Rand Capital Corporation (RAND) 2007年年度報告「NASDAQ」.pdf

1、Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,2007oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE A

2、CT OF 1934 For the Transition Period from to Commission file number:001-08205Rand Capital Corporation(Exact Name of Registrant as specified in its Charter)New York(State or Other Jurisdiction ofIncorporation or organization)16-0961359(IRS Employer Identification No.)2200 Rand Building,Buffalo,NY(Add

3、ress of Principal executive offices)14203(Zip Code)(716)853-0802(Registrants Telephone No.Including Area Code)Securities registered pursuant to Section 12(b)of the Act:NoneSecurities registered pursuant to Section 12(g)of the Act:Common Stock,$.10 par valueIndicate by check mark if the registrant is

4、 a well-known seasoned issuer,as defined in Rule 405 under the Securities Act.Yes o No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes o No Indicate by check mark whether the registrant(1)has filed all reports required to

5、 be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during thepreceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past90 days.Yes No oIndicate by check mark if disclosure o

6、f delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrantsknowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Indicate by check

7、mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.See the definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer

8、oAccelerated filer oNon-accelerated filer Smaller reporting company o(Do 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 o No The aggregate market value of the registrants outstanding common stock held

9、 by non-affiliates of the registrant as of June 30,2007 was approximately$14,150,414 basedupon the last sale price as quoted by NASDAQ Capital Market on such date.As of March 14,2008 there were 5,718,934 shares of the registrants common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions o

10、f the Corporations definitive proxy statement for the Annual Meeting of Stockholders to be held on April 28,2008 are incorporated by reference into certainsections of Part III herein.RAND CAPITAL CORPORATIONTABLE OF CONTENTS FOR FORM 10-KPART IItem 1.Business 1 Item 1A.Risk Factors 5 Item 2.Properti

11、es 6 Item 3.Legal Proceedings 6 Item 4.Submission of Matters to a Vote of Security Holders 6 PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 7 Item 6.Selected Financial Data 9 Item 7.Managements Discussion and Analysis of Finan

12、cial Condition and Results of Operations 10 Item 7A.Quantitative and Qualitative Disclosures about Market Risk 22 Item 8.Financial Statements and Supplementary Data 23 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 42 Item 9A.Controls and Procedures 42 It

13、em 9A(T).Managements Annual Report on Internal Control Over Financial Reporting 42 Item 9B.Other Information 42 PART IIIItem 10.Directors,Executive Officers and Corporate Governance 42 Item 11.Executive Compensation 43 Item 12.Security Ownership of Certain Beneficial Owners and Management and Relate

14、d Stockholder Matters 43 Item 13.Certain Relationships and Related Transactions,and Director Independence 43 Item 14.Principal Accountant Fees and Services 43 PART IVItem 15.Exhibits and Financial Statement Schedules 43 Ex-31.1 Ex-31.2 Ex-32.1 Ex-32.2Table of ContentsPART IItem 1.BusinessRand Capita

15、l Corporation(“Rand”or“Corporation”)was incorporated under the law of New York on February 24,1969.Beginning in 1971,Rand operatedas a publicly traded,closed-end,diversified management company that was registered under Section 8(b)of the Investment Company Act of 1940(the“1940 Act”).On August 16,200

16、1,Rand filed an election to be treated as a business development company(“BDC”)under the 1940 Act,which became effective on the date offiling.On January 16,2002,Rand formed a wholly-owned subsidiary,Rand Capital SBIC,L.P.,(“Rand SBIC”)for the purpose of operating it as a small businessinvestment com

17、pany.At the same time,Rand organized another wholly owned subsidiary,Rand Capital Management,LLC(“Rand Management”),as a Delawarelimited liability company,to act as the general partner of Rand SBIC.Rand transferred$5 million in cash to Rand SBIC to serve as“regulatory capital”in January2002 and on A

18、ugust 16,2002,Rand received notification that its Small Business Investment Company(“SBIC”)application had been approved and Rand SBIC hadbeen licensed by the Small Business Administration(“SBA”).The following discussion will include Rand,Rand SBIC and Rand Management(collectively,the“Corporation”).

19、Throughout the Corporations history,its principal business has been to make venture capital investments in small to medium sized companies that areengaged in the exploitation of new or unique products or services with a sustainable competitive advantage typically in New York and its surrounding stat

20、es.TheCorporations principal investment objective is to achieve long-term capital appreciation while maintaining a current cash flow from its debenture instruments.TheCorporation invests in a mixture of debenture and equity instruments.The debt securities most often have an equity piece attached to

21、the debenture in the form ofstock,warrants or options to acquire stock or the right to convert the debt securities into stock.Rand SBIC was the primary investment vehicle in 2006 and 2007 andit is anticipated that will continue to be the case in 2008.Consistent with its status as a BDC and the purpo

22、ses of the regulatory framework for BDCs under the1940 Act,the Corporation 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 officers and employ

23、ees conduct its operations under the generalsupervision of its Board of Directors.It has not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the InternalRevenue Code.The Corporations website is .The Corporations annual report on Form 10-K,quarterly r

24、eports on Form 10-Q,current reports onForm 8-K,charters for the Corporations committees and other reports filed with the Securities and Exchange Commission(“SEC”)are available through theCorporations website.The Corporation is listed on the NASDAQ Small Cap Market under the symbol“Rand”.Regulation a

25、s a BDCAlthough the 1940 Act exempts a BDC from registration under that Act,it contains significant limitations on the operations of BDCs.Among other things,the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates,principal underwriters and affili

26、ates of its affiliates orunderwriters,and it requires that a majority of the BDCs directors be persons other than“interested persons,”as defined under the 1940 Act.The 1940 Act alsoprohibits a BDC from changing the nature of its business so as to cease to be,or to withdraw its election as,a BDC unle

27、ss so authorized by a vote of the holders of amajority of its outstanding voting securities.BDCs are not required to maintain fundamental investment policies relating to diversification and concentration ofinvestments within a single industry.More specifically,in order to qualify as a BDC,a company

28、must:(1)be a domestic company;(2)have registered a class of its equity securities or have filed a registration statement with the SEC pursuant to Section 12 of the Securities ExchangeAct of 1934;(3)operate for the purpose of investing in the securities of certain types of portfolio companies,namely

29、immature or emerging companies and businessessuffering or just recovering from financial distress;1Table of Contents(4)extend significant managerial assistance to such portfolio companies;and(5)have a majority of“disinterested”directors(as defined in the 1940 Act).Generally,a BDC must be primarily e

30、ngaged in the business of furnishingcapital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels.Such portfoliocompanies are termed“eligible portfolio companies.”An eligible portfolio company is,generally,a private domestic

31、operating company,or a public domestic operating company whose securities are not listed ona national securities exchange.In addition,any small business investment company that is licensed by the Small Business Administration and that is a wholly ownedsubsidiary of a BDC is an eligible portfolio com

32、pany.The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies,such as brokerage firms,insurancecompanies,investment banking firms and investment companies.Moreover,the 1940 Act limits the type of assets that BDCs may acquire to“qualifying ass

33、ets”andcertain 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 BDCsassets consist of qualifying assets.Qualifying assets include:(1)securities of companies that were eligible portfolio companies at t

34、he time the BDC acquired theirsecurities;(2)securities of bankrupt or insolvent companies that were eligible at the time of the BDCs initial acquisition of their securities but are no longereligible,provided that the BDC has maintained a substantial portion of its initial investment in those compani

35、es;(3)securities received in exchange for ordistributed in or with respect to any of the foregoing;and(4)cash items,government securities and high-quality short-term debt.The 1940 Act also placesrestrictions on the nature of the transactions in which,and the persons from whom,securities can be purch

36、ased in order for the securities to be considered qualifyingassets.These restrictions include limiting purchases to transactions not involving a public offering and acquiring securities from the portfolio company or itsofficers,directors,or affiliates.A BDC is permitted to invest in the securities o

37、f public companies and other investments that are not qualifying assets,but those kinds of investments may notexceed 30%of the BDCs total asset value at the time of the investment.A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it

38、invests.Making available significantmanagerial assistance means,among other things,any arrangement whereby the BDC,through its directors,officers or employees,offers to provide,and,ifaccepted does provide,significant guidance and counsel concerning the management,operations or business objectives an

39、d policies of a portfolio company.SBIC SubsidiaryOn January 16,2002,Rand formed two wholly-owned subsidiaries,Rand SBIC and Rand Management.On August 16,2002,Rand received notification thatRand SBICs Small Business Investment Company application had been approved and licensed by the Small Business A

40、dministration.The approval allows RandSBIC to obtain loans up to two times its initial$5 million of regulatory capital from the SBA for purposes of making new investments in portfolio companies.Rand formed Rand SBIC as a subsidiary for the purpose of causing it to be licensed as a Small Business Inv

41、estment Company(“SBIC”)under the SmallBusiness Investment Act of 1958(the“SBA Act”)by the Small Business Administration(the“SBA”),in order to have access to various forms of leverage providedby the SBA to SBICs.On May 28,2002,the Corporation filed an Exemption Application with the SEC seeking an ord

42、er under Sections 6(c),12(d)(1)(J),57(c),and 57(i)of,andRule 17d-1 under,the 1940 Act for exemptions from the application of Sections 2(a)(3),2(a)(19),12(d)(1),18(a),21(b),57(a)(1),(2),(3),and(4),and 61(a)of the1940 Act to certain aspects of its operations.The application also seeks an order under S

43、ection 12(h)of the Securities Exchange Act of 1934 Act(the“ExchangeAct”)for an exemption from separate reporting requirements for Rand2Table of ContentsSBIC under Section 13(a)of the Exchange Act.In general,the Corporations applications sought orders that would permit:a BDC(Rand)to operate a BDC/sma

44、ll business investment company(Rand SBIC)as its wholly owned subsidiary in limited partnership form;Rand,Rand Management and Rand SBIC to engage in certain transactions that the Corporation would otherwise be permitted to engage in as a BDC if itscomponent parts were organized as a single corporatio

45、n;Rand,as a BDC,and Rand SBIC,as its BDC/SBIC subsidiary,to meet asset coverage requirements for senior securities on a consolidated basis;Rand SBIC,as a BDC/SBIC subsidiary of Rand as a BDC,to file Exchange Act reports on a consolidated basis as part of Rands reports.Since the filing of its origina

46、l Application for Exemption,Rand has maintained discussions with the staff of the Division of Investment Management of theSEC concerning Rands application.The principal substantive issue in these discussions has been the structure of Rand SBIC as a limited partnership.Rand SBICmust meet the requirem

47、ents of the SBA for licensed SBICs,and at the same time Rand SBIC must meet the requirements of the SEC that apply to BDCs.When Rand formed Rand SBIC in 2002,it formed Rand SBIC as a limited partnership because that was the organizational form that the SBA stronglyencouraged for all new entities see

