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 August 31, 1995
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.
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(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
Maryland 13-3698251
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
733 Third Avenue, 11th floor
New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (800) 888-6534
Not applicable
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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
<PAGE>
THE MICROCAP FUND, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Statements of Assets and Liabilities as of August 31, 1995 (Unaudited) and
February 28, 1995
Schedule of Portfolio Investments as of August 31, 1995 (Unaudited)
Statements of Operations for the Three Months Ended August 31, 1995 and 1994
(Unaudited)
Statements of Operations for the Six Months Ended August 31, 1995 and 1994
(Unaudited)
Statements of Changes in Net Assets for the Six Months ended August 31, 1995 and
1994 (Unaudited)
Statements of Cash Flows for the Six Months ended August 31, 1995 and 1994
(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
<TABLE>
August 31, 1995 February 28,
(Unaudited) 1995
<S> <C> <C> <C>
ASSETS
Portfolio investments at fair value (cost $8,735,962 at
August 31, 1995 and $8,335,962 at February 28, 1995) $ 9,623,744 $ 8,371,350
Cash and cash equivalents 7,200,888 9,033,750
Receivable (net of unamortized discount of $2,000 at
August 31, 1995 and $0 at February 28, 1995) - Note 2 38,000 100,000
Accrued interest receivable 529,897 422,938
Deferred organizational costs (net of accumulated amortization of
$96,571 at August 31, 1995 and $76,885 at February 28, 1995) 100,294 119,980
Reimbursement Receivable 44,337 -
Other assets 19,058 6,422
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Total assets 17,556,218 18,054,440
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LIABILITIES
Deferred interest income - 53,350
Accounts payable and accrued expenses 70,375 141,965
Due to Administrator 212,645 144,052
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Total liabilities 283,020 339,367
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NET ASSETS
Preferred Stock, par value $.01; 2,000,000 shares authorized;
311,770 shares issued and outstanding - Note 4 3,118 -
Common Stock, par value $.01; 10,000,000 shares authorized;
2,339,478 shares issued and 2,076,751 shares outstanding at
August 31, 1995 and 2,204,000 shares issued and outstanding at
February 28, 1995 - Note 4 23,395 22,040
Additional paid-in-capital 19,536,720 19,541,193
Net unrealized appreciation of portfolio investments 887,782 35,388
Undistributed (distribution in excess of) net investment income 41,724 (95,219)
Accumulated net realized loss from portfolio investments (2,139,673) (1,788,329)
--------------- ----------------
Sub-total 18,353,066 17,715,073
Less Treasury Stock at cost (262,727 shares of Common Stock) - Note 3 (1,079,868) -
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Net Assets $ 17,273,198 $ 17,715,073
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Net assets per outstanding share of Common Stock $ 7.18 $ 8.04
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Net assets per outstanding share of Preferred Stock $ 7.54 -
====== =======
See notes to financial statements.
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THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
August 31, 1995
<TABLE>
% of
Issuer / Position Cost Fair Value Net Assets(1)
<C> <C> <C> <C>
Publicly-Held Securities:
Alamar Biosciences, Inc.
150,000 shares of Common Stock $ 287,456 $ 135,000
Warrants to purchase 250,000 shares of Common Stock
at $5.00 per share, expiring 10/14/97 20,906 31,250
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308,362 166,250 0.96%
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Unigene Laboratories, Inc.(A)
24.5% Secured Promissory Note due 9/8/95 2,000,000 2,000,000
Warrant to purchase 825,000 shares of Common Stock
at $1.38, expiring 5/7/00 0 257,813
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2,000,000 2,257,813 13.07%
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YES! Entertainment Corporation(B)
55,555 shares of Common Stock 699,200 305,553
Warrant to purchase 11,438 shares of Common Stock
at $15.30 per share, expiring 7/16/98 0 0
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699,200 305,553 1.77%
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Privately-Held Securities:
Bennett Environmental Inc.(C)
Warrants to purchase 900,000 shares of Common Stock
at $.79 per share, expiring 9/1/98 900 900
Bennett Environmental U.S., Inc.
