated with the fees.The unamortized fees are carried on the balance sheet under“Deferred revenue.”In addition,other income includes fees charged by the Corpora

213、tion to its portfolio companies for attendance at the portfolio companies board meetings.The income associated with the amortization of financing fees was$5,650 and$2,461 for the years ended December 31,2011 and2010,respectively.There is no balance in the deferred revenue account at December 31,2011

214、.The income associated with board attendance fees was$12,000 and$13,000 for the years ended December 31,2011 and 2010,respectively.Comparison of the years ended December 31,2010 and 2009 December 31,2010 December 31,2009 Increase(Decrease)%Increase(Decrease)Interest from portfolio companies$688,177$

215、568,524$119,653 21.0%Interest from other investments 23,574 17,129 6,445 37.6%Dividend and other investment income 120,071 1,133,102 (1,013,031)(89.4%)Other income 15,461 30,770 (15,309)(49.8%)Total investment income$847,283$1,749,525 ($902,242)(51.6%)18Table of ContentsInterest from portfolio compa

216、nies The portfolio interest income increase during 2010 was due to the origination of new debentureinstruments from Carolina Skiff,Gemcor,and Microcision in late 2009 and 2010.After reviewing the portfolio companies performance and the circumstances surrounding the investments,the Corporation ceased

217、accruing interest income on the following investment instruments:Company InterestRate InvestmentCost Year that InterestAccrual Ceased Associates 8%$291,331 2009 G-Tec 8%$400,000 2004 Niagara Dispensing 14%$547,328 2010 Interest from other investments The increase in interest from other investments w

218、as primarily due to higher cash balancesthroughout 2010.The cash balance at December 31,2010 and 2009 was$11,698,653 and$9,417,236,respectively.The higher cashbalance at December 31,2010 was due to the drawdown of SBA leverage in the first quarter of 2010 and the cash proceeds received fromthe exit

219、of Innov-X Systems,Inc.(Innovex)and GridApp Systems,Inc.(GridApp)during 2010.Dividend and other investment income Dividend income was comprised of distributions from limited liability companies(LLCs)in which the Corporation had invested.The Corporations investment agreements with certain LLC compani

220、es require the entities todistribute funds to the Corporation for payment of income taxes on its allocated share of the entities profits.These dividends will fluctuatebased upon the profitability of the entities and the timing of the distributions.Dividend income for the year ended December 31,2010

221、consisted of distributions from Gemcor for$87,880 and Somerset for$32,191.Dividend income for the year ended December 31,2009 consisted of distributions from Gemcor for$1,101,526 and Somerset for$31,576.Other income Other income consists of the revenue associated with the amortization of financing f

222、ees charged to the portfoliocompanies upon successful closing of Rand SBIC financings.The SBA regulations limit the amount of fees that can be charged to aportfolio company,and the Corporation typically charges 1%to 3%to the portfolio concerns.These fees are amortized ratably over the lifeof the ins

223、trument associated with the fees.The unamortized fees are carried on the balance sheet under“Deferred revenue.”In addition,other income includes fees charged by the Corporation to its portfolio companies for attendance at the portfolio companies board meetings.The income associated with the amortiza

224、tion of financing fees was$2,461 and$11,750 for the years ended December 31,2010 and2009,respectively.The annualized financing fee income based on the existing portfolio was expected to be approximately$1,400 in 2011and$1,100 in 2012.The income associated with board attendance fees was$13,000 for th

225、e year ended December 31,2010 and$19,000 for year endedDecember 31,2009.Operating ExpensesComparison of the years ended December 31,2011 and 2010 December 31,2011 December 31,2010 Decrease%Decrease Total expenses$1,661,674$2,367,911$(706,237)(29.8)%Operating expenses predominately consist of interes

226、t expense on outstanding SBA borrowings,compensation expense,and generaland administrative expenses including shareholder and office expenses and professional fees.19Table of ContentsThe decrease in operating expenses during the year ended December 31,2011 is comprised primarily of a 52%or$586,834 d

227、ecreasein salary expense and a 38%or$72,969 decrease in the related employee benefit expense.Salary expense decreased due to the fact that theCorporation accrued$660,634 in bonus and profit sharing obligations during the year ended December 31,2010 and$63,130 in bonusexpense for the year ended Decem

228、ber 31,2011.There was no profit sharing earned during the year ended December 31,2011.In addition,SBA interest expense decreased 7%or$39,077 during 2011 due to the fact that the Corporation paid down$6,000,000 in debentures duringthe third quarter of 2011.Comparison of the years ended December 31,20