48、king licenses as SBICs,and Rand formed Rand SBIC in a manner that was consistent with the SBAs model limited partnershipforms for licensed SBICs.In that structure,the general partner of Rand SBIC is Rand Management,a limited liability company whose managers are the principalexecutive officers of Ran

49、d.Under the rules and interpretations of the SEC applicable to BDCs,if a BDC is structured in limited partnership form,then it must have general partners whoserve as a board of directors,or a general partner with very limited authority and a separate board of directors,and all of the persons who ser

50、ve on the board ofdirectors must be natural persons and a majority of them must not be“interested persons”of the BDC.Since the managers of Rand Management are the principalexecutive officers of Rand,and since both Rand Management and Rand SBIC are wholly owned by Rand,Rand believes that the Board of

51、 Directors of Rand is thefunctional equivalent of a board of directors for both Rand Management and Rand SBIC.Nevertheless,the staff of the Division of Investment Management of theSEC has expressed the view that if Rand SBIC is to be operated as a limited partnership BDC in compliance with the 1940

52、Act,then the organizational documentsof Rand SBIC must specifically provide that it will have a board of directors consisting of natural persons,a majority of whom are not“interested persons.”In discussions between Rand and the SBA,the SBA has recently indicated that if Rand SBIC is reorganized as a

53、 corporation whose directors are directors ofRand,it will continue to permit Rand SBIC to be licensed as an SBIC.Accordingly,Rand is currently in negotiations with the SEC and the SBA concerning thereorganization of Rand SBIC as a wholly owned corporate subsidiary of Rand whose board of directors wi

54、ll be comprised of directors of Rand,a majority of whomwill not be“interested persons”of Rand or Rand SBIC,and concerning the licensing of the new corporate subsidiary as an SBIC.Rand currently expects that the appropriate approvals will be received from the SBA and that the reorganization will be c

55、ompleted in 2008.Rand does notexpect that either the reorganization process or the subsequent operations of Rand SBIC as a corporation will result in any material change in the operations of RandSBIC.Once the reorganization is completed,Rand expects to make an appropriate amendment to its Exemption

56、Application to the SEC,and it believes that it willreceive exemptions necessary for its operation of Rand SBIC as a BDC.Rand operates Rand SBIC through Rand Management for the same investment purposes,and with investments in similar kinds of securities,as Rand.RandSBICs operations are consolidated w

57、ith those of Rand for both financial reporting and tax purposes.3Table of ContentsRegulation of SBIC SubsidiaryLending RestrictionsThe SBA licenses SBICs as part of a program designed to stimulate the flow of private debt and/or equity capital to small businesses.SBICs use fundsborrowed from the SBA

58、,together with their own capital,to provide loans to,and make equity investments in,concerns that(a)do not have a net worth in excess of$18 million and do not have average net income after U.S.federal income taxes for the two years preceding any date of determination of more than$6 million,or(b)meet

59、 size standards set by the SBA that are measured by either annual receipts or number of employees,depending on the industry in which the concerns areprimarily engaged.The types and dollar amounts of the loans and other investments an SBIC that is a BDC may make are limited by the 1940 Act,the SBA Ac

60、t andSBA regulations.The SBA is authorized to examine the operations of SBICs,and an SBICs ability to obtain funds from the SBA is also governed by SBAregulations.In addition,at the end of each fiscal year,an SBIC must have at least 20%(in total dollars)invested in“Smaller Enterprises”.The SBA defin

61、es“SmallerEnterprises”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 preceding twoyears no greater than$2 million,or(b)meet size standards set by the SBA that are measured by either annual receipts or number of emp

62、loyees,depending on theindustry in which the concerns are primarily engaged.The Corporation has maintained compliance with this requirement since inception of the SBIC subsidiary.SBICs may invest directly in the equity of their portfolio companies,but they may not become a general partner of a non-i

63、ncorporated entity or otherwisebecome jointly or severally liable for the general obligations of a non-incorporated entity.An SBIC may acquire options or warrants in its portfolio companies,andthe options or warrants may have redemption provisions,subject to certain restrictions.SBA LeverageThe SBA

64、raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are pooled and sold to purchasers of the governmentguaranteed securities.The amount of funds that the SBA may lend to SBICs is determined by annual Congressional appropriations.In order to obtain SBA bor

65、rowings,also known as leverage,an SBIC must demonstrate its need to the SBA.To demonstrate need,an SBIC must invest 50%of its Leverageable Capital(defined as Regulatory Capital less unfunded commitments and federal funds)and any outstanding SBA leverage.Other requirementsinclude compliance with SBA

66、regulations,adequacy of capital,and meeting liquidity standards.An SBICs license entitles an SBIC to apply for SBA leverage,butdoes not assure that it will be available,or if available,that it will be available at the level of the relevant matching ratio.Availability depends on the SBICscontinued re

67、gulatory compliance and sufficient SBA funds being available when the SBIC applies to draw down SBA leverage.Under the provisions of the SBICregulations,the Corporation may apply for the SBAs conditional commitment to reserve a specific amount of leverage for future use.The Corporation may thenapply

68、 to draw down leverage against the commitment.All SBICs must obtain a leverage commitment in order to draw leverage from the SBA.Commitmentsexpire on September 30 of the fourth full fiscal year following issuance and require the payment of a fee equal to 1 percent of the total commitment at the time

69、 ofissuance.An additional fee equal to 2 percent of the amount drawn is deducted at the time of each draw.The Corporation paid$100,000 to the SBA to reserve$10,000,000 of its approved debenture leverage.The leverage commitment expires on September 30,2008.The fees were paid in two installments of$50

70、,000 each in July 2003 and in August 2004.These fees were 1%of the face amount of the leverage reservedunder the commitment.The fee represents a partial prepayment of the SBAs nonrefundable 3%leverage fee.As of December 31,2007,Rand SBIC had drawn$8,100,000 in leverage from the SBA.The Corporation d

71、oes not anticipate drawing down on the remaining leverage of$1,900,000 prior to the expiration of thecommitment.SBA debentures are issued with 10-year maturities.Interest only is payable semi-annually until maturity.Ten-year SBA debentures may be prepaid with apenalty during the first 5 years,and th

72、en are pre-payable without penalty.Rand initially capitalized Rand SBIC with$5 million in Regulatory Capital.Rand SBICwas approved to4Table of Contentsobtain SBA leverage at a 2:1 matching ratio,resulting in a total capital pool eligible for investment of$15 million.The Corporation expects to use Ra

73、nd SBIC as itsprimary investment vehicle.EmployeesAs of December 31,2007,the Corporation had four employees.Item 1A.Risk FactorsThe Corporation is Subject to Risks Created by the Valuation of its Portfolio InvestmentsThere is typically no public market for equity securities of the small privately he

74、ld companies in which the Corporation invests.As a result,the valuations ofthe equity securities in the Corporations portfolio are stated at fair value as determined by the good faith estimate of the Corporations Board of Directors inaccordance with the established SBA valuation policy.In the absenc

75、e of a readily ascertainable market value,the estimated value of the Corporations portfolio ofsecurities may differ significantly,favorably or unfavorably,from the values that would be placed on the portfolio if a ready market for the equity securities existed.Any changes in estimated value are reco

76、rded in the statement of operations as“Net increase in unrealized appreciation.”The Corporations Portfolio Investments are IlliquidMost of the investments of the Corporation are or will be either equity securities acquired directly from small companies or subordinated debt securities.TheCorporations

77、 portfolio of equity and debt securities is,and will usually be,subject to restrictions on resale or otherwise have no established trading market.Theilliquidity of most of the Corporations portfolio may adversely affect the ability of the Corporation to dispose of the securities at times when it may

78、 beadvantageous for the Corporation to liquidate 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 private businesses may be thinlycapitalized,unproven compa

79、nies with risky technologies,may lack management depth,and may not have attained profitability.Because of the speculative natureand the lack of a public market for these investments,there is significantly greater risk of loss than is the case with traditional investment securities.TheCorporation exp

80、ects that some of its venture capital investments will be a complete loss or will be unprofitable and that some will appear to be likely to becomesuccessful but never realize their potential.The Corporation has been risk seeking rather than risk averse in its approach to venture capital and other in

81、vestments.Even if the Corporations portfolio companies are able to develop commercially viable products,the market for new products and services is highlycompetitive and rapidly changing.Commercial success is difficult to predict and the marketing efforts of the portfolio companies may not be succes

82、sful.Investing in the Corporations Shares May be Inappropriate for the Investors Risk ToleranceThe Corporations investments,in accordance with its investment objective and principal strategies,result in a greater than average amount of risk andvolatility and may well result in loss of principal.Its

83、investments in portfolio companies are highly speculative and aggressive and,therefore,an investment in itsshares may not be suitable for investors for whom such risk is inappropriate.Neither the Corporations investments nor an investment in the Corporation is intendedto constitute a balanced invest

84、ment program.The Corporation is Subject to Risks Created by its Regulated EnvironmentThe Corporation is regulated by the SBA and the SEC.Changes in the laws or regulations that govern SBICs and BDCs could significantly affect theCorporations business.Regulations and laws may be changed periodically,

85、and the interpretations of the relevant regulations and laws are also subject to change.Any change in the regulations and laws governing the Corporations business could have a material impact on its financial condition or its results of operations.Moreover,the laws and regulations that govern BDCs a

86、nd SBICs may place conflicting demands on5Table of Contentsthe manner in which the Corporation operates,and the resolution of those conflicts may restrict or otherwise adversely affect the operations of the Corporation.The Corporation is Subject to Risks Created by Borrowing Funds from the SBAThe Co

87、rporations Leverageable Capital may include large amounts of debt securities issued through the SBA,and all of the debentures will have fixedinterest rates.Until and unless the Corporation is able to invest substantially all of the proceeds from debentures at annualized interest or other rates of re

88、turn thatsubstantially exceed annualized interest rates that Rand SBIC must pay the SBA,the Corporations operating results may be adversely affected which may,in turn,depress the market price of the Corporations common stock.The Corporation is Dependent Upon Key Management Personnel for Future Succe

89、ssThe Corporation is dependent on the diligence and skill of its two senior officers,Allen F.Grum and Daniel P.Penberthy,for the selection,structuring,closing and monitoring of its investments.The future success of the Corporation depends to a significant extent on the continued service and coordina

90、tion of itssenior management team.The departure of either of its executive officers could materially adversely affect its ability to implement its business strategy.TheCorporation does not maintain key man life insurance on any of its officers or employees.The Corporation Operates in a Competitive M

91、arket for Investment OpportunitiesThe Corporation faces competition in its investing activities from many entities including other SBICs,private venture capital funds,investment affiliates oflarge companies,wealthy individuals and other domestic or foreign investors.The competition is not limited to

