SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended November 30, 1994
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-21160
THE MICROCAP FUND, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
Maryland 13-3698251
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
733 Third Avenue, 11th floor
New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (800) 888-6534
Former name - Commonwealth Associates Growth Fund, Inc.
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date. 2,204,000 shares of common
stock.
<PAGE>
INDEX
THE MICROCAP FUND, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Statements of Assets and Liabilities as of November 30, 1994 (Unaudited) and
February 28, 1994
Schedule of Portfolio Investments as of November 30, 1994 (Unaudited)
Statements of Operations for the Three Months Ended November 30, 1994 and 1993
(Unaudited)
Statements of Operations for the Nine Months Ended November 30, 1994 (Unaudited)
and for the Period from March 19, 1993 (commencement of operations) to November
30, 1993 (Unaudited)
Statements of Changes in Net Assets for the Nine Months ended November 30, 1994
(Unaudited) and for the Period from March 19, 1993 (commencement of operations)
to November 30, 1993 (Unaudited)
Statements of Cash Flows for the Nine Months ended November 30, 1994 (Unaudited)
and for the Period from March 19, 1993 (commencement of operations) to November
30, 1993 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE MICROCAP FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
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November 30, 1994 February 28,
(Unaudited) 1994
<S> <C> <C>
ASSETS
Portfolio investments at fair value (cost $7,895,962 at
November 30, 1994 and $12,158,598 at February 28, 1994) $ 8,052,209 $ 11,645,538
Cash and cash equivalents 9,470,173 4,475,544
Receivable, net of unamortized discount of $1,541 at
November 30, 1994 and $45,088 at February 28, 1994 - Note 3 398,459 954,912
Accrued interest receivable 417,864 237,111
Escrow deposit - 255,000
Deferred organizational costs, net of accumulated amortization of
$67,042 at November 30, 1994 and $37,513 at February 28, 1994 129,823 159,352
Other assets 12,705 11,711
------ ------
Total assets 18,481,233 17,739,168
---------- ----------
LIABILITIES
Distribution payable to shareholders - Note 4 440,800 -
Accounts payable 150,600 38,431
Due to Administrator 78,036 103,765
Payable for securities purchased - 48,750
- ------
Total liabilities 669,436 190,946
------- -------
NET ASSETS
Preferred Stock, par value $.01; 2,000,000 shares authorized;
no shares issued or outstanding - -
Common Stock, par value $.01; 10,000,000 shares
authorized; 2,204,000 shares issued and outstanding 22,040 22,040
Additional paid-in-capital 19,541,193 19,541,193
Net unrealized appreciation (depreciation) of portfolio investments 156,247 (513,060)
Undistributed (distribution in excess of) net investment income (119,354) 55,079
Accumulated net realized loss from portfolio investments (1,788,329) (1,557,030)
---------- ----------
Net Assets $ 17,811,797 $ 17,548,222
= ========== = ==========
Net assets per share of common stock $ 8.08 $ 7.96
= ==== = ====
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1994
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% of
Issuer / Position Cost Fair Value Net Assets(1)
<S> <C> <C> <C>
Alamar Biosciences, Inc.(A)
150,000 shares of Common Stock $ 287,456 $ 101,250
Warrants to purchase 250,000 shares of Common Stock
at $5.00, expiring 10/14/97 20,906 12,500
------ ------
308,362 113,750 .64%
------- -------
Bennett Environmental Inc.
8% Secured Promissory Note due 9/14/95 1,200,000 720,000
Warrants to purchase 900,000 shares of Common Stock
at $.60, expiring 9/1/98 900 900
--- ---
1,200,900 720,900 4.05%
--------- -------
International Communication Technologies, Inc.
9% Convertible Promissory Note due 6/30/96 150,000 150,000 .84%
------- -------
Oh-La-La! Inc.