229、10 and 2009 December 31,2010 December 31,2009 Increase%Increase Total expenses$2,367,911$1,850,113$517,798 28.0%Expenses consist primarily of interest expense on outstanding SBA borrowings,compensation expense,and general andadministrative expenses including shareholder and office expenses and profe

230、ssional fees.The increase in operating expenses during the year ended December 31,2010 was comprised primarily of an 80%or$497,069increase in salary expense,a 51%or$64,290 increase in employee benefits and a 16%or$77,240 increase in interest expense.Salaryexpense increased due to the accrual of$660,

231、634 in bonus and profit sharing obligations for the year ended December 31,2010 versus a$177,000 bonus and profit sharing accrual for the same period in 2009.Due to the increase in the bonus and profit sharing obligations theemployee benefit expense also increased.SBA interest expense increased due

232、to the additional$1,900,000 in debenture instrumentsoriginated in December 2009 and January 2010.These expense increases were partly offset by the 29%or$65,553 decrease in professionalfees and the 107%or$93,072 decrease in bad debt expense.Professional fees were higher in 2009 because the Corporatio

233、n incurredadditional expense related to compliance with SEC rules regarding the Corporations operating structure and completion of a private sale of1,100,000 of its common shares.For the year ended December 31,2009 the Corporation recorded an additional allowance for uncollectible interest of$87,089

234、.Net Realized Gains and Losses on InvestmentsComparison of the years ended December 31,2011 and 2010 December 31,2011 December 31,2010 Change%Decrease Realized(loss)gain ($2,205,551)$4,962,742 ($7,168,293)(144.4%)During the year ended December 31,2011,the Corporation recognized a loss of($1,780,612)

235、on Niagara Dispensing,a loss of($293,519)on Associates and a loss of($131,420)on Innov-X Systems,Inc.(Innovex).The Corporation recognized a realized loss of($1,780,612)on its investment in Niagara Dispensing after the company was soldduring the second quarter of 2011.As part of the sale proceeds,the

236、 Corporation obtained an equity membership in an acquisitioncorporation which is entitled to a multi-year royalty on future product sales.Associates ceased doing business in the first quarter of 2011.The Corporation exited the Innovex investment in 2010 and part of the proceeds were held in escrow.T

237、his realized loss is a result of anadjustment to the escrow receivable balance.Comparison of the years ended December 31,2010 and 2009 December 31,2010 December 31,2009 Change%Increase Realized gain$4,962,742$3,161,913$1,800,829 57.0%During the year ended December 31,2010,the Corporation recognized

238、realized gains of$4,403,984 on Innovex and$2,719,569 onGridApp.There were also realized losses of($721,918)on Wineisit,($642,974)on Golden Goal,($631,547)on APF,($68,000)onADAM,($49,830)on Bioworks,and($46,542)on Photonic.20Table of ContentsThe Corporation sold its investment in Innovex to Olympus N

239、DT Corporation on July 1,2010 and received approximately$5.6million in net proceeds for its debt and equity securities.The realized gain from the sale was$4,403,984 and included$886,330 that washeld in escrow.The Corporation received$54,910 of this escrow during 2010.The escrow balance was adjusted

240、during 2011 and theremainder was received in January 2012.The Corporation exited its investment in GridApp with the sale of the entity to BMC Software,Inc.in November 2010.TheCorporation received approximately$4.3 million in proceeds and recognized a realized gain on the sale of$2,719,569.This gain

241、included$957,563 that was held in escrow and is expected to be received in 2012.Both the Innovex and GridApp escrow holdbacks are recorded in“Other Assets”on the Balance Sheet.The Corporation recognized a realized loss of($721,918)on its investment in Wineisit after the company reorganized during th

242、efourth quarter of 2010 into a new entity named Advantage 24/7 LLC(Advantage 24/7).As part of this reorganization the Corporationobtained a controlling interest in Advantage 24/7.The Corporation evaluated the new entitys business and determined that the investmenthad a fair value of$100,000.The Adam

243、 and Golden Goal investments were written off during 2010 after each of the businesses were sold and the Corporationrecognized realized losses of($68,000)on Adam and($642,974)on Golden Goal.In addition,the Corporation sold its investment inBioworks,Inc.and recognized a$49,830 realized loss.The Corpo