92、 entities that operate in the same geographical area asthe Corporation.As a regulated BDC,the Corporation is required to disclose quarterly and annually the name and business description of portfolio companies andthe value of its portfolio securities.Most of its competitors are not subject to this d

93、isclosure requirement.The Corporations obligation to disclose this informationcould hinder its ability to invest in certain portfolio companies.Additionally,other regulations,current and future,may make the Corporation less attractive as apotential investor to a given portfolio company than a privat

94、e venture capital fund.Fluctuations of Quarterly ResultsThe Corporations quarterly operating results could fluctuate significantly as a result of a number of factors.These factors include,among others,variationsin and the timing of the recognition of realized and unrealized gains or losses,the degre

95、e to which portfolio companies encounter competition in their markets,andgeneral economic conditions.As a result of these factors,results for any one quarter should not be relied upon as being indicative of performance in future quarters.Item 2.PropertiesRand maintains its offices at 2200 Rand Build

96、ing,Buffalo,New York 14203,where it leases approximately 1,300 square feet of office space pursuant to alease agreement that expires December 31,2010.Rand believes that its leased facilities are adequate to support its current staff and expected future needs.Item 3.Legal ProceedingsNoneItem 4.Submis

97、sion of Matters to a Vote of Security HoldersNone6Table of ContentsPart IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity SecuritiesRands common stock,par value$0.10 per share(“Common Stock”),is traded on the NASDAQ Small Cap Market(“NASDAQ”)und

98、er the symbol“RAND.”The following table sets forth,for the periods indicated,the range of high and low closing sales prices per share as reported by NASDAQ:2007 Quarter ending:High Low March 31st$5.04$3.26 June 30th$3.94$3.26 September 30th$4.62$3.35 December 31st$4.72$3.50 2006 Quarter ending:High

99、Low March 31st$1.43$1.17 June 30th$1.70$1.27 September 30th$1.90$1.31 December 31st$4.07$1.98 Rand did not sell any securities during the period covered by this report that were not registered under the Securities Act.Rand has not paid any cashdividends in its most recent two fiscal years,and it has

100、 no intention of paying cash dividends in the coming fiscal year.Profit Sharing and Stock Option PlansIn July 2001,the shareholders of the Corporation authorized the establishment of an Employee Stock Option Plan(the“Plan”).The Plan provides for anaward of options to purchase up to 200,000 common sh

101、ares to eligible employees.In 2002,the Corporation placed the Plan on inactive status as it developed a newprofit sharing plan for the Corporations employees in connection with the establishment of its SBIC subsidiary.As of December 31,2007,no stock options hadbeen awarded under the Plan.Because Sec

102、tion 57(n)of the 1940 Act prohibits maintenance of a profit sharing plan for the officers and employees of a BDC whereany option,warrant or right is outstanding under an executive compensation plan,no options will be granted under the Plan while any profit sharing plan is in effectwith respect to th

103、e Corporation.In 2002,the Corporation established a non-equity incentive Profit Sharing Plan for its executive officers in accordance with Section 57(n)of the InvestmentCompany Act of 1940(the“1940 Act”).The profit sharing plan provides for incentive compensation to the named executive officers base

104、d on a stated percentageof net realized capital gains and after reduction for realized and unrealized losses on the Rand SBIC investment portfolio.Any profit sharing paid can not exceed20%of the Corporations net income,as defined.There have been no accruals for,nor contributions to,the Profit Sharin

105、g Plan since the Plan inception in 2002.Shareholders of RecordOn March 14,2008 the Corporation had a total of 896 shareholders,which included 104 record holders of its common stock,and an estimated792 shareholders with shares beneficially owned in nominee name or under clearinghouse positions of bro

106、kerage firms or banks.Stock Repurchase PlanOn October 18,2001 the Board of Directors authorized the repurchase of up to 5%of the Corporations outstanding stock through purchases on the openmarket,which was extended through October 25,2008.During 2003 and 2002 the Corporation purchased 44,100 shares

107、for a total cost of$47,206,which wereplaced in the treasury.No additional shares have been repurchased since 2003.7Table of ContentsCompany Performance GraphThe following graph shows a five-year comparison of cumulative total shareholder returns for the Companys common stock,the NASDAQ Market Index,

108、and a Peer Group Index,assuming a base index of$100 at the end of 2002.The cumulative total return for each annual period within the five years presented ismeasured by dividing(1)the sum of(A)the cumulative amount of dividends for the measurement period,assuming dividend investment,and(B)the differe

109、ncebetween share prices at the end and at the beginning of the measurement period by(2)the share price at the beginning of the measurement period.COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNAMONG RAND CAPITAL CORP.,NASDAQ MARKET INDEX AND PEER GROUP INDEXASSUMES$100 INVESTED ON DEC.31,2002ASSUMES DI

110、VIDEND REINVESTEDFISCAL YEAR ENDING DEC.31,2007COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORECOMPANIES,PEER GROUPS,INDUSTRY INDEXES AND/OR BROAD MARKETSFISCAL YEAR ENDINGCOMPANY/INDEX/MARKET 12/31/2002 12/31/2003 12/31/2004 12/30/2005 12/29/2006 12/31/2007Rand Capital Corp.100.00 140.78 151.46

111、 130.10 339.81 349.32 Peer Group Index 100.00 162.64 178.10 179.81 244.29 195.52 NASDAQ Market Index 100.00 150.36 163.00 166.58 183.68 201.91 The Peer Group is made up of the following securities:Ameritrans Capital Corp(NasdaqCM:AMTC)Brantley Capital Corp(OTC:BBDC.pk)Capital Southwest Corp(NasdaqGM

112、:CSWC)Equus Total Return Inc(NYSE:EQS)Gladstone Investment CP(NasdaqGS:GAIN)8Table of ContentsHarris&Harris Group(NasdaqGM:TINY)Macc Private Equities Inc(NasdaqCM:MACC)MCG Capital Corporation(NasdaqGS:MCGC)MVC Capital Inc(NYSE:MVC)The Peer Group was selected in good faith by the Corporation and cont

113、ains nine business development companies or other funds believed by the Corporationto have similar investment objectives to those of the Corporation.The performance graph information provided above will not be deemed to be“soliciting material”or“filed”with the Securities and Exchange Commission orsu

114、bject to Regulations 14A or 14C,or to the liabilities of section 18 of the Securities Exchange Act,unless in the future the Corporation specifically requests thatthe information be treated as soliciting material or specifically incorporates it by reference into any filing under the Securities Act or

115、 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 the selected financial data setforth below in conjunction with Item 7,“Managements Discussion and Analysis of Fina

116、ncial Condition and Results of Operations,”and with our consolidatedfinancial statements and related notes appearing elsewhere in this report.Balance Sheet Data as of December 31:2007 2006 2005 2004 2003 Total assets$32,722,151$29,463,944$16,063,605$12,743,109$9,385,137 Total liabilities$12,904,328$

117、12,681,539$7,447,671$3,716,055$146,649 Net assets$19,817,823$16,782,405$8,615,934$9,027,054$9,238,488 Net asset value per outstanding share$3.47$2.93$1.51$1.58$1.62 Common stock shares outstanding 5,718,934 5,718,934 5,718,934 5,718,934 5,718,934 Operating Data for the year ended December 31:2007 20

118、06 2005 2004 2003 Investment income$2,302,870$1,326,962$736,573$757,704$449,858 Total expenses$1,650,947$1,519,184$1,265,846$900,812$942,799 Net investment gain(loss)$425,406$(1,264,802)$(175,179)$(112,384)$(346,043)Net realized(loss)gain on sales and dispositions ofinvestments$(68,748)$3,456,441$(3

119、82,353)$26,727$87,841 Net increase(decrease)in unrealized appreciation$2,362,507$5,974,832$146,412$(125,777)$(86,441)Net increase(decrease)in net assets from operations$2,719,165$8,166,471$(411,120)$(211,434)$(344,643)9Table of ContentsItem 7.Managements Discussion and Analysis of Financial Conditio

120、n and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements andrelated notes included elsewhere in this report.Forward Looking StatementsStatements included in this Managements Disc

121、ussion and Analysis of Financial Condition and Results of Operations and elsewhere in this documentthat do not relate to present or historical conditions are“forward-looking statements”within the meaning of that term in Section 27A of the Securities Act of1933,and in Section 21F of the Securities Ex

122、change Act of 1934.Additional oral or written forward-looking statements may be made by the Corporation fromtime to time,and those statements may be included in documents that are filed with the Securities and Exchange Commission.Such forward-looking statementsinvolve risks and uncertainties that co

123、uld cause results or outcomes to differ materially from those expressed in the forward-looking statements.Forward-looking statements may include,without limitation,statements relating to the Corporations plans,strategies,objectives,expectations and intentions and areintended to be made pursuant to t

124、he safe harbor provisions of the Private Securities Litigation Reform Act of 1995.Words such as“believes,”“forecasts,”“intends,”“possible,”“expects,”“estimates,”“anticipates,”or“plans”and similar expressions are intended to identify forward-looking statements.Among theimportant factors on which such

125、 statements are based are assumptions concerning the state of the national economy and the local markets in which theCorporations portfolio companies operate,the state of the securities markets in which the securities of the Corporations portfolio company trade or could betraded,liquidity within the

126、 national financial markets,and inflation.Forward-looking statements are also subject to the risks and uncertainties described underthe caption“Risk Factors”contained in Part I,Item 1A,which is incorporated herein by reference.There may be other factors that we have not identified that affect the li

127、kelihood that the forward-looking statements may prove to be accurate.Further,any forward-looking statement speaks only as of the date it is made and,except as required by law,we undertake no obligation to update any forward-lookingstatement to reflect events or circumstances after the date on which

128、 it is made or to reflect the occurrence of anticipated or unanticipated events orcircumstances.New factors emerge from time to time that may cause our business not to develop as we expect,and we cannot predict all of them.OverviewThe following discussion includes Rand Capital Corporation(“Rand”),Ra

129、nd Capital SBIC,L.P.,(“Rand SBIC”),and Rand Capital Management,LLC(“Rand Management”),(collectively the“Corporation”),its financial position and results of operations.Rand is incorporated under the laws of New York and is regulated under the 1940 Act as a business development company(“BDC”).In addit

130、ion,a wholly-owned subsidiary,Rand SBIC is regulated as a Small Business Investment Company(“SBIC”)by the Small Business Administration(“SBA”).The Corporationanticipates that most,if not all,of its investments in the next year will be originated through the SBIC subsidiary.The Corporations primary b

131、usiness is making investments in companies,usually in the form of subordinated debt,membership interests,or preferred andcommon stock.The investment focus is usually on small and medium-sized companies that meet certain criteria,including:1)a qualified and experienced management team2)a new or uniqu