9% Convertible Senior Note due 6/30/95 140,000 140,000
9% Convertible Senior Note due 11/30/95 100,000 100,000
------- -------
240,000 240,000 1.35%
------- -------
Optiva Corporation
150,000 shares of Common Stock 487,500 487,500 2.74%
------- -------
Radiator King International, Inc.
9% Promissory Notes 60,000 60,000 .34%
------ ------
Regency Holdings (Cayman), Inc.
10% Promissory Note due 1/20/95 2,000,000 2,000,000
Warrant to purchase 120,000 shares of Common Stock
at $9.00, expiring 7/20/98 0 0
- -
2,000,000 2,000,000 11.22 %
--------- ---------
Shells Seafood Restaurants, Inc.*
9% Senior Secured Note due 10/30/95 1,310,000 1,310,000
300,000 shares of Common Stock 90,000 90,000
------ ------
1,400,000 1,400,000 7.86%
--------- ---------
Silverado Foods, Inc.*(A)
337,500 shares of Common Stock 150,000 980,859 5.51%
------- -------
</TABLE>
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
NOVEMBER 30, 1994
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% of
Issuer / Position Cost Fair Value Net Assets(1)
<S> <C> <C> <C>
SR Communications Corp.*
250,000 shares of Preferred Stock $ 247,500 $ 247,500
250,000 shares of Common Stock 2,500 2,500
----- -----
250,000 250,000 1.40%
------- -------
Weir-Jones Marketing, Inc.
9% Convertible Subordinated Note due 1/28/96 950,000 950,000 5.33%
------- -------
YES! Entertainment Corporation
608,696 shares of Preferred Stock 699,200 699,200
Warrant to purchase 116,667 shares of Preferred Stock
at $1.50, expiring 7/16/98 0 0
- -
699,200 699,200 3.93%
------- ------- ------
TOTAL PORTFOLIO INVESTMENTS(2) $ 7,895,962 $ 8,052,209 45.21%
= ========= = ========= =====
</TABLE>
* May be deemed an "affiliated person" of the Fund as such term is defined in
the Investment Company Act of 1940.
(A) Public company.
(1) Represents fair value as a percentage of net assets.
(2) In September 1994, the Fund exercised a net issuance provision relating to
its warrants to purchase 158,000 common shares of Loronix Information
Systems, Inc. at $4.88 per share. In this non-cash transaction, the Fund
received 47,852 shares of Loronix common stock in exchange for such
warrants. The 47,852 shares were sold as part of the over-allotment option
granted to Commonwealth Associates, the underwriter of Loronix's initial
public offering, for $258,000.
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30,
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1994 1993
---- ----
<S> <C> <C>
INVESTMENT INCOME AND EXPENSES
Income:
Interest from repurchase agreements $ 120,250 $ 69,505
Interest and dividends from portfolio investments 135,648 192,689
------- -------
Total investment income 255,898 262,194
------- -------
Expenses:
Administrative fee 44,701 48,792
Professional fees 99,852 54,946
Salary expense 33,978 42,914
Amortization of deferred organizational costs 9,843 9,843
Performance fee - (5,906)
Transfer agent and custodial fees 4,731 2,961
Directors' fees and expenses 3,894 5,325
Other operating expenses 55,826 17,000
------ ------
Total expenses 252,825 175,875
------- -------
Net investment income 3,073 86,319
----- ------
NET REALIZED AND UNREALIZED LOSS FROM
PORTFOLIO INVESTMENTS
Net realized gain from portfolio investments 258,400 23,900
Change in net unrealized appreciation or depreciation of
portfolio investments (1,025,976) (474,797)
---------- --------
Net realized and unrealized loss from portfolio investments (767,576) (450,897)
-------- --------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (764,503) $ (364,578)
= ======== = ========
Per Share Net Decrease in Net Assets Resulting from Operations $(.35) $(.17)
===== =====
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
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Period From
March 19, 1993
Nine Months (Commencement
Ended of Operations) to
November 30, 1994 November 30, 1993
<S> <C> <C>
INVESTMENT INCOME AND EXPENSES
Income:
Interest from repurchase agreements $ 240,341 $ 261,694
Interest and dividends from portfolio investments 475,747 288,698
Loan origination fee 60,000 -
------ -
Total investment income 776,088 550,392
------- -------
Expenses:
Administrative fee 136,653 137,876
Professional fees 183,569 107,435
Salary expense 105,620 106,658
Amortization of deferred organizational costs 29,529 27,670
Performance fee - 24,171
Transfer agent and custodial fees 10,797 11,505