8% Secured Promissory Note 1,200,000 720,000
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1,200,900 720,900 4.17%
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First Colony Acquisition Corp.*
96,250 shares of Preferred Stock 536,673 536,673
4% Convertible Promissory Note due 11/30/97 1,213,327 1,213,327
Warrant to purchase 7,560 shares of Common Stock
at $5.00, expiring 1/24/00 0 0
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1,750,000 1,750,000 10.13%
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International Communication Technologies, Inc.
9% Convertible Promissory Note due 6/30/96 150,000 150,000 .87%
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Oh-La-La! Inc.(D)
9% Convertible Senior Note 140,000 140,000
9% Convertible Senior Note 100,000 100,000
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240,000 240,000 1.39%
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Optiva Corporation
150,000 shares of Common Stock 487,500 487,500 2.82%
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</TABLE>
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
August 31, 1995
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% of
Issuer / Position Cost Fair Value Net Assets(1)
<C> <C> <C> <C>
Regency Holdings (Cayman), Inc.(E)
Warrant to purchase 291,456 shares of Common Stock
at $6.75 per share, expiring 7/20/98 $ 0 $ 145,728 0.84%
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Shells Seafood Restaurants, Inc.*(F)
9% Senior Secured Note due 2/29/96 1,310,000 1,310,000
Warrant to purchase 75,000 shares of Common Stock
at $5 per share, expiring 12/31/99 0 0
300,000 shares of Common Stock 90,000 1,590,000
Secured note at prime plus 2% due 2/29/96 500,000 500,000
Warrant to purchase 130,000 shares of Common Stock
at $3.15 per share, expiring 12/31/99 0 0
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1,900,000 3,400,000 19.69%
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Total Portfolio Investments $ 8,735,962 $ 9,623,744 55.71%
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</TABLE>
* May be deemed an "affiliated person" of the Fund as such term is defined in
the Investment Company Act of 1940.
(1) Represents fair value as a percentage of net assets.
(A) In July 1995, the Fund agreed to extend the maturity date of its promissory
note due from Unigene Laboratories, Inc. to September 8, 1995. In
consideration for such extension, the Fund received warrants to purchase
additional common shares of Unigene Laboratories, Inc., increasing the
number of shares from 75,000 to 825,000 and reducing the exercise price
from $1.80 per share to $1.38 per share. Additionally, the terms of the
note were changed increasing the interest rate from 13% to 24.5% per annum.
On September 8, 1995, the note became payable on demand and continues to
accrue interest at a rate of 24.5% per annum. In connection with a letter
agreement, dated September 29, 1995, the Fund received an additional 75,000
warrants to purchase common shares of Unigene at $1.38 per share.
(B) Subsequent to the end of the quarter, in September 1995, the Fund sold its
55,555 common shares of YES! Entertainment for $305,553.
(C) Subsequent to the end of the quarter, the Fund reached an agreement with
Bennett Environmental Inc., whereby, Bennett will pay $820,000 and issue
500,000 shares of common stock to the Fund by October 31, 1995 in exchange
for the cancellation of the Fund's existing warrant to purchase 900,000
shares of common stock of Bennett and the cancellation of the $1.2 million
note due September 14, 1995.
(D) During fiscal 1995, Oh-La-La! Inc. filed for Chapter 11 bankruptcy
protection. The assets of Oh-La-La! are being liquidated through court
proceedings. The Fund currently expects to receive cash and/or equity
securities of a public company at the conclusion of these proceedings.
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
August 31, 1995
(E) The Fund's warrants to purchase Ordinary Shares of Regency Holdings
(Cayman), Inc. (the "Warrants") are currently the subject of litigation
initiated by the Fund against Regency. The Fund believes that, pursuant to
the terms of its original promissory note and warrant agreements with
Regency, it is entitled to additional warrants that would increase the
redemption price to $887,445. For purposes of these financial statements
and pending the outcome of the litigation, the Warrants are valued at
August 31, 1995 based on the worst case scenario, i.e. at $.50 per warrant,
or $145,728, the amount which has been placed in escrow by Regency for
their redemption. The Fund believes that its claims are meritorious and it
will continue to vigorously pursue this matter in litigation. (See Part II
- Other Information.)