132、e product or service with a sustainable competitive advantage3)a potential for growth in revenue and cash flow4)a potential to realize appreciation in an equity position,if any.The Corporation makes investments in portfolio companies that typically range from$500,000 to$1,000,000 and it invests eith

133、er directly in the equity of acompany through equity shares or in a debt instrument.The debt10Table of Contentsinstruments generally have a maturity of not more than five years and usually have detachable equity warrants.Interest is either paid currently or deferred.The management team of the Corpor

134、ation identifies investment opportunities.Throughout the Corporations history it has established a large network ofinvestment referral relationships.Investment proposals may,however,come to the Corporation from many other sources,and may include unsolicited proposalsfrom the public and referrals fro

135、m banks,lawyers,accountants and other members of the financial community.The Corporation believes that its reputation in thecommunity and experience provide a competitive advantage in originating qualified new investments.In a typical private financing,the management team of the Corporation will rev

136、iew,analyze,and confirm,through due diligence,the business plan andoperations of the potential portfolio company.Additionally,the Corporation will become familiar with the portfolio companys industry and competitive landscapeand may conduct additional reference checks with customers and suppliers of

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

138、or maintain the Corporationsposition in a promising portfolio company.The Corporation may also be called upon to provide an additional investment to a portfolio company in order for thatcompany to fully implement its business plans,to develop a new line of business or to recover from unexpected busi

139、ness problems.Follow-on investments in aportfolio company are evaluated individually and may be subject to regulatory restrictions.The Corporation will exit its investments generally through the maturation of the debt security or when a liquidity event takes place,such as the sale,recapitalization,o

140、r initial public offering of a portfolio company.The method and timing of the disposition of the Corporations portfolio investments can be criticalto the realization of maximum total return.The Corporation generally expects to dispose of its equity securities through the private sales of securities

141、to otherinvestors or through an outright sale of the company or a merger.The Corporation anticipates its debentures will be repaid with interest and hopes to realize furtherappreciation from the warrants or other equity type instruments it receives in connection with the origination of the debenture

142、.The Corporation anticipatesgenerating cash for new investments and operating expenses through SBA leverage draw downs,and interest and principal payments from its portfolio concerns.2007 Highlights and OutlookThe Corporations net asset value increased$.54 as of December 31,2007,closing the year at$

143、3.47 per share.The net asset value increased 18%from$2.93at December 31,2006.At December 31,2007,the Corporations total investment portfolio was valued at$26.5 million,which exceeds its cost basis of$13.4 million,reflecting$13.1 million in net unrealized appreciation.The Corporations valuation polic

144、y provides that valuations may be adjusted for improved financial conditions of the portfolio investments.In accordancewith this policy,during the fourth quarter of 2007,the Corporation recognized unrealized appreciation of$3.5 million on its investment in Gemcor II,LLC(Gemcor).During the year,it al

145、so recognized$119,000 in unrealized appreciation in Photonics Products Group,Inc.(Photonics)and($332,000)in unrealizeddepreciation in Topps Meat Company LLC(Topps).In addition,during 2007 the Corporation recognized a($68,748)net realized loss on the sale/disposition of five portfolio securities,liqu

146、idating its position inAllworx for a realized gain of$140,048,Ramsco for a realized gain of$555,000,Topps for a realized loss of$(595,000),Takeform,Inc.for a realized loss of$(130,000)and USTec for a realized loss of$(39,236).The growth in net assets,combined with the net realized loss recognized in

147、 2007,resulted in the Corporations stock trading at a premium to net asset valuefor a majority of the year.The year closed with the stock trading at$3.60,which represented a premium over net asset value.11Table of ContentsDuring 2007 the Corporation also recognized$2,302,870 in total investment inco

148、me,an increase of$975,908 from the$1,326,962 of investment income in2006.The 73.5%increase is attributable to growth in dividends and interest from portfolio companies.Dividend and other investment income grew primarily because of higher Limited Liability Corporation(LLC)distributions from companies

149、 in the portfoliothat have improving operational trends,in particular Gemcor II,LLC(Gemcor)and Carolina Skiff LLC(Carolina Skiff).Gemcor designs and sells automaticriveting machines to manufacturers of airframes,missile bodies,space system accessories,and other aerospace equipment.Carolina Skiff is

150、a leading manufacturerof affordable fishing and recreational boats.LLC dividends can fluctuate based on portfolio companies profitability and the timing of distributions.Also during 2007 certain portfolio companies repaid some or all of their outstanding debenture instruments,including:Adampluseve,A

151、llworx,APF Group,Inc.,Gemcor,New Monarch Machine Tool,Inc.,and UsTec.These repayments may impact future earnings by reducing interest income in 2008 and future periods.The cash balance at December 31,2007 was$4.4 million which was$97,000 higher than at the end of 2006.In addition,the Corporation has

152、$1.9 million ofoutstanding leverage available from the Small Business Administration(SBA)for future investment.The available cash will provide sufficient liquidity to fund theCorporations deal flow in 2008.While the business of many portfolio companies is strengthening,in terms of employee growth,in

153、crease in revenue,and strengthening EBITDA or netincome position,it remains difficult to forecast when future exits will happen,or if the portfolio companies will have sufficient capital to remain viable while theirrespective markets mature.Critical Accounting PoliciesThe Corporation prepares its fi

154、nancial statements in accordance with United States generally accepted accounting principles(GAAP),which requires the useof estimates and assumptions that affect the reported amounts of assets and liabilities.For a summary of all significant accounting policies,including criticalaccounting policies,

155、see Note 1 to the consolidated financial statements in Item 8.The increasing complexity of the business environment and applicable authoritative accounting guidance require the Corporation to closely monitor itsaccounting policies and procedures.The Corporation has identified two critical accounting

156、 policies that require significant judgment.The following summary ofcritical accounting policies is intended to enhance your ability to assess the Corporations financial condition and results of operations and the potential volatility dueto changes in estimates.Valuation of InvestmentsThe most signi

157、ficant estimate inherent in the preparation of the Corporations consolidated financial statements is the valuation of its investments and therelated unrealized appreciation or depreciation.The Corporation has adopted the SBAs valuation guidelines for SBICs,which describe the policies and proceduresu

158、sed in valuing investments.Investments are valued in accordance with the Corporations established valuation policy and are stated at fair value as determined in good faith by themanagement of the Corporation and submitted to the Board of Directors for approval.There is no single standard for determi

159、ning fair value in good faith.As aresult,determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistentlyapplied valuation process for investments.The Corporation analyzes and values each individual investmen

160、t on a quarterly basis,and records unrealized depreciationfor an investment that it believes has become impaired,including where collection of a loan or realization of the recorded value of an equity security is doubtful.Conversely,the Corporation will record unrealized appreciation if it believes t

161、hat the underlying portfolio company has appreciated in value and,therefore,itsequity 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 theinvestments existed and these differences could be material if our a

162、ssumptions and judgments differ from results of actual liquidation events.In the valuation process,the Corporation uses financial information received monthly,quarterly,and annually from its portfolio companies,which includesboth audited and unaudited financial statements,annual projections and budg

163、ets12Table of Contentsprepared by the portfolio company and other financial and non-financial business information supplied by the portfolio companies management.This informationis used to determine financial condition,performance,and valuation of the portfolio investments.The valuation may be reduc

164、ed if a companys performance andpotential have significantly deteriorated.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 ent

165、ered into by the portfoliocompany that the Corporation utilizes to form a basis for its underlying value.Many times the terms of these equity transactions may not be identical to the equitytransactions between the portfolio company and the Corporation,and the impact of the discrepancy in transaction

166、 terms on the market value of the portfoliocompany may be difficult or impossible to quantify.Any changes in estimated fair value are recorded in our statement of operations as“Net increase in unrealized appreciation.”Revenue Recognition(Interest Income)Interest income generally is recognized on the

167、 accrual basis except where the investment is in default or otherwise presumed to be in doubt.In such cases,interest is recognized at the time of receipt.A reserve for possible losses on interest receivable is maintained when appropriate.Certain investments of theCorporation are structured to provid

168、e a deferred interest period when interest is not currently due.Rand SBICs interest accrual is also regulated by the SBAs“Accounting Standards and Financial Reporting Requirements for Small Business InvestmentCompanies”.Under these rules interest income cannot be recognized if collection is doubtful

169、,and a 100%reserve must be established.The collection of interest ispresumed to be in doubt when there is substantial doubt about a portfolio companys ability to continue as a going concern or the loan is in default more than120 days.Management also utilizes other qualitative and quantitative measur

170、es to determine the value of a portfolio investment and the collectability of any accruedinterest.Recent Accounting PronouncementsIn June 2006,The FASB issued Interpretation No.48“Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No.109”(“FIN 48”).This Interpretation cla

171、rifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASBStatement No.109,“Accounting for Income Taxes”.FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognitionand measurement of

172、a tax position taken or expected to be taken in a tax return.This Interpretation also provides guidance on derecognition,classification,interestand penalties,accounting in interim periods,disclosure,and transition.The Company adopted the provisions of FIN 48 in the first quarter of fiscal 2007.SeeFo

173、otnote 1 to the Consolidated Financial Statements for additional information regarding the impact of adopting the provisions of FIN 48 and the relateddisclosures.In September 2006,the FASB issued SFAS No.157(“SFAS 157”),“Fair Value Measurements,”which defines fair value,establishes guidelines formea

174、suring fair value and expands disclosures regarding fair value measurements.SFAS 157 does not require any new fair value measurements but rather eliminatesinconsistencies in guidance found in various prior accounting pronouncements.SFAS 157 is effective for fiscal years beginning after November 15,2

175、007.However,on December 14,2007,the FASB issued proposed FSP FAS 157-b which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancialliabilities,except those that are recognized or disclosed at fair value in the financial statements on a recurring basis(at least annual

176、ly).This proposed FSP partiallydefers the effective date of Statement 157 to fiscal years beginning after November 15,2008,and interim periods within those fiscal years for items within the scopeof this FSP.The Corporation will be required to adopt the enhanced disclosure provisions of SFAS 157 in t

177、he first quarter of 2008 since its investments arerecognized at fair value in its financial statements.The Corporation is in the process of evaluating SFAS 157.In February 2007,the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.159,The Fair Value Option fo

178、rFinancial Assets and Financial Liabilities(“SFAS No.159”).SFAS No.159 permits companies to elect to follow fair value accounting for certain financial assetsand liabilities in an effort to mitigate volatility in earnings without having to apply complex hedge accounting provisions.The13Table of Cont

179、entsstandard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributesfor similar types of assets and liabilities.SFAS No.159 is effective for fiscal years beginning after November 15,2007.The Corporation