Directors' fees and expenses 18,963 10,355
Other operating expenses 94,740 52,157
------ ------
Total expenses 579,871 477,827
------- -------
Net investment income 196,217 72,565
------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM PORTFOLIO INVESTMENTS
Net realized gain (loss) from portfolio investments (161,149) 78,275
Change in net unrealized appreciation or depreciation
of portfolio investments 669,307 (246,119)
------- ---------
Net realized and unrealized gain (loss) from portfolio investments 508,158 (167,844)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 704,375 $ (95,279)
= ======= = =======
Per Share Net Increase (Decrease) in Net Assets Resulting
from Operations $.32 $(.04)
==== =====
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
Period From
March 19, 1993
Nine Months (Commencement
Ended of Operations) to
November 30, 1994 November 30, 1993
<S> <C> <C>
Increase (decrease) in net assets resulting from operations:
Net investment income $ 196,217 $ 72,565
Net realized gain (loss) from portfolio investments (161,149) 78,275
Change in net unrealized appreciation or depreciation of
portfolio investments 669,307 (246,119)
------- --------
Net increase (decrease) in net assets resulting from operations 704,375 (95,279)
------- -------
Decrease in net assets from distributions:
Distribution from net realized gains (70,150) -
Distribution from net investment income (251,296) -
Distribution in excess of net investment income (119,354) -
-------- -
Decrease in net assets from distributions (440,800) -
-------- -
Increase in net assets from capital stock transactions:
Gross proceeds from the sale of common stock - 21,940,000
Less:
Selling commissions - (1,535,800)
Expense allowance - (548,500)
Offering expenses - (392,467)
- --------
Net increase in net assets from capital stock transactions - 19,463,233
- ----------
Total increase in net assets for the period 263,575 19,367,954
Net assets at beginning of period 17,548,222 100,000
---------- -------
NET ASSETS AT END OF PERIOD $ 17,811,797 $ 19,467,954
= ========== = ==========
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Period From
March 19, 1993
Nine Months (Commencement
Ended of Operations) to
November 30, 1994 November 30, 1993
<S> <C> <C>
CASH FLOWS PROVIDED FROM OPERATING
ACTIVITIES
Net investment income $ 196,217 $ 72,565
Adjustments to reconcile net investment income
to cash provided from operating activities:
Amortization of discounted receivable (43,547) -
Amortization of deferred organizational costs 29,529 27,670
Increase in payables 86,440 184,746
Increase in accrued interest receivable and other assets (181,747) (243,558)
-------- --------
Cash flows provided from operating activities 86,892 41,423
------ ------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Purchase of portfolio investments (3,843,773) (13,652,207)
Net proceeds from the sale of portfolio investments 5,776,510 1,459,363
Repayment of notes 2,720,000 -
Deposits released from (placed in) escrow 255,000 (500,000)
------- --------
Cash flows provided from (used for) investing activities 4,907,737 (12,692,844)
--------- -----------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES
Gross proceeds from the sale of common stock - 21,940,000
Cost of sale of common stock:
Selling commissions - (1,535,800)
Expense allowance - (548,500)
Offering expenses - (392,467)
Organizational expenses - (196,865)
- --------
Cash flows provided from financing activities - 19,266,368
- ----------
Increase in cash and cash equivalents 4,994,629 6,614,947
Cash and cash equivalents at beginning of period 4,475,544 100,000
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,470,173 $ 6,714,947
= ========= = =========
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Purpose
The MicroCap Fund, Inc. (the "Fund"), formerly known as Commonwealth Associates
Growth Fund, Inc., is a non-diversified, closed-end management investment
company operating as a business development company under the Investment Company
Act of 1940. The Fund was incorporated under the laws of the State of Maryland
on January 26, 1993. The Fund's investment objective is to achieve intermediate
to long-term capital appreciation of assets by investing in securities of
emerging and established companies that management believes offer significant
growth potential.