(F) During the quarter, the Fund agreed to extend the maturity date of its $1.3
million senior secured note due from Shells Seafood Restaurants, Inc. to
the earlier of February 29, 1996 or the date Shells completes its initial
public offering. In consideration for such extension, the Fund received
warrants to purchase 75,000 shares of common stock at $5.00 per share.
Additionally, the Fund extended the maturity on its $500,000 secured note
to the earlier of February 29, 1996 or the date Shells completes its
initial offering. In consideration for such extension, the Fund exchanged
its warrants to purchase 10,000 shares of preferred stock at $25.00 per
share for warrants to purchase 130,000 shares of common stock at $3.15 per
share.
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended August 31,
<TABLE>
1995 1994
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<S> <C> <C>
INVESTMENT INCOME AND EXPENSES
Income:
Interest from repurchase agreements $ 84,983 $ 67,912
Interest and dividends from portfolio investments 221,525 240,187
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Total investment income 306,508 308,099
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Expenses:
Administrative fee 43,291 47,773
Professional fees 66,204 22,791
Salary expense 59,943 43,220
Amortization of deferred organizational costs 9,843 9,843
Transfer agent and custodian fees 5,688 3,274
Directors' fees and expenses 5,000 10,569
Other operating expenses 24,356 19,948
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Total expenses 214,325 157,418
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Net investment income 92,183 150,681
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NET REALIZED AND UNREALIZED GAIN FROM
PORTFOLIO INVESTMENTS
Net realized loss from portfolio investments - (323,046)
Change in net unrealized appreciation or depreciation of
portfolio investments 485,019 1,562,186
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Net realized and unrealized gain from portfolio investments 485,019 1,239,140
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 577,202 $ 1,389,821
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</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended August 31,
<TABLE>
1995 1994
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<S> <C> <C>
INVESTMENT INCOME AND EXPENSES
Income:
Interest from repurchase agreements $ 200,948 $ 120,091
Interest and dividends from portfolio investments 291,408 400,099
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Total investment income 492,356 520,190
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Expenses:
Administrative fee 86,023 91,952
Professional fees 86,913 83,717
Salary expense 102,445 71,642
Amortization of deferred organizational costs 19,686 19,686
Transfer agent and custodian fees 11,378 6,066
Directors' fees and expenses 12,952 15,069
Other operating expenses 36,016 38,914
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Total expenses 355,413 327,046
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Net investment income 136,943 193,144
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NET REALIZED AND UNREALIZED GAIN FROM
PORTFOLIO INVESTMENTS
Net realized loss from portfolio investments (351,344) (419,549)
Change in net unrealized appreciation or depreciation of
portfolio investments 852,394 1,695,283
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Net realized and unrealized gain from portfolio investments 501,050 1,275,734
------------ ---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 637,993 $ 1,468,878
============ ===============
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the Six Months Ended August 31,
<TABLE>
1995 1994
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<S> <C> <C>
Change in net assets resulting from operations:
Net investment income $ 136,943 $ 193,144
Net realized loss from portfolio investments (351,344) (419,549)
Change in net unrealized appreciation or depreciation of
portfolio investments 852,394 1,695,283
---------------- ----------------
Net increase in net assets resulting from operations 637,993 1,468,878
---------------- ----------------
Change in net assets from capital stock transactions:
Common Stock repurchased - Note 3 (1,079,868) -
---------------- ----------------
Total increase (decrease) in net assets for the period (441,875) 1,468,878
Net assets at beginning of period 17,715,073 17,548,222
---------------- ----------------
NET ASSETS AT END OF PERIOD $ 17,273,198 $ 19,017,100