180、 is currently evaluating theimpact on its financial position,results of operations and cash flows,if it elects to adopt the provisions of SFAS No.159.Financial ConditionOverview:12/31/07 12/31/06 Increase%Increase Total assets$32,722,151$29,463,944$3,258,207 11.1%Total liabilities 12,904,328 12,681,

181、539 222,789 1.8%Net assets$19,817,823$16,782,405$3,035,418 18.1%The Corporations financial condition is dependent on the success of its portfolio holdings.It has invested a substantial portion of its assets in small tomedium-sized companies.The following summarizes the Corporations investment portfo

182、lio at the year-ends indicated.(Decrease)%(Decrease)12/31/07 12/31/06 Increase Increase Investments,at cost$13,390,644$14,033,789$(643,145)(4.6)%Unrealized appreciation,net 13,137,846 9,616,025 3,521,821 36.6%Investments at fair value$26,528,490$23,649,814$2,878,676 12.2%The change in investments,at

183、 cost,is comprised of the following:New Investments:Amount Golden Goal LLC$637,414 Allworx Corp.(Allworx)500,000 Synacor 350,001 Niagara Dispensing Technologies,Inc.(Niagara Dispensing)325,010 RAMSCO(Ramsco)300,000 Rocket Broadband Networks,Inc.(Rocket)280,000 Associates Interactive 50,000 New Monar

184、ch Machine Tool,Inc.(Monarch)22,841 Total of investments made during the year ended December 31,2007$2,465,266 Other Changes to investments:Adampluseve,Inc.(Adampluseve)warrant accretion 62,333 Niagara Dispensing interest conversion 40,000 Photonics interest conversion 10,000 Total of new investment

185、s and changes to investments during the year ended December 31,2007$2,577,599 14Table of ContentsSales/Investment Repayments Amount Ramsco (819,428)Topps Meat Company LLC(Topps)(595,000)Adampluseve (561,000)Allworx (500,000)UStec,Inc.(UStec)(350,000)Monarch (172,516)Takeform (135,000)Gemcor II,LLC(G

186、emcor)(57,482)APF Group,Inc.(APF)(19,984)Contract Staffing (10,334)Total of sales and investment repayments during the year ended December 31,2007 (3,220,744)Total change in investment balance,at cost,during the year ended December 31,2007$(643,145)The Corporation did not draw down on any of the SBA

187、 leverage during the year ended December 31,2007 and the total owed to the SBA for LeveragePayable at December 31,2007 was$8,100,000.These debentures bear a fixed interest rate and an annual fee,averaging 5.9%,payable semi-annually.Thedebenture principal is repayable in full 10 years from issuance a

188、nd begins in 2014.Net asset value per share(NAV)was$3.47 per share at December 31,2007 versus$2.93 per share at December 31,2006.The Corporations total investments at fair value,whose fair value have been estimated by the Board of Directors,approximated 134%of net assets atDecember 31,2007 and 141%o

189、f net assets at December 31,2006.Cash and cash equivalents approximated 22%of net assets at December 31,2007 compared to 26%at December 31,2006.The effect of investment income,realized losses and the change in unrealized appreciation on investments resulted in a net change in the net deferred taxlia

190、bility from$3,808,000 at December 31,2006 to$3,955,000 at December 31,2007.Results of OperationsInvestment IncomeThe Corporations investment objective is to achieve long-term capital appreciation on its equity investments while maintaining a current cash flow from itsdebenture and pass through equit

191、y instruments.Therefore,the Corporation will invest in a mixture of debenture and equity instruments,which will provide a currentreturn on a portion of the investment portfolio.The equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term

192、 and may not necessarily generate current income in the form of dividends or interest.In addition,the Corporation earns interest income from investing its idlefunds in money market instruments held at high grade financial institutions.15Table of ContentsComparison of the years ended December 31,2007

193、 and 2006 December 31,December 31,(Decrease)%(Decrease)2007 2006 Increase Increase Interest from portfolio companies$618,430$757,824$(139,394)(18.4)%Interest from other investments 173,664 53,104 120,560 227.0%Dividend and other investment income 1,469,864 432,296 1,037,568 240.0%Other income 40,912

194、 83,738 (42,826)(51.1)%Total investment income$2,302,870$1,326,962$975,908 73.5%Interest from portfolio companies The portfolio interest income decrease can be attributed to the fact that five debenture instruments ConcentrixCorporation(Concentrix),Innov-X Systems,Inc.(Innov-X),Ramsco,UStec and Syna

195、cor Inc(Synacor)that contributed to portfolio interest income for the yearended December 31,2006 were either repaid or converted into equity instruments during the last six months of 2006 and throughout 2007,thereby reducingportfolio interest income earned during the year ended December 31,2007.This

196、 decrease is offset by the recognition of the Adampluseve Original Issue Discount(OID)income.This portfolio company,Adampluseve,paid off itsdebenture instrument early and therefore the remaining$62,333 in unamortized OID was accreted into income during the year ended December 31,2007.OID iscreated w

197、hen the Corporation invests in a debenture instrument that has a warrant attached to the instrument.This requires an allocation of a portion of theinvestment cost to the warrant and reduces the debt instrument by an equal amount in the form of a note discount or OID.The note is then reported net of

198、thediscount and the discount is accreted into income over the life of the debenture instrument.After reviewing the portfolio companies performance and the circumstances surrounding the investments,the Corporation has ceased accruing interestincome on the following investment instruments:Interest Inv

199、estment Year that Interest Company Rate Cost Accrual Ceased G-Tec 8%400,000 2004 UStec 5%100,000 2006 WineIsI 10%801,918 2005 Interest from other investments The increase in interest income is primarily due to higher cash balances and higher yields on these cash balances.Thehigher cash balances are

200、a result of portfolio investment repayments and sales of portfolio companies equity instruments.Dividend and other investment income Dividend income is comprised of distributions from Limited Liability Companies(LLCs)in which the Corporationhas invested.The Corporations investment agreements with ce

201、rtain LLC companies require the entities to distribute funds to the Corporation for payment ofincome taxes on its allocable share of the entities profits.These dividends will fluctuate based upon the profitability of the entities and the timing of thedistributions.Dividend income for the year ended

202、December 31,2007 consisted of distributions from Gemcor for$1,372,407,Carolina Skiff LLC(Carolina Skiff)for$40,464,Somerset Gas Transmission Company(Somerset)for$36,788,Topps for$19,524,and Vanguard Modular Building Systems(Vanguard)for$681.Dividend income for the year ended December 31,2006 consist

203、ed of distributions from Gemcor for$375,372,Topps for$37,334,Carolina Skiff for$18,416and Vanguard for$1,174.Other income Other income consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successfulclosing of Rand SBIC financing.The SBA r

204、egulations limit the amount of fees that can be charged to a portfolio company,and the Corporation typically charges1%to 3%to the portfolio concerns.These fees are amortized ratably over the life of the instrument associated with the fees.The unamortized fees are carried on thebalance sheet under“De

205、ferred revenue”.In addition,other income includes fees charged by the Corporation to its portfolio companies for attendance at the portfoliocompanies board meetings.16Table of ContentsOther income decreased due to the fact that the Corporation only charged two portfolio companies closing fees in 200

206、6 and no closing fees were charged in2007.The annualized financing fee income based on the existing portfolio will be approximately$8,500 annually.In addition the board attendance incomeamounted to$13,000 for the year ended December 31,2007 and$9,000 for year ended December 31,2006.Comparison of the

207、 years ended December 31,2006 and 2005 December 31,December 31,2006 2005 Increase%Increase Interest from portfolio companies$757,824$593,125$164,699 27.8%Interest from other investments 53,104 3,601 49,503 1374.7%Dividend and other investment income 432,296 94,930 337,366 355.4%Other income 83,738 4

208、4,917 38,821 86.4%Total investment income$1,326,962$736,573$590,389 80.2%Interest from portfolio companies The increase in portfolio interest income in the year ended December 31,2006 was attributable to the fact that there wasan increase in the number of investments that provided the Corporation wi

209、th current interest income in 2006.The blended rate of the debenture investmentsoriginated out of the Corporation during 2006 and 2005 was approximately 10.7%.Interest from other investments The increase in interest income from December 31,2005 to December 31,2006 was primarily due to higher cash ba

210、lancesand higher yields on these cash balances.The higher cash balances were a result of portfolio investment repayments and sales of portfolio companies equityinstruments and draw downs on the SBA leverage.Dividend and other investment income Dividend income for the year ended December 31,2006 cons

211、isted of distributions from Gemcor for$375,372,Topps for$37,334,Carolina Skiff for$18,416 and Vanguard for$1,174.Dividend income for the year ended December 31,2005 consisted of distributions from Gemcor for$51,500,Topps for$28,174,Carolina Skiff for$14,082and Vanguard for$1,174.Other income The inc

212、rease in other income from December 31,2005 to December 31,2006 was due to the fact that two of the Corporations portfoliocompanies,Concentrix and Innov-X,paid off their debenture instruments early and therefore the remaining unamortized closing fees of$12,000 from Concentrixand$6,800 from Innov-X w

213、ere brought into income.In addition,the Corporation charged Concentrix an$18,000 prepayment penalty fee that was included in otherincome during 2006.The board attendance income amounted to$9,000 for the year ended December 31,2006 and$7,000 for year ended December 31,2005.Operating ExpensesCompariso

214、n of the years ended December 31,2007 and 2006 December 31,December 31,2007 2006 Increase%Increase Total expenses$1,650,947$1,519,184$131,763 9.0%Operating expenses predominately consist of interest expense on SBA obligations,employee compensation and benefits,directors fees,shareholder relatedcosts

215、,office expenses,professional fees,and expenses related to identifying and reviewing investment opportunities.The increase in operating expenses during the year ended December 31,2007 can be primarily attributed to the 83%or$96,754 increase in professional fees.Some of the increase in this expense c

216、an be attributed to the escalating legal,audit and tax costs due to the increasingly more complex regulatory environment inwhich the Corporation operates.In addition,in order to comply with the SEC rules regarding the Corporations operating structure the Corporation has had to incurlegal fees associ

217、ated with the proposed corporate reorganization of the entity.The SBA interest expense continued to increase and was$503,062 and$472,526 for the years ended December 31,2007 and 2006,respectively.TheCorporation has borrowed$8,100,000 from the SBA as of17Table of ContentsDecember 31,2007 at an averag

218、e borrowing rate,including surcharges,of approximately 5.9%.Interest costs may continue to increase in 2008 and beyond as theCorporation may continue to draw down SBA leverage up to the maximum approved leverage of$10 million.This interest is paid on a semi-annual basis.Comparison of the years ended

219、 December 31,2006 and 2005 December 31,December 31,2006 2005 Increase%Increase Total expenses$1,519,184$1,265,846$253,338 20.0%The increase in operating expenses during the year ended December 31,2006 can be primarily attributed to the 70.4%or$195,239 increase in SBA interestexpense.The SBA interest