244、ration recognized a realized loss on APF Group,Inc.(APF).APF filed for reorganization under Chapter 11 of the U.S.Bankruptcy Code in September 2009.The Corporation sold 30,500 shares of Photonic Products Group,Inc(Photonic)stock.Photonic is a publicly traded stock(NASDAQsymbol:PHPG.OB).The average s

245、ales price of Photonic was$1.00/share and the cost basis of the stock was$2.50/share.Change in Unrealized Appreciation of InvestmentsFor the years ended December 31,2011 and 2010 December 31,2011 December 31,2010 Change Change in Unrealized Appreciation$4,731,595 ($3,736,642)$8,468,237 The increase

246、in unrealized appreciation for the year ended December 31,2011 was comprised of the following items:Portfolio Company ValuationChangeduring 2011 Reclass Niagara Dispensing to realized loss$1,729,113 Synacor 1,531,999 Gemcor 1,300,000 Reclass Associates to a realized loss 293,518 Liazon 141,801 Ultra

247、-Scan Corporation(Ultra-Scan)(264,836)Total change in net unrealized appreciation during the year ended December 31,2011$4,731,595 The Corporation increased its value in Synacor based on an analysis of the financial and operational growth of the portfolio company.Synacor,Inc.filed a Form S-1 registr

248、ation statement on November 18,2011 with the SEC and completed an Initial Public Offering(IPO)on February 10,2012 trading on the NASDAQ National Market under the symbol“SYNC.”21Table of ContentsThe Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial

249、 condition of theportfolio company.Per the Corporations valuation policy,a portfolio company can be valued based on a conservative financial measure ifthe portfolio company has been self-financing and has had positive cash flow from operations for at least the past two fiscal years.In accordance wit

250、h its valuation policy,the Corporation increased the value of its holdings in Liazon based on a significant equityfinancing during the second quarter of 2011 by a new non-strategic outside investor that had a higher valuation for this portfolio companyFor the years ended December 31,2010 and 2009 De

251、cember 31,2010 December 31,2009 Change Change in Unrealized Appreciation ($3,736,642)($4,211,605)$474,963 The decrease in unrealized appreciation on investments of$3,736,642 was due to the following valuation changes made by theCorporation:Portfolio Company ValuationChange during2010 Reclass Wineisi

252、t to a realized loss 721,918 Reclass Golden Goal to a realized loss 656,652 Reclass APF to a realized loss 631,547 Reclass GridApp to realized gain 295,935 Advantage 24/7 100,000 Reclass Bioworks,Inc.to a realized loss 56,000 SOMS appreciation 55,717 Reclass Photonics to a realized loss 45,752 Niaga

253、ra Dispensing depreciation (1,250,163)Reclass Innovex to realized gain (5,050,000)Total Change in Unrealized Appreciation during the year ended December 31,2010 ($3,736,642)In accordance with its valuation policy,the Corporation increased the value of its holdings in SOMS based on a significant equi

254、tyfinancing in June 2010 by a new,non-strategic outside investor.The Corporations investment in Niagara Dispensing was written down by$1,250,163 during the year ended December 31,2010after a review by the Corporation of Niagara Dispensings financials and an analysis of the liquidation preferences of

255、 senior securities.All of these value adjustments resulted from a review by management using the guidance set forth by ASC 820 and the Corporationsestablished valuation policy.Net Increase(Decrease)in Net Assets from OperationsThe Corporation accounts for its operations under GAAP for investment com

256、panies.The principal measure of its financialperformance is“net increase(decrease)in net assets from operations”on its consolidated statements of operations.During the year endedDecember 31,2011,the net increase in net assets from operations was$1,348,303 as compared to a net decrease of($155,063)in

257、 2010 anda net decrease of($739,420)in 2009.The net increase in net assets from operations for the year ended December 31,2011 was due to the net unrealized appreciation oninvestments of$2,945,926 which was offset by the net investment loss of($81,738)and the net realized loss of($1,515,885).The net

258、decrease in net assets from operations for the year ended December 31,2010 can be attributed to the net investment loss of($973,189)which was offset by the net realized and unrealized gain on investments of$818,126.The net decrease in net assets from operations for theyear ended December 31,2009 is

259、due to the net investment loss of($63,878)coupled with the net decrease in realized and unrealized losson investments of($675,542).22Table of ContentsLiquidity and Capital ResourcesThe Corporations principal objective is to achieve capital appreciation.Therefore,a significant portion of the investme