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 31,
<TABLE>
1995 1994
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<S> <C> <C>
CASH FLOWS PROVIDED FROM (USED FOR ) OPERATING
ACTIVITIES
Net investment income $ 136,943 $ 193,144
Adjustments to reconcile net investment income to cash provided
from (used for) operating activities:
Amortization of discounted receivable (2,000) (34,200)
Amortization of deferred organizational costs 19,686 19,686
Increase (decrease) in payables (56,347) 50,365
Increase in receivables and other assets (163,932) (68,614)
-------------- ---------------
Cash flows provided from (used for) operating activities (65,650) 160,381
-------------- ---------------
CASH FLOWS PROVIDED FROM (USED FOR) INVESTING
ACTIVITIES
Purchase of portfolio investments (3,750,000) (3,843,773)
Net proceeds from the sale of portfolio investments 1,122,656 5,318,110
Repayment of notes 1,940,000 2,720,000
Deposit released from escrow - 15,000
-------------- ---------------
Cash flows provided from (used for) investing activities (687,344) 4,209,337
-------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Common stock repurchased (1,079,868) -
-------------- ---------------
Increase (decrease) in cash and cash equivalents (1,832,862) 4,369,718
Cash and cash equivalents at beginning of period 9,033,750 4,475,544
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,200,888 $ 8,845,262
============== ===============
</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, 1995 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 period.
2. Receivables
In March 1995, the Fund received the final installment payment of $100,000
relating to the $1 million receivable due from Computer Integration Corporation.
On March 24, 1995, the Fund sold its investment in SR Communications Corp.
("SRC") for $200,000 in cash and a $40,000 promissory note from SRC payable on
March 24, 1996.
3. Common Stock Repurchase Program
In May 1995, the Board of Director's increased the amount authorized for the
repurchase of the Fund's common stock to an aggregate amount of $2 million. As
of August 31, 1995, the Fund had repurchased 262,727 shares of its common stock
for an aggregate cost of $1,079,868.
4. Capital Stock Transactions
On March 20, 1995, the Fund paid a stock dividend to shareholders of record on
March 13, 1995 in shares of preferred stock at the rate of .2 shares of
preferred stock for each share of common stock. The preferred stock is
convertible into shares of the Fund's common stock at any time until February
27, 1998. Each share of preferred stock is convertible into (i) 1.05 shares of
common stock from the date of issuance through February 28, 1996, (ii) 1.25
shares of common stock from March 1, 1996 through February 28, 1997 and (iii)
1.33 shares of common stock from March 1, 1997 through February 27, 1998. The
preferred stock will automatically convert into common stock on the earlier of
(i) a sale, transfer or other distribution of the shares of common stock upon
which the dividend has been paid or (ii) February 27, 1998. The preferred stock
is non-transferable. During the six months ended August 31, 1995, 129,030 shares
of preferred stock were converted into 135,481 shares of common stock.
<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 August 31, 1995 and 1994, the Fund had net realized
and unrealized gains from portfolio investments of $485,019 and $1,239,140,
respectively. For the six months ended August 31, 1995 and 1994 the Fund had net
realized and unrealized gains from portfolio investments of $501,050 and
$1,275,734, respectively.
Realized Gains and Losses - For the six months ended August 31, 1995, the Fund
had a net realized loss from its portfolio investments of $351,344. The Fund had
no realized gains or losses from portfolio investments for the three months
ended August 31, 1995. During the three months ended May 31, 1995, the Fund sold
its 337,500 shares of Silverado Foods, Inc. common stock for $822,656, realizing
a gain of $672,656. In March 1995, the Fund sold its investment in SR
Communications Corp. ("SRC") for $200,000 in cash and a $40,000 promissory note
(including $4,000 of imputed interest) payable in March 1996. This transaction
resulted in a net realized loss of $14,000. Also, in May 1995, the Fund
wrote-off its $60,000 investment in Radiator King International, Inc. and its
$950,000 investment in Weir-Jones Marketing, Inc. due to continued operating and
financial difficulties of these companies.