220、 expense was$472,526 for the year ended December 31,2006 and$277,287 for the year ended December 31,2005.The Corporation hadborrowed$8,100,000 from the SBA as of December 31,2006.The SBA interest expense is paid on a semi-annual basis.In addition,salary expense grew 20.4%or$81,727 from$400,340 for t

221、he year ended December 31,2005 to$482,067 for the year ended December 31,2006.This increase is due to the officer pay increases and the fact that the executive officer bonuses increased by$50,000 in 2006.Professional fees were$116,068 and$96,917 for the years ended December 31,2006 and 2005,respecti

222、vely.This represented an increase of 20%which can be attributed to the escalating legal,auditand tax costs due to the increasingly more complex regulatory environment in which the Corporation operates.Net Realized Gains and Losses on InvestmentsComparison of the years ended December 31,2007 and 2006

223、 December 31,December 31,2007 2006 Decrease Net Realized(Loss)Gain$(68,748)$3,456,441$(3,525,189)During the year ended December 31,2007,the Corporation recognized a net realized loss of($68,748),comprised of a gain on the sale of Ramsco warrantsfor$555,000,a gain of$140,048 on its investment in Allw

224、orx,a loss on the Topps investment of($595,000),a loss of($130,000)on Takeform,a loss on UStec of($39,236)and a minor gain of$440 on a public security.In the second quarter of 2007 Ramsco completed a refinancing of their commercial debt.As part of this restructuring they and were able to pay off the

225、outstanding debenture instrument owed to the Corporation and repurchase half of the Corporations outstanding warrants.The Corporation recognized a$555,000gain on the transaction.The Corporation made an investment in the capital stock of Allworx in the second quarter of 2007 and the portfolio company

226、 merged with PAETEC Holding,Inc.in the fourth quarter of 2007.In conjunction with the merger,Allworx repaid their debenture instrument and purchased the outstanding equity held by theCorporation for$640,048,causing the Corporation to recognize a$140,048 realized gain.The Corporation recognized a rea

227、lized loss of$595,000 on its investment in Topps during the year ended December 31,2007 when the plant that produces itsfrozen meat products was forced to recall its frozen hamburgers products.Topps announced on October 5,2007 that because of the economic impact of the recall itclosed its Elizabeth,

228、NJ plant and filed for bankruptcy in November of 2007.The Corporation reclassed its loss in Takeform,Inc.of$130,000 from unrealized to realized in the fourth quarter of 2007 following the repayment of itsobligation.The portfolio company had agreed to pay$20,000 of its$150,000 debenture instruments a

229、nd it satisfied this obligation to the Corporation.UStec satisfied its$350,000 debenture instrument obligation by a payment in the amount of$310,764 which gave rise to a($39,263)realized lossDuring the year ended December 31,2006,the Corporation sold a portion of its shares in Innov-X and recognized

230、 a realized gain of$2,280,682 on the sale.A portion of the proceeds from the sale of Innov-X is an escrow18Table of Contentsreceivable in the amount of$711,249 which is expected to be collected in early 2008.This escrow receivable is included in the other asset line on the financialstatements.Furthe

231、rmore,the Corporation sold its remaining 677,981 shares of Minrad during 2006 and recognized a gain of$1,256,759.The average sales price ofMinrad was$3.26/share and the basis of the stock was$1.36/share.The Corporation incurred$33,899 in broker transaction fees that were netted against the realizedg

232、ain.In addition,the Corporation sold its interest in Vanguard during 2006 and recognized an($81,000)loss on the disposition.Comparison of the years ended December 31,2006 and 2005 December 31,December 31,2006 2005 Increase%IncreaseNet Realized Gain(Loss)$3,456,441$(382,353)$3,838,794 1,004.0%As disc

233、ussed above,during 2006 the Corporation recognized a realized gain of$2,280,682 on a portion of its shares of Innov-X stock,recognized a gain of$1,256,759 on the sale of its remaining Minrad stock,and recognized an($81,000)loss on its disposition of its interest in Vanguard.During the year endedDece

234、mber 31,2005,the Corporation recognized a realized loss of($382,353)on its investment in DLisi Food Systems,Inc.(DLisi).Net Change in Unrealized Appreciation of InvestmentsFor the years ended December 31,2007 and 2006 December 31,December 31,2007 2006 Decrease%DecreaseNet Change in Unrealized Apprec

235、iation$3,521,821$9,958,053$(6,436,232)(64.6)%The Corporation recorded a net increase in unrealized appreciation on investments of$3,521,821 during the year ended December 31,2007,as compared toan increase of$9,958,053 during the year ended December 31,2006.The increase in unrealized appreciation on

236、investments of$3,521,821 is due to the following valuation changes made by the Corporation:December 31,2007 Increase Gemcor valuation$3,500,000 Reclass Takeform to a realized loss 130,000 Increase Photonics valuation 119,480 Adampluseve warrants 65,341 Reclass USTec to realized loss 39,000 Reclass T

237、opps to realized loss (332,000)Total Change in net Unrealized Appreciation during the year endedDecember 31,2007$3,521,821 The Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial condition of the portfolio company since theCorporations made its firs

238、t investment.Per the Corporations valuation policy,a portfolio company can be valued based on a conservative financial measure if theportfolio company has been self-financing and has had positive cash flow from operations for at least the past two fiscal years.The Topps investment was valued to zero

239、 during the third quarter of 2007 when the plant that produces its frozen meat products was forced to recall itsfrozen hamburgers products.Topps announced on October 5,2007 that because of the economic impact of the recall it closed its Elizabeth,NJ plant andsubsequently the company filed for bankru

240、ptcy.The Corporation,therefore,realized a total loss on the investment in the fourth quarter of 2007 and removed the$332,000 of unrealized appreciation on Topps that had been previously recorded.The Corporation recognized appreciation on its remaining equity investment in Adampluseve which participa

241、ted in a round of financing in January 2007 thatenabled it to pay off the Corporations debenture instrument prior19Table of Contentsto the maturity date.The Corporation still holds warrants in Adampluseve,the value of which was adjusted based on the pricing of this recent round of financing.USTec an

242、d Takeform satisfied their obligations to the Corporation during 2007 and therefore any unrealized appreciation(depreciation)was reclassified to arealized gain(loss).Photonics is a publicly traded stock(NASDAQ symbol:PHPG.OB)and is marked to market at the end of the year.Synacor,Inc.filed an S-1 reg

243、istration statement on August 2,2007 with the SEC and also filed two amendments to the S-1 registration statement in October2007.An S-1 is a registration document that a company files with the SEC regarding the proposed sale of its securities to the public.No valuation change occurredin the year end

244、ed December 31,2007 with respect to the Synacor investment.All of these value adjustments were done in accordance with the Corporations established valuation policy.For the years ended December 31,2006 and 2005 December 31,December 31,2006 2005 Increase%IncreaseNet Change in Unrealized Appreciation$

245、9,958,053$244,020$9,714,033 3,980.8%The Corporation recorded a net increase in unrealized appreciation on investments of$9,958,053 during the year ended December 31,2006,as compared toan increase of$244,020 during the year ended December 31,2005.The increase in unrealized appreciation on investments

246、 of$9,958,053 was due to the followingvaluation changes made by the Corporation:December 31,2006 Increase Innov-X valuation$7,761,700 Increase Synacor valuation 2,809,849 Increase Carolina Skiff valuation 189,000 Vanguard Sale 135,000 Decrease G-Tec valuation (102,000)Decrease USTec valuation (164,0

247、00)Remove Minrad unrealized appreciation (199,578)Decrease Wineisit valuation (471,918)Total Change in net Unrealized Appreciation during the year ended December 31,2006$9,958,053 In accordance with its valuation policy,the Corporation increased the value of its holdings in Innov-X and Synacor based

248、 on significant equity financings athigher valuations by new non-strategic outside investors for each of these portfolio companies.Additionally the Corporation recognized appreciation on its equity investment in Carolina Skiff based on the improving financial condition of this portfoliocompany since

249、 the Corporations first investments.Per the Corporations valuation policy,a portfolio company can be valued based on a very conservative financialmeasure if the portfolio company has been self-financing and has had positive cash flow from operations for at least the past two fiscal years.The Corpora

250、tion liquidated its holdings in Minrad and Vanguard during 2006 and therefore any unrealized appreciation(depreciation)was reclassified to arealized gain(loss).The WineIsIt and G-Tec investments were revalued during the year ended December 31,2006 after a review by the Corporations management whichi

251、dentified that the business of each of these portfolio companies had deteriorated since the time of the original funding,as compared to their original plan.Theportfolio companies remain in operation and are developing new business strategies.20Table of ContentsThe USTec valuation was based on a subs

252、equent event that occurred in January 2007 where the portfolio company was sold and the Corporation recognized aloss.Photonics is a public stock(NASDAQ symbol:PHPG.OB)and was marked to market at the end of the year.All of these value adjustments were done in accordance with the Corporations establis

253、hed valuation policy.Net Increase(Decrease)in Net Assets from OperationsThe Corporation accounts for its operations under U.S.generally accepted accounting principles for investment companies.The principal measure of itsfinancial performance is“net increase(decrease)in net assets from operations”on

254、its consolidated statements of operations.During the year ended December 31,2007,the net increase was$2,719,165,as compared to a net increase in net assets from operations of$8,166,471 in 2006 and a net decrease of($411,120)in 2005.The net increase in net assets from operations for the year ended De

255、cember 31,2007 can be attributed to the investment gain before income taxes of$651,923 and the net unrealized gain on investments of$2,362,507.In addition,the Corporation recognized a$316,253 increase in net assets attributed to thecumulative effect adjustment upon adopting the provisions of FIN 48“

256、Accounting for Uncertainty in Income Taxes”.The net increase for the year endedDecember 31,2006 is due to the$9,431,273 net realized and unrealized gain on investments.The net decrease in net assets from operations in 2005 can primarily beattributed to the net investment loss of($175,179),a realized

257、 loss on investments of($382,353)and an unrealized gain on investments after tax of 146,412.Liquidity and Capital ResourcesThe Corporations principal objective is to achieve capital appreciation.Therefore,a significant portion of the investment portfolio is structured to maximizethe potential for ca

258、pital appreciation and certain of the Corporations portfolio investments may be structured to provide little or no current yield in the form ofdividends or interest payments.As of December 31,2007,the Corporations total liquidity,consisting of cash and cash equivalents,was$4,396,595.Net cash used in

259、 operating activities has averaged approximately$435,000 over the last three years and management anticipates cash will continue to beutilized at similar levels.The cash flow may fluctuate based on possible expenses associated with compliance with new regulations.The Corporation realized approximate