260、nt portfolio isstructured to maximize the potential for capital appreciation and certain of the Corporations portfolio investments may be structured toprovide little or no current yield in the form of dividends or interest payments.As of December 31,2011,the Corporations total liquidity,consisting o

261、f cash and cash equivalents,was$4,517,985.Net cash used in operating activities has averaged approximately$1,039,000 over the last three years and management anticipates cashwill continue to be utilized at similar levels.The cash flow may fluctuate based on realized gains and the associated income t

262、axes paid.The Corporation used approximately$1,742,000 in net cash flow from investing activities for the fiscal year 2011 and providedapproximately$4,700,000 in net cash flow from investing activities in fiscal 2010 and approximately$2,400,000 during fiscal year 2009.The Corporation will generally

263、use cash in investing activities as it builds its portfolio utilizing its available cash and proceeds fromliquidations of portfolio investments.The Corporation anticipates that it will continue to exit investments over the next several years.However,significant liquidating events within the Corporat

264、ions investment portfolio are difficult to project with any certainty.To reserve the approved SBA debenture leverage the Corporation must pay an upfront 1%commitment fee to the SBA as a partialprepayment of the SBAs nonrefundable 3%leverage fee.These fees are then expensed over the life of the corre

265、sponding debentureinstruments.The Corporation paid$100,000 to reserve the original$10,000,000 in SBA leverage.When this original SBA commitmentexpired in December 2008,Rand SBIC re-applied for the remaining$1,900,000 in leverage and paid the SBA an additional commitmentfee of$19,000 to reserve this

266、leverage.During 2011,the Corporation repaid$6,000,000 in existing SBA leverage and contributed$1,000,000 of regulatory capital into the Rand SBIC,Inc.subsidiary.Additionally,during 2011 the SBA approved$8,000,000 in new SBAleverage and the Corporation paid the$80,000 commitment fee to reserve this l

267、everage.The total outstanding leverage was$4,000,000 atDecember 31,2011 and the total remaining SBA commitment at December 31,2011 is$8,000,000.The Corporation has liquidity consisting of cash and cash equivalents and the remaining SBA commitment of$8,000,000 that may beutilized to fund new investme

268、nts in 2012.The following table summarizes the cash to be received over the next five years from portfolio companies based on contractualobligations as of December 31,2011.This table does not include any escrow receivable amounts.These payments represent scheduledprincipal and interest payments that

269、 are contained in the investment documents of each portfolio company.Cash Receipts due by year 2012 2013 2014 2015 2016 andbeyond Scheduled Cash Receipts from Portfolio Companies$290,000$2,900,000$40,000$45,000$760,000 The preceding table only includes debenture instruments and does not include any

270、equity investments which may provide additionalproceeds upon exit of these securities.The global economy experienced a great deal of turmoil throughout the last several years and this affected the debt and equitymarkets in the United States.The markets have been improving but the effects of this eco

271、nomic crisis linger and the economy has yet tofully recover.This unfavorable change in credit market conditions has created opportunities for capital providers,like the Corporation,because small businesses are selling for lower prices,and they are generally willing to pay higher interest rates and t

272、o accept contractualterms that are more favorable to the Corporation.Accordingly,for companies that continue to have access to capital,management believesthat the current environment could provide investment opportunities on more favorable terms than have been available in recent priorperiods.23Tabl

273、e of ContentsManagement expects that the cash and cash equivalents at December 31,2011,coupled with the available SBA leverage and thescheduled interest and dividend payments on its portfolio investments,will be sufficient to meet the Corporations cash needs throughout2012.The Corporation is also ev

274、aluating potential exits from portfolio companies to increase the amount of liquidity available for newinvestments,operating activities and future SBA debenture obligations.Contractual ObligationsThe following table shows the Corporations specified contractual obligations at December 31,2011.The Cor

275、poration does not haveany capital lease obligations or other long-term liabilities reflected on its balance sheet.Payments due by period Total Less than1 year 1-3years 3-5years Morethan 5 yrs SBA Debentures$4,000,000$0$0$2,100,000$1,900,000 SBA Interest Expense$1,277,101$211,363$421,570$352,148$292,

276、020 Operating Lease Obligations(Rent of officespace)$70,800$17,160$35,400$18,240$0 Total$5,347,901$228,523$456,970$2,470,388$2,192,020 Item 7A.Quantitative and Qualitative Disclosures about Market RiskThe Corporations investment activities contain elements of risk.The portion of the Corporations inv