Reference is made to the Fund's February 28, 1994 annual report included in Form
10-K as filed with the Securities and Exchange Commission for the Notes to
Financial Statements that remain unchanged. The following notes are included as
a result of changes during the current quarter or year to date period.
2. Related Party Transactions
The Fund has completed investments in certain portfolio companies in which
Commonwealth Associates acted as a placement agent on behalf of the portfolio
companies. In July 1994, the Fund invested $2 million in Regency Holdings
(Cayman), Inc. In connection with the transaction, Commonwealth Associates
received a placement fee of $60,000 from Regency Holdings (Cayman), Inc.
In connection with the initial public offering of Loronix Information Systems,
Inc. completed in September 1994, the Fund sold 47,852 common shares of Loronix
for an aggregate of $258,000. In connection with such sale, Commonwealth
Associates, underwriter of the Loronix initial public offering, received
underwriting discounts and commissions of $29,000.
With respect to certain marketable security transactions, Commonwealth
Associates acted as broker on behalf of the Fund and received aggregate
commissions of $21,000 for such services.
3. Directors' Fees
As compensation for serving on the Board of Directors, each of the three
independent directors receives an annual fee of $2,000 and $250 for each meeting
attended.
4. Receivable
In February 1994, the Fund's $1.2 million promissory note due from Computer
Integration Corporation was canceled in exchange for $1,000,000 to be paid in
eleven installments, with the last installment due on December 31, 1994. As of
November 30, 1994, the Fund had received installment payments from Computer
Integration Corporation totaling $600,000. Subsequent to the end of the quarter,
the Fund received additional payments totaling $200,000 from Computer
Integration Corporation.
5. Distribution to Shareholders
On November 7, 1994, the Fund's Board of Directors declared a distribution to
shareholders totaling $440,800, or $0.20 per common share. The distribution was
paid on December 12, 1994 to shareholders of record on November 30, 1994.
<PAGE>
THE MICROCAP FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
The treatment for financial statement purposes of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate treatment for federal income tax purposes. These differences are caused
primarily by differences in the timing of the recognition of certain components
of income, expense and capital gain for federal income tax purposes. Where such
differences are permanent in nature, they are reclassified in the components of
net assets based on their ultimate characterization for federal income tax
purposes. Any such reclassifications will have no effect on net assets, results
of operations or net asset value per share of the Fund.
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Realized and Unrealized Gains and Losses from Portfolio Investments
For the three months ended November 30, 1994, the Fund had a net realized and
unrealized loss from portfolio investments of $768,000, comprised of a $258,000
realized gain and a $1 million decline in unrealized appreciation of portfolio
investments for the quarter. The $258,000 realized gain resulted from the sale
of 47,852 common shares of Loronix Information Systems, Inc. during the quarter.
Such shares were received by the Fund in September 1994 in a non-cash exchange
of the 158,000 Loronix common stock warrants previously held by the Fund. The $1
million reduction to net unrealized appreciation includes an aggregate $790,000
unrealized loss, reflecting the downward revaluation of the Fund's investments
in Silverado Foods, Inc. and Alamar Biosciences, Inc., due to the reduced market
value of these publicly traded securities at the end of the quarter. The Fund's
net unrealized appreciation declined an additional $236,000 due to the transfer
from unrealized gain to realized gain relating to the Loronix shares sold during
the quarter.
