<PAGE> PAGE 1
000 B000000 03/31/98
000 C000000 0000742094
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0
000 J000000 U
001 A000000 REDWOOD MICROCAP FUND, INC.
001 B000000 811-03986
001 C000000 7195932111
002 A000000 6180 LEHMAN DRIVE, SUITE 103
002 B000000 COLORADO SPRINGS
002 C000000 CO
002 D010000 80918
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 N
007 B000000 0
013 A000001 STOCKMAN KAST RYAN & SCRUGGS, P.C.
013 B010001 COLORADO SPRINGS
013 B020001 CO
013 B030001 80903
013 B040001 1418
020 A000001 HANIFEN, IMHOFF INC.
020 B000001 84-0503513
020 C000001 7
020 A000002 MCDERMID ST LAWRENCE SECURITIES LTD
020 B000002 10-3589396
020 C000002 5
020 A000003 D.E. FREY
020 B000003 84-1098795
020 C000003 1
020 A000004 NORAM INVESTMENT SERVICES, INC.
020 B000004 75-1382137
020 C000004 1
020 C000005 0
020 C000006 0
020 C000007 0
020 C000008 0
020 C000009 0
020 C000010 0
021 000000 14
022 A000001 M. H. MYERSON & CO., INC.
022 B000001 13-1924455
022 C000001 49
022 D000001 76
022 A000002 HERZOG, HEINE, GEDULD, INC.
<PAGE> PAGE 2
022 B000002 13-1955436
022 C000002 0
022 D000002 56
022 A000003 TROSTER, SINGER CORP.
022 B000003 13-5515160
022 C000003 0
022 D000003 47
022 A000004 CHARLES SCHWAB & CO., INC.
022 B000004 13-2598328
022 C000004 0
022 D000004 13
022 A000005 MC DERMID ST LAWRENCE SECURITIES LTD.
022 B000005 10-3589396
022 C000005 102
022 D000005 0
022 A000006 NORAM INVESTMENT SERVICES, INC.
022 B000006 75-1382137
022 C000006 1
022 D000006 2
022 C000007 0
022 D000007 0
022 C000008 0
022 D000008 0
022 C000009 0
022 D000009 0
022 C000010 0
022 D000010 0
023 C000000 152
023 D000000 194
025 D000001 0
025 D000002 0
025 D000003 0
025 D000004 0
025 D000005 0
025 D000006 0
025 D000007 0
025 D000008 0
028 A010000 0
028 A020000 0
028 A030000 0
028 A040000 0
028 B010000 0
028 B020000 0
028 B030000 0
028 B040000 0
028 C010000 0
028 C020000 0
028 C030000 0
028 C040000 0
028 D010000 0
028 D020000 0
<PAGE> PAGE 3
028 D030000 0
028 D040000 0
028 E010000 0
028 E020000 0
028 E030000 0
028 E040000 0
028 F010000 0
028 F020000 0
028 F030000 0
028 F040000 0
028 G010000 0
028 G020000 0
028 G030000 0
028 G040000 0
028 H000000 0
030 A000000 0
030 B000000 0.00
030 C000000 0.00
031 A000000 0
031 B000000 0
032 000000 0
033 000000 0
035 000000 0
036 B000000 0
038 000000 0
042 A000000 0
042 B000000 0
042 C000000 0
042 D000000 0
042 E000000 0
042 F000000 0
042 G000000 0
042 H000000 0
043 000000 0
044 000000 0
045 000000 N
048 000000 0.000
048 A010000 0
048 A020000 0.000
048 B010000 0
048 B020000 0.000
048 C010000 0
048 C020000 0.000
048 D010000 0
048 D020000 0.000
048 E010000 0
048 E020000 0.000
048 F010000 0
048 F020000 0.000
048 G010000 0
048 G020000 0.000
<PAGE> PAGE 4
048 H010000 0
048 H020000 0.000
048 I010000 0
048 I020000 0.000
048 J010000 0
048 J020000 0.000
048 K010000 0
048 K020000 0.000
055 A000000 N
055 B000000 N
056 000000 N
057 000000 N
061 000000 0
062 A000000 N
062 B000000 0.0
062 C000000 0.0
062 D000000 0.0
062 E000000 0.0
062 F000000 0.0
062 G000000 0.0
062 H000000 0.0
062 I000000 0.0
062 J000000 0.0
062 K000000 0.0
062 L000000 0.0
062 M000000 0.0
062 N000000 0.0
062 O000000 0.0
062 P000000 0.0
062 Q000000 0.0
062 R000000 0.0
063 A000000 0
063 B000000 0.0
066 A000000 Y
066 E000000 Y
067 000000 N
068 A000000 N
068 B000000 N
069 000000 N
071 A000000 2056
071 B000000 1656
071 C000000 4259
071 D000000 39
072 A000000 12
072 B000000 55
072 C000000 244
072 D000000 0
072 E000000 28
072 F000000 0
072 G000000 0
072 H000000 176
<PAGE> PAGE 5
072 I000000 1
072 J000000 4
072 K000000 1
072 L000000 3
072 M000000 0
072 N000000 0
072 O000000 8
072 P000000 10
072 Q000000 42
072 R000000 13
072 S000000 9
072 T000000 0
072 U000000 0
072 V000000 0
072 W000000 93
072 X000000 360
072 Y000000 0
072 Z000000 -33
072AA000000 205
072BB000000 0
072CC010000 556
072CC020000 0
072DD010000 0
072DD020000 0
072EE000000 0
073 A010000 0.0000
073 A020000 0.0000
073 B000000 0.0000