277、estment portfolio consisting ofequity and debt securities in private companies is subject to valuation risk.Because there is typically no public market for the equity anddebt securities in which it invests,the valuation of the equity interests in the portfolio is stated at“fair value”as determined i

278、n good faith bythe management of the Corporation and submitted to the Board of Directors for approval.This is in accordance with the Corporationsinvestment valuation policy.(The discussion of valuation policy contained in“Note 1-Summary of Significant AccountingPolicies Investments”in the consolidat

279、ed financial statements contained in Item 8 of this report is hereby incorporated herein byreference.)In the absence of readily ascertainable market values,the estimated value of the Corporations portfolio may differ significantlyfrom the values that would be placed on the portfolio if a ready marke

280、t for the investments existed.Any changes in valuation are recordedin the Corporations consolidated statement of operations as“Net unrealized appreciation(depreciation)on investments.”At times a portion of the Corporations portfolio may include marketable securities traded in the over-the-counter ma

281、rket.In addition,theremay be a portion of the Corporations portfolio for which no regular trading market exists.In order to realize the full value of a security,themarket must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made.Should an economic or otherev

282、ent occur that would not allow markets to trade in an orderly fashion,the Corporation may not be able to realize the fair value of itsmarketable investments or other investments in a timely manner.As of December 31,2011,the Corporation did not have any off-balance sheet arrangements or hedging or si

283、milar derivative financialinstrument investments.24Table of ContentsItem 8.Financial Statements and Supplementary DataThe following consolidated financial statements and consolidated supplemental schedule of the Corporation and report ofIndependent Registered Public Accounting Firm thereon are set f

284、orth below:Statements of Financial Position as of December 31,2011 and 2010 26 Statements of Operations for the three years in the period ended December 31,2011 27 Statements of Changes in Net Assets for the three years in the period ended December 31,2011 28 Statements of Cash Flows for the three y

285、ears in the period ended December 31,2011 29 Schedule of Portfolio Investments as of December 31,2011 30 Schedules of Selected Per Share Data and Ratios for the five years in the period ended December 31,2011 33 Notes to the Consolidated Financial Statements 34 Supplemental Schedule of Consolidated

286、Changes in Investments at Cost and Realized Loss for the year endedDecember 31,2011 47 Report of Independent Registered Public Accounting Firm 48 25Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONDecember 31,2011 2010 ASSETS Investments

287、at fair value:Control investments(cost of$966,895 and$1,413,596,respectively)$7,466,896$6,313,596 Affiliate investments(cost of$6,083,260 and$8,036,650,respectively)5,838,975 6,334,571 Non-affiliate investments(cost of$6,358,527 and$4,122,795,respectively)10,625,990 6,716,458 Total investments,at fa

288、ir value(cost of$13,408,682 and$13,573,041,respectively)23,931,861 19,364,625 Cash and cash equivalents 4,517,985 11,698,653 Interest receivable(net of allowance:2011$122,000 and 2010$158,245)83,869 1,051,848 Prepaid income taxes 822,789 414,745 Other assets 1,975,453 2,561,389 Total assets$31,331,9

289、57$35,091,260 LIABILITIES AND STOCKHOLDERS EQUITY(NET ASSETS)Liabilities:Debentures guaranteed by the SBA$4,000,000$10,000,000 Deferred tax liability 2,683,639 1,044,315 Accounts payable and accrued expenses 249,197 990,477 Deferred revenue 5,650 Total liabilities 6,932,836 12,040,442 Stockholders e

290、quity(net assets):Common stock,$.10 par;shares authorized 10,000,000;shares issued 6,863,034;sharesoutstanding 6,818,934 686,304 686,304 Capital in excess of par value 10,581,789 10,581,789 Accumulated net investment(loss)(1,729,856)(1,648,118)Undistributed net realized gain on investments 8,317,397

291、 9,833,282 Net unrealized appreciation on investments 6,590,693 3,644,767 Treasury stock,at cost,44,100 shares (47,206)(47,206)Total stockholders equity(net assets),(per share 2011$3.58,2010$3.38)24,399,121 23,050,818 Total liabilities and stockholders equity(net assets)$31,331,957$35,091,260 See ac

292、companying notes 26Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor The Years Ended December 31,2011,2010 and 2009 2011 2010 2009 Investment income:Interest from portfolio companies:Control investments$55,173$67,952$11,620 Affiliate investmen

293、ts 625,389 603,557 540,679 Non-Control/Non-Affiliate investments 47,556 16,668 16,225 Total interest from portfolio companies 728,118 688,177 568,524 Interest from other investments:Non-Control/Non-Affiliate investments 30,364 23,574 17,129 Total Interest from other investments 30,364 23,574 17,129