For the three months ended November 30, 1993, the Fund had a net realized and
unrealized loss from portfolio investments of $451,000, comprised of a $24,000
realized gain from the sale of certain marketable securities and a $475,000
decline in unrealized appreciation for the quarter. The $475,000 decline in net
unrealized appreciation includes a $497,000 unrealized loss reflecting the net
downward revaluation of certain portfolio investments and marketable securities
for the quarter. This amount was offset by a $22,000 increase to unrealized
appreciation reflecting the transfer from unrealized loss to realized loss
relating to the sale of marketable securities during the quarter.
For the nine months ended November 30, 1994, the Fund had a net realized and
unrealized gain from portfolio investments of $508,000, comprised of a net
realized loss from portfolio investments of $161,000 and a $669,000 increase to
unrealized appreciation for the nine month period. The $161,000 realized loss
for the nine months includes the $258,000 gain from the sale of 47,852 Loronix
shares, as discussed above, and an additional $19,000 gain from the sale of
100,000 common shares of Alamar Biosciences during May and June 1994. These
gains were offset by a $439,000 realized loss from the sale of marketable
securities completed during the period. The $669,000 increase to unrealized
appreciation includes an $831,000 unrealized gain reflecting the net upward
revaluation of certain portfolio investments for the period, primarily Silverado
Foods, which completed its initial public offering in August 1994. This
unrealized gain was offset by a $162,000 net transfer from unrealized gain to
realized gain relating to the sale of portfolio investments and marketable
securities during the nine month period. Additionally, in March 1994, the Fund
sold its $1.5 million investment in EMARC, Inc. for $1.5 million, resulting in
no gain or loss.
For the period from March 19, 1993 (commencement of operations) to November 30,
1993 (the "commencement period") the Fund had a net realized and unrealized loss
of $168,000, comprised of a $78,275 realized gain from the sale of certain
marketable securities and a $246,000 decline in unrealized appreciation for the
period. The $246,000 decline in net unrealized appreciation includes a $268,000
unrealized loss reflecting the net downward revaluation of certain portfolio
investments and marketable securities for the nine month period. This amount was
offset by the $22,000 transfer from unrealized loss to realized loss as
discussed above.
Investment Income and Expenses
For the three months ended November 30, 1994 and 1993, the Fund had net
investment income of $3,000 and $86,000, respectively. The decrease in net
investment income for the 1994 period compared to the 1993 period primarily was
the result of a $77,000 increase in operating expenses for the 1994 period
compared to
<PAGE>
the 1993 period. This increase primarily resulted from an increase in
professional fees and other operating expenses for the 1994 period. Professional
fees for the three months ended November 30, 1994 and 1993 were $100,000 and
$55,000, respectively. Other operating expenses for the three months ended
November 30, 1994 and 1993 were $59,000 and $17,000, respectively. The increased
operating expenses for the 1994 period compared to the 1993 period reflects the
increased investment activity of the Fund as it matures during its first full
year of operations. Additionally, investment income declined from $262,000 for
the three months ended November 30, 1993 compared to $256,000 for the three
months ended November 30, 1994. Interest and dividends from portfolio
investments declined $57,000 from $193,000 in 1993 compared to $136,000 in 1994.
This decrease was offset by a $50,000 increase in interest from repurchase
agreements, from $70,000 in 1993 compared to $120,000 in 1994. The decline in
interest and dividends from portfolio investments for the 1994 period is the
result of a decrease in the amount invested in interest bearing debt securities
of certain portfolio investments held by the Fund during the 1994 period
compared to the 1993 period. The increase in interest earned from repurchase
agreements for the 1994 period is the result of an increase in the cash
available for such investments during the 1994 period.