During the three months ended August 31, 1994, the Fund sold 50,000 shares of
Alamar Biosciences, Inc. in the public market for $103,750, realizing a gain of
$7,934. Additionally, during the quarter, the Fund sold certain investments in
publicly traded marketable securities for $2,387,934, realizing a loss of
$330,980. During the three months ended May 31, 1994, the Fund sold 50,000
shares of Alamar Biosciences in the public market for $106,875, realizing a gain
of $11,056. In March 1994, the Fund sold its $1,500,000 investment in EMARC,
Inc. for $1,500,000, resulting in no gain or loss. Additionally during the May
quarter, the Fund sold certain marketable securities for $819,555, realizing a
loss of $107,559.
Unrealized Gains and Losses - For the three and six months ended August 31,
1995, the Fund had a net increase in unrealized appreciation of its portfolio
investments totaling $485,019 and $852,394, respectively. The $852,394 increase
for the six months ended August 31, 1995 consisted of a $1,461,769 net
unrealized gain due to the upward revaluation of the Fund's portfolio
investments offset by the $609,375 transfer from unrealized gain to realized
gain due to the sale of the Fund's investment in Silverado Foods during the
quarter ended May 31, 1995. The $1,461,769 net unrealized gain for the six
months ended August 31, 1995, included a $1,500,000 upward revaluation of the
Fund's investment in Shells Seafood Restaurants, Inc. (which is negotiating with
an investment bank to underwrite an initial public offering) offset by a small
net downward revaluation of certain other publicly traded securities.
For the three and six months ended August 31, 1994, the Fund had a $1,562,186
and $1,695,283 net unrealized gain from its portfolio investments, respectively,
primarily resulting from an upward revaluation of the Fund's investment in
Silverado Foods, Inc., which completed its initial public offering in August
1994. Additionally, for the six months ended August 31, 1994, a net $74,261 was
transferred from unrealized loss to realized loss primarily relating to the
portfolio investments sold during the six month period in 1994, as discussed
above. The $1,621,022 net unrealized gain and the $74,261 net transfer from
unrealized loss to realized loss resulted in a $1,695,283 increase in the Fund's
net unrealized appreciation of portfolio investments for the six months ended
August 31, 1994.
Investment Income and Expenses
For the three months ended August 31, 1995 and 1994, the Fund had net investment
income of $92,183 and $150,681, respectively. For the six months ended August
31, 1995 and 1994, the Fund had net investment income of $136,943 and $193,144,
respectively. An increase in interest earned from repurchase agreements for the
six months ended August 31, 1995 was more than offset by a decrease in interest
and dividend income earned from portfolio investments for the six months ended
August 31, 1995. Interest from repurchase agreements was $200,948 and $120,091
for the six months ended August 31,1995 and 1994, respectively. This increase
resulted from an increase in funds invested in repurchase agreements and an
increase in short-term interest rates during the six months ended August 31,
1995. Interest and dividends earned from portfolio investments for the six
months ended August 31, 1995 and 1994 was $291,408 and $400,099, respectively.
This decrease resulted from a decrease in income producing securities and the
write-off of $92,863 of accrued interest receivable relating to the Fund's debt
investment in Weir-Jones Marketing, Inc., which was written-off in May 1995.
Aggregate investment income declined by $27,834 for the six months ended August
31, 1995 coupled with an increase in operating expenses of $28,367 compared to
the same period in 1994. The increase in operating expenses primarily was
attributable to an increase in salary expense for the six month period.
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 August 31, 1995 and 1994, the administrative fee was
$43,291 and $47,773, respectively. For the six months ended August 31, 1995 and
1994, the administrative fee was $86,023 and $91,952, respectively.
Net Assets
At August 31, 1995, the Fund's net assets were $17,273,198, a decrease of
$441,875 from net assets of $17,715,073 at February 28, 1995. Net assets
resulting from operations for the period increased $637,993, comprised of
$136,943 of net investment income and $501,050 of net realized and unrealized
gain from portfolio investments. This increase was more than offset by a
$1,079,868 decrease in net assets from the repurchase of 262,727 shares of the
Fund's common stock in the public market during the period.