294、Dividend and other investment income:Control investments 263,701 87,880 1,101,526 Affiliate investments 189,328 Non-Control/Non-Affiliate investments 63,160 32,191 31,576 Total Dividend and other investment income 516,189 120,071 1,133,102 Other income:Control investments 8,333 9,000 10,417 Affiliat

295、e investments 4,000 6,378 20,333 Non-Control/Non-Affiliate investments 5,348 83 20 Total other income 17,681 15,461 30,770 Total investment income 1,292,352 847,283 1,749,525 Operating expenses:Salaries 475,000 460,200 446,765 Bonus and profit sharing 59,000 660,634 177,000 Employee benefits 117,367

296、 190,336 126,046 Directors fees 80,250 88,500 76,750 Professional fees 145,132 161,862 227,415 Stockholders and office operating 120,612 122,029 140,554 Insurance 35,281 39,133 49,988 Corporate development 69,005 60,849 55,749 Other operating 24,389 15,636 (34,718)1,126,036 1,799,179 1,265,549 Inter

297、est on SBA obligations 535,638 574,715 497,475 Bad debt(recovery)expense (5,983)87,089 Total expenses 1,661,674 2,367,911 1,850,113 Investment loss before income taxes (369,322)(1,520,628)(100,588)Income tax benefit (287,584)(547,439)(36,710)Net investment loss (81,738)(973,189)(63,878)Net realized(

298、loss)gain on investments:Affiliate investments (2,205,551)5,127,114 (550,030)Non-Control/Non-Affiliate investments (164,372)3,711,943 Realized(loss)gain on sales and dispositions,net (2,205,551)4,962,742 3,161,913 Income tax(benefit)expense (689,666)1,740,054 1,153,939 Net realized(loss)gain on inve

299、stments (1,515,885)3,222,688 2,007,974 Net increase(decrease)in unrealized appreciation on investments:Control investments 1,300,000 (98,000)Affiliate investments 2,022,631 (3,838,394)(3,697,555)Non-Control/Non-Affiliate investments 1,408,964 101,752 (416,050)Change in unrealized appreciation before

300、 income taxes 4,731,595 (3,736,642)(4,211,605)Deferred income tax expense(benefit)1,785,669 (1,332,080)(1,528,089)Net increase(decrease)in unrealized appreciation 2,945,926 (2,404,562)(2,683,516)Net realized and unrealized gain(loss)on investments 1,403,041 818,126 (675,542)Net increase(decrease)in

301、net assets from operations$1,348,303$(155,063)$(739,420)Weighted average shares outstanding 6,818,934 6,818,934 6,115,081 Basic and diluted net(decrease)increase in net assets from operations per share$0.20$(0.02)$(0.12)See accompanying notes 27Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIAR

302、YCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor The Years Ended December 31,2011,2010 and 2009 2011 2010 2009 Net assets at beginning of period$23,050,818$23,205,881$20,226,966 Net investment loss (81,738)(973,189)(63,878)Net realized(loss)gain on sales and dispositions of investments (1,515,88

303、5)3,222,688 2,007,974 Net increase(decrease)in unrealized appreciation 2,945,926 (2,404,562)(2,683,516)Net increase(decrease)in net assets from operations 1,348,303 (155,063)(739,420)Issuance of common stock 3,718,335 Total increase(decrease)1,348,303 (155,063)2,978,915 Net assets at end of period$2

304、4,399,121$23,050,818$23,205,881 See accompanying notes.28Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSFor The Years Ended December 31,2011,2010 and 2009 2011 2010 2009 Cash flows from operating activities:Net increase(decrease)in net assets from operat

305、ions$1,348,303 ($155,063)($739,420)Adjustments to reconcile net increase(decrease)in net assets to net cashused in operating activities:Depreciation and amortization 98,193 39,521 36,218 Original issue discount accretion (37,000)Change in interest receivable allowance (36,245)(50,844)86,272 (Increas

306、e)decrease in unrealized appreciation of investments (4,731,595)3,736,642 4,211,605 Deferred tax(benefit)expense 1,639,324 (764,685)(1,681,000)Realized loss(gain)on portfolio investments,net 2,205,551 (4,962,742)(3,161,913)Payment in kind,interest accrued (115,334)Non-cash conversion of debenture in