For the nine months ended November 30, 1994 and for the commencement period, the
Fund had net investment income of $196,000 and $73,000, respectively. A $226,000
increase in investment income was offset by a $102,000 increase in operating
expenses for the 1994 period compared to the 1993 period. The increase in
investment income for the 1994 period compared to the 1993 period primarily is
the result of an increase in interest and dividends earned from portfolio
investments, which increased to $476,000 for the nine months ended November 30,
1994 from $289,000 for the commencement period. This increase resulted from an
increase in the amount invested in interest bearing debt securities of certain
portfolio investments held by the Fund during the 1994 period compared to the
same period in 1993. Also during the 1994 period, net investment income
increased $60,000 from a loan origination fee related to the Fund's investment
in Regency Holdings (Cayman), Inc. completed in July 1994. The increase in
operating expenses for the 1994 period compared to the 1993 period primarily
resulted from an increase in professional fees and other operating expenses as
discussed above.
Commonwealth Associates Asset Management, Inc. (the "Administrator") is
responsible for providing, or arranging for the provision of, the administrative
services necessary for the operation of the Fund. As compensation for such
services, the Administrator receives an administrative fee at the annual rate of
1% of the net assets of the Fund. Such fee is determined and payable quarterly.
For the three months ended November 30, 1994 and 1993, the administrative fee
was $45,000 and $49,000, respectively. For the nine months ended November 30,
1994 and for the commencement period, the administrative fee was $137,000 and
$138,000, respectively.
The Fund has implemented an employee profit sharing plan that provides for
payment of a performance fee to certain officers of the Fund. The fee is equal
to 20% of interest, dividends and realized capital gains from portfolio
investments net of realized capital losses and net unrealized capital
depreciation. Such fee is calculated from the end of the fiscal year for which
fees were last paid. Accrued performance fees for the three months ended
November 30, 1993 and for the commencement period totaled $(6,000) and $24,000,
respectively. The performance fee for the commencement period was reversed
during the final quarter of the fiscal year ended February 28, 1994 as a result
of portfolio investments sold at a loss or written-off during such period. Since
its inception, the Fund has made no performance fee payments. No performance
fees were accrued for the 1994 periods.
Net Assets
For the three months ended November 30, 1994, the Fund had a net decrease in net
assets from operations of $765,000, or $.35 per share of common stock, comprised
of net investment income of $3,000 and net realized
<PAGE>
and unrealized loss from portfolio investments of $768,000. Additionally, the
Fund's net assets declined $441,000 as a result of a distribution of $.20 per
common share, declared on November 7, 1994 by the Fund's board of directors,
payable to shareholders of record on November 30, 1994. For the nine months
ended November 30, 1994, the Fund had a net increase in net assets from
operations of $704,000, or $.32 per share of common stock, comprised of net
investment income of $196,000 and net realized and unrealized gain from
portfolio investments of $508,000. This increase was offset by the $441,000
distribution to shareholders, as discussed above. At November 30, 1994, the
Fund's net assets were $17.8 million, or $8.08 per share of common stock.
For the three months ended November 30, 1993, the Fund had a $365,000 net
decrease in net assets resulting from operations, or $.17 per share of common
stock, comprised of net investment income of $86,000 and net realized and
unrealized loss from portfolio investments of $451,000. For the commencement
period, the Fund had a net decrease in net assets from operations of $95,000, or
$0.04 per share of common stock, comprised of net investment income of $73,000
and net realized and unrealized loss from portfolio investments of $168,000. At
November 30, 1993, the Fund's net assets were $19.5 million or $8.83 per share
of common stock.
Liquidity and Capital Resources
In March and April 1993, the Fund commenced operations and completed its initial
public offering of common stock. The Fund sold a total of 2,194,000 shares of
common stock at $10.00 per share in the offering. Additionally, in 1993, the
Administrator purchased 10,000 shares of the Fund's common stock for $100,000,
or $10.00 per share. Gross proceeds received by the Fund from the sale of its
common stock during 1993 totaled $22,040,000 and net proceeds after the payment
of selling commissions, offering and organizational expenses totaled
$19,366,368.