260、ly$550,000 in net cash flow from investing activities in fiscal 2007.The Corporation experienced net cash flow frominvesting activities of approximately$2.5 million for fiscal year 2006 and used approximately($2.4)million of cash for investing activities in fiscal year 2005.TheCorporation will gener

261、ally use cash in investing activities as it builds its portfolio utilizing its available SBA financing and proceeds from prior liquidations ofportfolio investments.The Corporation anticipates that it will continue to make new investments and may experience a net use of cash over the next two years.I

262、naddition,significant liquidating events within the Corporations investment portfolio are difficult to determine with any certainty.As of December 31,2007 the Corporation had paid$100,000 to the SBA to reserve its approved$10,000,000 leverage.The leverage commitment expires onSeptember 30,2008.The C

263、orporation has drawn down$8,100,000 of this leverage as of December 31,2007.Management expects that it will not be necessary todraw down the SBA leverage prior to the leverage expiration in September of 2008.Management believes that the cash and cash equivalents at December 31,2007,coupled with the

264、anticipated interest and dividend payments on its portfolioinvestments,will provide the Corporation with the liquidity necessary to fund new investments and operating activities over the next twelve months.21Table of ContentsThe following table summarizes the cash to be received over the next five y

265、ears from portfolio companies based on contractual obligations as ofDecember 31,2007.These payments represent scheduled principal and interest payments that are contained in the investment documents of each portfoliocompany.Cash Receipts due by year 2012 and 2008 2009 2010 2011 beyondScheduled Cash

266、Receipts from Portfolio Companies$1,300,000$530,000$3,040,000$550,000$0 The preceding table only includes debenture instruments and does not include any equity investments which may provide additional proceeds upon exit ofthese securities.Disclosure of Contractual ObligationsThe following table show

267、s the Corporations contractual obligations at December 31,2007.The Corporation does not have any capital lease obligations orother long-term liabilities reflected on its balance sheet.Payments due by period Less than 1-3 3-5 More Total 1 Year Years Years than 5 yrs SBA Debentures$8,100,000$0$0$0$8,1

268、00,000 Operating Lease Obligations(Rent of office space)$48,240$15,720$32,520$0$0 Total$8,148,240$15,720$32,520$0$8,100,000 Item 7A.Quantitative and Qualitative Disclosures about Market RiskThe Corporations investment activities contain elements of risk.The portion of the Corporations investment por

269、tfolio consisting of equity and debtsecurities in private companies is subject to valuation risk.Because there is typically no public market for the equity and equity-linked debt securities in which itinvests,the valuation of the equity interests in the portfolio is stated at“fair value”as determine

270、d in good faith by the Board of Directors in accordance with theCorporations investment valuation policy.(The discussion of valuation policy contained in the“Notes to Schedule of Portfolio Investments”in the consolidatedfinancial statements contained in Item 8 of this report is hereby incorporated h

271、erein by reference.)In the absence of a readily ascertainable market value,theestimated value of the Corporations portfolio may differ significantly from the values that would be placed on the portfolio if a ready market for the investmentsexisted.Any changes in valuation are recorded in the Corpora

272、tions consolidated statement of operations as“Net unrealized appreciation on investments.”At times a portion of the Corporations portfolio may include marketable securities traded in the over-the-counter market.In addition,there may be a portionof the Corporations portfolio for which no regular trad

273、ing market exists.In order to realize the full value of a security,the market must trade in an orderly fashionor a willing purchaser must be available when a sale is to be made.Should an economic or other event occur that would not allow the markets to trade in an orderlyfashion,the Corporation may

274、not be able to realize the fair value of its marketable investments or other investments in a timely manner.As of December 31,2007,the Corporation did not have any off-balance sheet investments or hedging investments.22Table of ContentsItem 8.Financial Statements and Supplementary DataThe following

275、consolidated financial statements and consolidated supplemental schedule of the Corporation and report of independent auditors thereon areset forth below:Statements of Financial Position as of December 31,2007 and 2006Statements of Operations for the three years in the period ended December 31,2007S

276、tatements of Changes in Net Assets for the three years in the period ended December 31,2007Statements of Cash Flows for the three years in the period ended December 31,2007Schedule of Portfolio Investments as of December 31,2007Schedules of Selected Per Share Data and Ratios for the five years in th

277、e period ended December 31,2007Notes to the Consolidated Financial StatementsSupplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year ended December 31,2007Report of Independent Registered Public Accounting Firm23Table of ContentsRAND CAPITAL CORPORATION AN

278、D SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONDecember 31,2007 2006 Assets Investments at fair value(identified cost:2007$13,390,644;2006$14,033,789)$26,528,490$23,649,814 Cash and cash equivalents 4,396,595 4,299,852 Interest receivable(net of allowance$122,000)647,001 507,24

279、2 Other assets 1,150,065 1,007,036 Total assets$32,722,151$29,463,944 Liabilities and Stockholders Equity(net assets)Liabilities:Debentures guaranteed by the SBA$8,100,000$8,100,000 Deferred tax liability 3,955,000 3,808,000 Income taxes payable 474,465 410,575 Accounts payable and accrued expenses

280、321,210 317,359 Deferred revenue 53,653 45,605 Total liabilities 12,904,328 12,681,539 Stockholders equity(net assets):Common stock,$.10 par;shares authorized 10,000,000;shares issued 5,763,034 576,304 576,304 Capital in excess of par value 6,973,454 6,973,454 Accumulated net investment(loss)(3,940,

281、409)(6,253,128)Undistributed net realized gain on investments 7,796,289 9,763,366 Net unrealized appreciation on investments 8,459,391 5,769,615 Treasury stock,at cost,44,100 shares (47,206)(47,206)Net assets(per share 2007$3.47,2006$2.93)19,817,823 16,782,405 Total liabilities and stockholders equi

282、ty(net assets)$32,722,151$29,463,944 See accompanying notes24Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFor The Years Ended December 31,2007,2006 and 2005 2007 2006 2005 Investment income:Interest from portfolio companies$618,430$757,824$

283、593,125 Interest from other investments 173,664 53,104 3,601 Dividend and other investment income 1,469,864 432,296 94,930 Other income 40,912 83,738 44,917 2,302,870 1,326,962 736,573 Operating expenses:Salaries 460,917 482,067 400,340 Employee benefits 112,147 101,785 99,569 Directors fees 77,750

284、59,500 54,200 Professional fees 212,822 116,068 96,917 Stockholders and office operating 122,332 108,687 115,386 Insurance 43,674 43,674 46,017 Corporate development 66,854 54,233 51,875 Other operating 51,389 10,769 9,385 1,147,885 976,783 873,689 Interest on SBA obligations 503,062 472,526 277,287

285、 Bad debt expense 69,875 114,870 Total expenses 1,650,947 1,519,184 1,265,846 Investment gain(loss)before income taxes 651,923 (192,222)(529,273)Current income tax expense 901,511 401,801 23,514 Deferred income tax(benefit)expense (674,994)670,779 (377,608)Net investment gain(loss)425,406 (1,264,802

286、)(175,179)Realized and unrealized gain(loss)on investments:Net realized(loss)gain on sales and dispositions (68,748)3,456,441 (382,353)Unrealized appreciation(depreciation)on investments:Beginning of year 9,616,025 (342,028)(586,048)End of year 13,137,846 9,616,025 (342,028)Change in unrealized appr

287、eciation(depreciation)before income taxes 3,521,821 9,958,053 244,020 Deferred income tax expense 1,159,314 3,983,221 97,608 Net increase in unrealized appreciation 2,362,507 5,974,832 146,412 Net realized and unrealized gain(loss)on investments 2,293,759 9,431,273 (235,941)Net increase(decrease)in

288、net assets from operations$2,719,165$8,166,471$(411,120)Weighted average shares outstanding 5,718,934 5,718,934 5,718,934 Basic and diluted net increase(decrease)in net assets from operations per share$0.48$1.43$(0.07)See accompanying notes25Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIES

289、CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor The Years Ended December 31,2007,2006 and 2005 2007 2006 2005 Net assets at beginning of period$16,782,405$8,615,934$9,027,054 Net investment gain(loss)425,406 (1,264,802)(175,179)Cumulative effect adjustment for uncertain tax positions FIN 48 316,

290、253 Net realized(loss)gain on sales and dispositions of investments (68,748)3,456,441 (382,353)Net increase in unrealized appreciation 2,362,507 5,974,832 146,412 Net increase(decrease)in net assets from operations 3,035,418 8,166,471 (411,120)Net assets at end of period$19,817,823$16,782,405$8,615,

291、934 See accompanying notes.26Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor The Years Ended December 31,2007,2006 and 2005 2007 2006 2005 Cash flows from operating activities:Net increase(decrease)in net assets from operations$2,719,165$8,166,471$(

292、411,120)Adjustments to reconcile net increase(decrease)in net assets to net cash used in operating activities:Depreciation and amortization 33,598 26,672 23,297 Original issue discount accretion (62,333)Change in interest receivable allowance 114,870 Increase in unrealized appreciation of investment

293、s (3,521,821)(9,958,053)(244,020)Deferred tax expense(benefit)484,453 4,654,000 (280,000)Net realized loss(gain)on portfolio investments 68,748 (3,456,441)382,353 Non-cash conversion of debenture interest (50,000)(34,356)(30,852)Changes in operating assets and liabilities:(Increase)in interest recei

294、vable (139,759)(209,623)(151,999)(Increase)decrease in other assets (35,229)42,440 (48,207)Increase in income taxes payable 63,890 (Decrease)increase in accounts payable and accrued liabilities (17,350)560,246 34,891 Increase(decrease)in deferred revenue 8,048 (34,278)(3,275)Total adjustments (3,167

295、,755)(8,409,393)(202,942)Net cash used in operating activities (448,590)(242,922)(614,062)Cash flows from investing activities:Investments originated (2,165,266)(3,383,769)(2,605,260)Proceeds from sale of portfolio investments 255,440 4,374,762 17,647 Proceeds from loan repayments 2,456,509 1,473,32

296、2 181,271 Capital expenditures (1,350)(12,255)(4,001)Net cash provided by(used in)investing activities 545,333 2,452,060 (2,410,343)Cash flows from financing activities:Proceeds from SBA debenture 900,000 3,700,000 Origination costs to SBA (19,125)(92,500)Net cash provided by financing activities 88

297、0,875 3,607,500 Net increase in cash and cash equivalents 96,743 3,090,013 583,095 Cash and cash equivalents:Beginning of year 4,299,852 1,209,839 626,744 End of year$4,396,595$4,299,852$1,209,839 See accompanying notes27Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED SCHEDULE

298、 OF PORTFOLIO INVESTMENTSDecember 31,2007 (b)Per Date(c)(d)Share Company and Business Type of Investment Acquired Equity Cost Value of Rand Adampluseve,Inc.(g)New York,NY.Luxury sports wear company for menand Warrants to purchase 1,715 Series Aconvertible preferred shares.7/14/06 3%$68,000$133,341 .