307、terest (130,459)(366,282)(41,599)Changes in operating assets and liabilities:Decrease(increase)in interest receivable 1,004,224 191,114 (264,502)Decrease(increase)in other assets 436,323 (63,384)137,059 (Increase)in prepaid income taxes (408,044)(414,745)(Decrease)increase in income taxes payable (1

308、,082,646)983,923 (Decrease)increase in accounts payable and accrued liabilities (741,280)559,244 138,502 (Decrease)increase in deferred revenue (5,650)3,039 (17,766)Total adjustments (706,658)(3,175,768)311,465 Net cash provided by(used in)operating activities 641,645 (3,330,831)(427,955)Cash flows

309、from investing activities:Investments originated (2,362,513)(3,606,200)(2,955,309)Proceeds from sale of portfolio investments 8,230,833 4,946,781 Proceeds from loan repayments 620,200 110,286 420,981 Capital expenditures (846)Net cash(used in)provided by investing activities (1,742,313)4,734,073 2,4

310、12,453 Cash flows from financing activities:Issuance of common stock,net 3,718,335 Repayment of SBA debentures (6,000,000)Proceeds from SBA debentures 900,000 1,000,000 Origination costs to SBA (80,000)(21,825)(43,250)Net cash(used in)provided by financing activities (6,080,000)878,175 4,675,085 Net

311、(decrease)increase in cash and cash equivalents (7,180,668)2,281,417 6,659,583 Cash and cash equivalents:Beginning of year 11,698,653 9,417,236 2,757,653 End of year$4,517,985$11,698,653$9,417,236 See accompanying notes 29Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED

312、 SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2011(a)Company,Geographic Location,BusinessDescription,(Industry)and Website Type of Investment(b)DateAcquired (c)Equity Cost (d)(f)Value PerShareof Rand Non-Control/Non-Affiliate Investments:(j)BinOptics Corporation(e)(g)Ithaca,NY.Design andmanufacture

313、of semiconductor FPand DFB lasers.(ElectronicsDeveloper) 13,818,122 Series 2 preferred shares.11/8/11 4%$1,190,569$1,190,569$.17 Liazon Corporation(g)Buffalo,NY.Employee benefitssolution company.(Health BenefitsProvider) 120,000 Series C-1 preferred shares.546,667 Series C-2preferred shares.11/9/10

314、4%858,199 1,000,000 .15 Mezmeriz,Inc.(e)(g)Ithaca,NY.Developer of micromirror technology that replacessilicon with carbon fibers in micro-electronic mechanical systems(MEMS)enabling efficient,wide-angle,Pico projectors to beembedded in mobile devices.(Electronics Developer) 141,125 Series A preferre

315、d shares.1/9/08 4%121,509 121,509 .02 Rheonix,Inc.(e)Ithaca,NY.Developer ofmicrofluidic testing devicesincluding channels,pumps,reactionvessels,&diagnostic chambers,fortesting of small volumes ofchemicals and biological fluids.(Manufacturing) 9,676 common shares.(g)694,015 Series A preferredshares.5

316、0,593 common shares.10/29/09 4%753,000 889,000 .13 Somerset Gas Transmission Company,LLCColumbus,OH.Natural gas transportation company.(Oil andGas) 26.5337 units.7/10/02 3%719,097 786,748 .12 Synacor Inc.(e)(g)Buffalo,NY.Develops provisioningplatforms for aggregation and delivery ofcontent and servi

317、ces across multipledigital devices.(Software) 234,558 Series A preferred shares.600,000 Series Bpreferred shares.240,378 Series C preferred shares.897,438 common shares.(Note:At Initial Public Offering date of 2/10/12 theCorporation converted its holdings into 986,187 commonshares)11/18/02 4%1,349,4

318、79 5,700,000 .84 Ultra Scan Corporation(e)Amherst,NY.Biometrics applicationdeveloper of ultrasonic fingerprinttechnology.(Electronics Hardware/Software)www.ultra- 536,596 common shares.107,104 Series A-1 preferredshares.(g)95,284 Series A-1 preferred shares.12/11/92 2%938,164 938,164 .14 Subtotal No

319、n-Control/Non-Affiliate Investments$5,930,017$10,625,990$1.57 Affiliate Investments:(k)Carolina Skiff LLC(g)Waycross,GA.Manufacturer of freshwater,ocean fishing and pleasure boats.(Manufacturing)$985,000 Class A preferred membership interest at 14%.Redeemable December 23,2012.$500,000 subordinatedpr