073 C000000 0.0000
074 A000000 62
074 B000000 0
074 C000000 0
074 D000000 0
074 E000000 0
074 F000000 4771
074 G000000 0
074 H000000 0
074 I000000 0
074 J000000 16
074 K000000 202
074 L000000 0
074 M000000 5
074 N000000 5056
074 O000000 7
074 P000000 45
074 Q000000 0
074 R010000 0
074 R020000 0
074 R030000 0
074 R040000 944
074 S000000 0
<PAGE> PAGE 6
074 T000000 4060
074 U010000 2490
074 U020000 0
074 V010000 1.63
074 V020000 0.00
074 W000000 0.0000
074 X000000 172
074 Y000000 0
075 A000000 0
075 B000000 3772
076 000000 1.63
077 A000000 N
080 A000000 BROWN/RAYNOR CORPORATION
080 C000000 425
081 A000000 Y
081 B000000 1
082 A000000 Y
082 B000000 10
083 A000000 N
083 B000000 0
084 A000000 N
084 B000000 0
085 A000000 N
085 B000000 N
086 A010000 0
086 A020000 0
086 B010000 0
086 B020000 0
086 C010000 0
086 C020000 0
086 D010000 0
086 D020000 0
086 E010000 0
086 E020000 0
086 F010000 0
086 F020000 0
088 A000000 N
088 B000000 N
088 C000000 N
088 D000000 N
SIGNATURE STAN PITTMAN
TITLE SECRETARY
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000742094
<NAME> REDWOOD MICROCAP FUND, INC.
<SERIES>
<NUMBER> 01
<NAME> REDWOOD MICROCAP FUND, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2946114
<INVESTMENTS-AT-VALUE> 4972473
<RECEIVABLES> 16124
<ASSETS-OTHER> 5487
<OTHER-ITEMS-ASSETS> 62417
<TOTAL-ASSETS> 5056501
<PAYABLE-FOR-SECURITIES> 6650
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 989821
<TOTAL-LIABILITIES> 996471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2085184
<SHARES-COMMON-STOCK> 2490000
<SHARES-COMMON-PRIOR> 2500000
<ACCUMULATED-NII-CURRENT> (1950982)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2655469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1270359
<NET-ASSETS> 4060030
<DIVIDEND-INCOME> 244226
<INTEREST-INCOME> 54868
<OTHER-INCOME> 27506
<EXPENSES-NET> 359855
<NET-INVESTMENT-INCOME> (33255)
<REALIZED-GAINS-CURRENT> 204899
<APPREC-INCREASE-CURRENT> 556490
<NET-CHANGE-FROM-OPS> 523134
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 523134
<ACCUMULATED-NII-PRIOR> (180292)
<ACCUMULATED-GAINS-PRIOR> 1354243
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 359855
<AVERAGE-NET-ASSETS> 3772065
<PER-SHARE-NAV-BEGIN> 1.423
<PER-SHARE-NII> (.014)
<PER-SHARE-GAIN-APPREC> .225
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.003)
<PER-SHARE-NAV-END> 1.631
<EXPENSE-RATIO> 9.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
lEGAL PROCEEDINGS EX-99
The Securities and Exchange Commission has indicated its intent to file an
administrative action against the Fund's President as a result of certain
trading activity conducted by him in his personal accounts during 1994. At the
present time, it is not known what impact or consequences this action or an
unfavorable outcome to this action might have on the future operations or
management of the Fund.
AUDITORS' REPORT ON INTERNAL CONTROL EX-99.C1
To the Board of Directors and Shareholders,
Redwood MicroCap Fund, Inc.
In planning and performing our audit of the financial statements of Redwood
MicroCap Fund, Inc. (the Fund) for the year ended March 31, 1998 (on which we
have issued our report dated May 15, 1998), we considered its internal control
structure, including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion on
the financial statements and to comply with requirements of Form N-SAR, not to
provide assurance on the internal control structure.
The management of the Fund is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and
related costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit
preparation of financial statements in conformity with generally accepted
accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any evaluation
of the structure to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
March 31, 1998.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
/s/Stockman Kast Ryan & Scruggs, P.C.
Colorado Springs, Colorado
May 15, 1998