299、02 APF Group,Inc.(e)(g)Mount Vernon,NY.Manufacturer of museum qualitypicture frames and framed mirrors for museums,artgalleries,retail frame shops,upscale designers andprominent $566,504 consolidated senior subordinatednote at 12.74%due December 30,2010.Warrants to purchase 10.2941 shares ofcommon s

300、tock.7/8/04 6%566,504 566,504 .10 Associates Interactive(e)(g)Buffalo,NY.Provider of training content andcertifications used to train retail sales $50,000 promissory note at 8%due October15,2008.10/15/07 50,000 50,000 .01 Carolina Skiff LLC(e)(g)Waycross,GA.Manufacturer of fresh water,oceanfishing a

301、nd pleasure $985,000 Class A preferred membershipinterest at 7%.Redeemable January 31,2010.5%common membership interest.1/30/04 5%1,000,000 1,227,000 .21 Contract Staffing(e)(h)Buffalo,NY.PEO providing human resourceadministration for small businesses.www.contract- Preferred stock repurchase agreeme

302、ntthrough March 31,2010 at 5%.11 shares ofcommon stock.11/8/99 10%131,066 131,066 .02 EmergingM,Inc.(g)New York,NY.Cancer clinical trial matching andreferral $500,000 senior subordinated note at 10%due December 19,2010.Warrants for 5.5%of common stock.12/19/05 5%500,000 500,000 .09 Gemcor II,LLC(e)(

303、g)(h)West Seneca,NY.Designs and sells automatic rivetingmachines used in the assembly of aircraft $250,000 subordinated note at 8%due June28,2010 with warrant to purchase 6.25membership units.25 membership units.6/28/04 31%665,451 4,165,451 .73 Golden Goal LLC(g)Fort Ann,NY.Youth soccer and lacrosse

304、 191,811 Class C units at 4%.12/10/07 6%637,414 637,414 .11 G-TEC Natural Gas Systems Buffalo,NY.Manufactures and distributes systems thatallow natural gas to be used as an alternative fuel togases.www.gas- 33.057%Class A membership interest.8%cumulative dividend.8/31/99 33%400,000 198,000 .03 28Tab

305、le of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2007 (Continued)(b)Per Date(c)(d)Share Company and Business Type of Investment Acquired Equity Cost Value of Rand Innov-X Systems,Inc.(g)Woburn,MA.Manufactures portable x-ray fluorescence

306、(XRF)analyzers used in metals/alloy 2,642 Series A convertible preferred stock.Warrants for 21,596 common shares.9/27/04 9%1,000,000 8,761,700 1.53 Kionix,Inc.Ithaca,NY.Develops innovative MEMS basedtechnology 30,241 shares Series B preferred stock.696,296 shares Series C preferred stock.(g)2,862,09

307、1 shares Series A preferred stock.714,285 shares Series B preferred stock.5/17/02 2%1,506,044 1,221,568 .21 New Monarch Machine Tool,Inc.(e)(g)(h)Cortland,NY.Manufactures and servicesvertical/horizontal machining $527,877 note at 12%due January 13,2009.$300,000 note at 12%due January 13,2009.22.84 s

308、hares of common stock.9/24/03 15%$542,988$542,988 .10 Niagara Dispensing Technologies,Inc.(e)(g)Amherst,NY.Beverage dispensing technologydevelopment and products manufacturer,specializing inbeer dispensing $500,000 senior subordinated note at 9%due March 7,2011.200 shares commonstock.$250,000 promis

309、sory note at 14%dueJuly 10,2008.$75,000 bridge note at 14%due December 10,2008.Contingentwarrants.3/8/06 4%865,010 865,010 .15 Photonic Products Group,Inc(OTC:PHPG.OB)(a)(i)Northvale,NJ.Develops and manufactures products forlaser photonics 66,000 shares common stock.10/31/00 1%165,000 262,700 .04 RA

310、MSCO(e)(g)Albany,NY.Distributor of water,sanitary,storm sewerand specialty construction materials to the contractor,highway and municipal construction $300,000 promissory notes at 8%dueOctober 20,2010.Warrants for 5.99%ofcommon stock.11/19/02 6%300,000 300,000 .05 Rocket Broadband Networks,Inc.(g)Am

311、herst,NY.Communications service provider ofsatellite TV,broadband internet and VoIP digital phonetargeting multiple dwelling 285,829 Series A preferred shares.247,998Series A-1 preferred shares.996,441 SeriesB preferred shares 12/20/05 11%680,000 680,000 .12 Somerset Gas Transmission Company,LLC(e)C

312、olumbus,OH.Natural gas transportation 26.5337 units.7/10/02 2%719,097 786,748 .14 29Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2007 (Continued)(b)Per Date(c)(d)Share Company and Business Type of Investment Acquired Equity Cost

313、Value of Rand Synacor Inc.(g)Buffalo,NY.Develops provisioning platforms foraggregation and delivery of content for broadband 200,000 shares of Series B preferred stock.78,186 Series A preferred shares.80,126Series C preferred shares.299,146 commonshares.11/18/02 4%1,349,479 4,168,001 .73 Ultra Scan

314、CorporationAmherst,NY.Biometrics application developer ofultrasonic fingerprint technology.www.ultra- 536,596 common shares,107,104 Series A-1preferred shares.(g)95,284 Series A-1 preferred shares.12/11/92 4%938,164 1,203,000 .21 WineIsI,Corp.Williamsville,NY.Marketing company specializing incustome

315、r loyalty programs supporting the wine and (g)$500,000 senior subordinated note at10%due December 17,2009.$250,000 noteat 10%due April 16,2005.Warrants topurchase 100,000 shares Class B commonstock.(e)$20,000 note at 18%due April 26,2008.12/18/02 2%821,918 100,000 .02 Other Investments Various 484,5

316、09 28,000 .02 Total portfolio investments(f)$13,390,644$26,528,490$4.64 30Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTSDecember 31,2007 (Continued)Notes to Consolidated Schedule of Portfolio Investments(a)Unrestricted securities are freely m

317、arketable securities having readily available market quotations.All other securities are restricted securities,which are subjectto one or more restrictions on resale and are not freely marketable.At December 31,2007 restricted securities represented 99%of the value of the investmentportfolio.Freed M

318、axick&Battaglia,CPAs PC has not examined the business descriptions of the portfolio companies.(b)The Date Acquired column indicates the year in which the Corporation acquired its first investment in the company or a predecessor company.(c)The equity percentages estimate the Corporations ownership in

319、terest in the portfolio investment.The estimated ownership is calculated based on the percent ofoutstanding voting securities held by the Corporation or the potential percentage of voting securities held by the Corporation upon exercise of its warrants orconversion of debentures,or other available d

320、ata.Freed Maxick&Battaglia,CPAs,PC has not audited the equity percentages of the portfolio companies.Thesymbol“1%”indicates that the Corporation holds an equity interest of less than one percent.(d)The Corporation has adopted the SBAs valuation guidelines for SBICs,which describe the policies and pr

321、ocedures used in valuing investments.Thesevaluation guidelines are similar to the accounting principals generally accepted in the United States of America.Under the valuation policy of the Corporation,unrestricted securities are valued at the closing price for publicly held securities for the last t

322、hree days of the month.Restricted securities,including securities ofpublicly-held companies that are subject to restrictions on resale,are valued at fair value as determined by the Board of Directors.Fair value is considered to bethe amount which the Corporation may reasonably expect to receive for

323、portfolio securities when sold on the valuation date.Valuations as of any particular date,however,are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of securities and thesefavorable or unfavorable differences could be material

324、.Among the factors considered by the Board of Directors in determining the fair value of restrictedsecurities are the financial condition and operating results,projected operations,and other analytical data relating to the investment.Also considered are themarket prices for unrestricted securities o

325、f the same class(if applicable)and other matters which may have an impact on the value of the portfolio company.(e)These investments are income producing.All other investments are non-income producing.Income producing investments have generated cash payments ofinterest or dividends within the last t

326、welve months.(f)Income Tax Information As of December 31,2007,the aggregate cost of investment securities approximated$13.4 million.Net unrealized appreciationaggregated approximately$13.1 million of which$14.8 million related to appreciated investment securities and$1.7 million related to depreciat

327、ed investmentsecurities.(g)Rand Capital SBIC,L.P.investment.(h)Reduction in cost and value reflects current principal repayment.(i)Publicly owned company.31Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESSCHEDULES OF SELECTED PER SHARE DATA AND RATIOSFor the Five Years Ended December 31,20

328、07,2006,2005,2004 and 2003Selected data for each share of common stock outstanding throughout the five most current years is as follows:Year Ended December 31,2007 2006 2005 2004 2003 Income from investment operations(1):Investment income$0.40$0.23$0.13$0.13$0.08 Expenses 0.28 0.26 0.22 0.16 0.16 In

329、vestment gain(loss)before income taxes 0.12 (0.03)(0.09)(0.03)(0.08)Income tax expense(benefit)0.04 0.19 (0.06)(0.01)(0.03)Net investment gain(loss)0.08 (0.22)(0.03)(0.02)(0.05)Cumulative effect for uncertain tax positions-FIN 48 0.06 0.00 0.00 0.00 0.00 Net realized and unrealized gain(loss)on inve

330、stments 0.40 1.65 (0.04)(0.02)0.00 Increase(decrease)in net asset value 0.54 1.43 (0.07)(0.04)(0.05)Net asset value,beginning of year 2.93 1.51 1.58 1.62 1.67 Net asset value,end of year$3.47$2.93$1.51$1.58$1.62 Per share market value,end of year$3.60$3.50$1.34$1.56$1.45 Total return based on market

331、 value 2.86%161.2%(14.1)%7.6%40.8%Total return based on net asset value 18.1%94.8%(4.6)%(2.5)%(3.8)%Supplemental data:Ratio of expenses before income taxes to average net assets 9.02%11.96%14.35%9.86%10.01%Ratio of expenses including taxes to average net assets 10.26%20.41%10.34%9.53%8.45%Ratio of n

332、et investment gain(loss)to average net assets 2.32%(9.96)%(1.99)%(1.23)%(3.67)%Portfolio turnover 8.6%18.1%21.6%50.4%24.3%Net assets end of year$19,817,823$16,782,405$8,615,934$9,027,054$9,238,489 Weighted average shares outstanding at end of year 5,718,934 5,718,934 5,718,934 5,718,934 5,722,776(1)

333、Per share data are based on weighted average shares outstanding and results are rounded.32Table of ContentsRAND CAPITAL CORPORATION AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNote 1.Summary of Significant Accounting PoliciesNature of Business Rand Capital Corporation(“Rand”)was founded in 1969 and is headquartered in Buffalo,New York.Rands investment strategy is toseek capital a