320、omissory note at 14%due December 31,2016.6.0825%class A common membership interest.1/30/04 7%$1,500,000$1,500,000$.22 C,Inc.(e)(g)Saratoga Springs,NY.Predictiveemployee selection and developmentsoftware.(Software) 157,464 Series A preferred shares.11/18/10 8%533,222 533,222 .08 30Table of ContentsRA

321、ND CAPITAL CORPORATION AND SUBSIDIARYCONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2011(Continued)(a)Company,Geographic Location,BusinessDescription,(Industry)and Website Type of Investment(b)DateAcquired (c)Equity Cost (d)(f)Value PerShareof Rand EmergingM,Inc.(g)New York,NY.Cancer clin

322、icaltrial matching and referral service.(Software)$675,046 senior subordinated note at 8%due January 19,2013.Warrants for 8%of common stock.(i)Interest receivable$51,004 12/19/05 8%675,046 675,046 .10 G-TEC Natural Gas Systems(e)Buffalo,NY.Manufactures anddistributes systems that allownatural gas to

323、 be used as analternative fuel to gases.(Manufacturing)www.gas- 21.6%Class A membership interest.8%cumulativedividend.8/31/99 22%400,000 100,000 .01 Microcision LLC(g)Philadelphia,PA.Custommanufacturer of medical and dentalimplants.(Manufacturing)$1,500,000 subordinated promissory note at 5%,6%defer

324、red interest due December 31,2013.15%class Acommon membership interest.9/24/09 15%1,679,518 1,679,518 .25 Mid America Brick&Structural Clay Products,LLC(e)(g)Mexico,MO.Manufacturer of facebrick for residential andcommercial construction.(Manufacturing) 19.524 membership units.6/1/10 19%800,000 800,0

325、00 .12 SOMS Technologies,LLC(e)(g)Valhalla,NY.Produces andmarkets the microGreen ExtendedPerformance Oil Filter.(Auto PartsDeveloper) 5,959,490 Series B membership units.12/2/08 10%472,632 528,348 .08 Subtotal Affiliate Investments$6,060,418$5,816,134$.86 Control Investments(l)Advantage 24/7 LLC(e)(

326、g)Williamsville,NY.Marketingprogram for wine and spiritsdealers.(Marketing Company)50%Membership interest.12/30/10 50%$100,000$100,000$.01 Gemcor II,LLC(g)(h)West Seneca,NY.Designs andsells automatic riveting machinesused in the assembly of aircraftcomponents.(Manufacturing)$500,000 subordinated pro

327、missory note at 15%dueDecember 1,2014.25 membership units.Warrant topurchase 6.25 membership units.6/28/04 31%827,111 7,327,111 1.07 Subtotal Control Investments$927,111$7,427,111$1.08 Other Investments Various$491,136$62,626$0 Total portfolio investments$13,408,682$23,931,861$3.51 31Table of Conten

328、tsRAND CAPITAL CORPORATION AND SUBSIDIARYCONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2011(Continued)NOTES TO CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS(a)At December 31,2011 restricted securities represented 100%of the value of the investment portfolio.Restricted securities are sub

329、jectto one or more restrictions on resale and are not freely marketable.Freed Maxick CPAs,P.C.has not examined the businessdescriptions of the portfolio companies.Individual securities with values less than$100,000 are included in“Other Investments.”(b)The Date Acquired column indicates the year in

330、which the Corporation acquired its first investment in the company or a predecessorcompany.Freed Maxick CPAs,P.C.has not audited the date acquired of the portfolio companies.(c)The equity percentages estimate the Corporations ownership interest in the portfolio investment.The estimated ownership isc

331、alculated based on the percent of outstanding voting securities held by the Corporation or the potential percentage of voting securitiesheld by the Corporation upon exercise of warrants or conversion of debentures,or other available data.Freed Maxick CPAs,PC hasnot audited the equity percentages of

332、the portfolio companies.The symbol“1%”indicates that the Corporation holds an equityinterest of less than one percent.(d)The Corporation uses Accounting Standards Codification(ASC)820“Fair Value Measurements”which defines fair value andestablishes guidelines for measuring fair value.At December 31,2

333、011,ASC 820 designates all of the Corporations investments as“Level 3”assets due to their privately held restricted nature.Under the valuation policy of the Corporation,unrestricted securities arevalued at the closing price for publicly held securities for the last three days of the month.Restricted securities are subject torestrictions on resale,and are valued at fair value as determined by the m