For the three months ended November 30, 1994, the Fund's cash and cash
equivalents increased $625,000 from $8.8 million at August 31, 1994 to $9.5
million at November 30, 1994. During the quarter, the Fund received $258,000
from the sale of Loronix shares, as discussed above, and $200,000 related to a
receivable from Computer Integration Corporation. The Fund also received
$240,000 representing the return of escrow funds due to the cancellation of a
potential follow-on investment in Radiator King International, Inc. Cash used to
fund operations totaled $73,000 for the quarter.
As previously discussed, on November 7, 1994, the Fund's board of directors
declared a distribution of $.20 per common share, or $441,000 in the aggregate.
The distribution was paid on December 12, 1994 to shareholders of record on
November 30, 1994.
The Fund invests its available cash in repurchase agreements collateralized by
U.S. Government securities. Such investments provide the Fund with the liquidity
necessary to purchase portfolio investments as opportunities for investment
arise. Interest earned from repurchase agreements for the three and nine months
ended November 30, 1994 totaled $120,000 and $240,000, respectively. Interest
earned in future periods is subject to fluctuations in short-term interest rates
and changes in amounts available for investment in repurchase agreements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Fund is not party to any material pending legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1994 Annual Meeting of shareholders was held on October 24, 1994. At the
meeting, the following individuals were elected to serve on the Fund's board of
directors; James E. Brands and Leonard J. DeRoma were elected to serve as Class
I directors until the 1995 Annual Meeting; Jeffrey Lewis and Kamal Mustafa were
elected as Class II directors until the 1996 Annual Meeting and Michael S. Falk
was elected to serve as a Class III director until the 1997 Annual Meeting.
Other matters voted on and approved were an amendment to the Articles of
Amendment and Restatement to change the Fund's name to "The MicroCap Fund, Inc."
and ratification of appointment of Deloitte & Touche as the Fund's independent
certified public accountants.
Shares of common stock were voted as follows:
<TABLE>
For Withheld
<S> <C> <C>
James E. Brands 1,561,219 31,000
Leonard J. DeRoma 1,559,719 32,500
Jeffrey Lewis 1,559,719 32,500
Kamal Mustafa 1,561,219 31,000
Michael Falk 1,558,719 33,500
For Against Abstain
Amendment to Articles of Amendment and Restatement
to change the Fund's name to "The MicroCap Fund, Inc." 1,584,519 1,200 6,500
Ratification of appointment of Deloitte & Touche as the
Fund's independent certified public accountants. 1,587,219 0 5,000
</TABLE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MICROCAP FUND, INC.
/s/ Kamal Mustafa
Kamal Mustafa
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Mark T. Behrman
Mark T. Behrman
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: January 13, 1995
<PAGE>
Exhibit Index
Exhibits Page
(27) Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MICROCAP
FUND, INC. THIRD QUARTER REPORT ON FORM 10-Q FOR THE PERIOD ENDED NOVEMBER 30,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> NOV-30-1994
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 7,895,962
<INVESTMENTS-AT-VALUE> 8,052,209
<RECEIVABLES> 816,323
<ASSETS-OTHER> 12,705
<OTHER-ITEMS-ASSETS> 9,599,996
<TOTAL-ASSETS> 18,481,233
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 669,436
<TOTAL-LIABILITIES> 669,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,541,193
<SHARES-COMMON-STOCK> 2,204,000
<SHARES-COMMON-PRIOR> 2,204,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 119,354
<ACCUMULATED-NET-GAINS> (1,788,329)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 156,247
<NET-ASSETS> 17,811,797
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 716,088
<OTHER-INCOME> 60,000
<EXPENSES-NET> 579,871
<NET-INVESTMENT-INCOME> 196,217
<REALIZED-GAINS-CURRENT> (161,149)
<APPREC-INCREASE-CURRENT> 669,307
<NET-CHANGE-FROM-OPS> 704,375
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 370,650
<DISTRIBUTIONS-OF-GAINS> 70,150
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 263,575
<ACCUMULATED-NII-PRIOR> 55,079
<ACCUMULATED-GAINS-PRIOR> (1,557,030)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.96
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.08
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