At August 31, 1995, the net asset value per share of common stock and preferred
stock was $7.18 and $7.54, per share, respectively. At February 28, 1995, the
net asset value per share of common stock was $8.04. There was no preferred
stock outstanding on February 28, 1995. The changes in net asset value per share
of common stock and preferred stock for the six months ended August 31, 1995 are
discussed below:
On March 20, 1995, the Fund issued a 20% preferred stock dividend to
shareholders of record on March 13, 1995. Based on the Fund's net assets of
$17,715,073 at February 28, 1995, such dividend resulted in an initial
allocation of net assets to preferred shareholders of approximately $3.1
million, or $6.97 per share of preferred stock. The allocation of net assets to
preferred shareholders, therefore, resulted in a dilution to common shareholders
of approximately $3.1 million, or $1.40 per share of common stock. Furthermore,
during the six months ended August 31, 1995, the Fund repurchased 262,727 shares
of its common stock for $1,079,868. The effect of such repurchases increased the
net asset value per share of common stock and preferred stock by $.28 and $.29,
respectively. The increase in net assets from operations for the six months
ended August 31, 1995 of $637,993 increased the net asset value by $.26 and $.28
per share of common and preferred stock, respectively.
For the six months ended August 31, 1994, the Fund had a net increase in net
assets from operations of $1,468,878, or $.67 per share of common stock,
comprised of net investment income of $193,144 and net realized and unrealized
gain from portfolio investments of $1,275,734. At August 31, 1994, the Fund's
net assets were $19,017,100, or $8.63 per share of common stock.
<PAGE>
Liquidity and Capital Resources
The Fund invests its available cash in overnight repurchase agreements
collateralized by securities issued by the U.S. Government or its agencies. Such
investments provide the liquidity necessary to purchase portfolio investments as
opportunities for investment arise.
On August 31, 1995, the Fund had cash and cash equivalents of $7,200,888, a
decrease of $1,832,862 from February 28, 1995. During the three months ended
August 31, 1995, the Fund used $353,993 to repurchase an additional 80,227
shares of its own common stock, bringing the total number of shares repurchased
for the six months ended August 31, 1995 to 262,727 for a total cost of
$1,079,868. Additionally, for the six months ended August 31, 1995, the Fund
used $687,344 to fund investing activities for the six month period. During the
quarter ended May 31, 1995 the Fund invested $3,750,000 in two new portfolio
investments: First Colony Acquisition Corp. for $1,750,000 and Unigene
Laboratories, Inc. for $2,000,000. Also during the quarter ended May 31, 1995
the Fund received proceeds from the sale of Silverado Foods and SRC
Communications totaling $1,022,656 and received $100,000 from the final
installment payment due from Computer Integration Corporation. Additionally,
during the three months ended August 31, 1995, the Fund received $1,940,000 from
the repayment of an 18% Promissory Note due from Regency Holdings (Cayman), Inc.
<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 1995 Annual Meeting of shareholders was held on August 28, 1995. At the
meeting, James E. Brands and Leonard J. DeRoma were elected to serve as Class I
directors until the 1998 Annual Meeting. The other matter voted on and approved
was the ratification of the appointment of Deloitte & Touche, LLP as the Fund's
independent certified public accountants for the year ending February 29, 1996.
Shares of common stock were voted as follows:
<TABLE>
For Withheld
<S> <C> <C> <C>
James E. Brands 1,553,865 2,000
For Against Abstain
Ratification of appointment of Deloitte & Touche, LLP
as the Fund's independent certified public accountants
for the year ending February 29, 1996. 1,555,865 0 0
Shares of preferred stock were voted as follows:
For Withheld
James E. Brands 227,080 210
Leonard J. DeRoma 227,080 210
For Against Abstain
Ratification of appointment of Deloitte & Touche, LLP
as the Fund's independent certified public accountants
for the year ending February 29, 1996. 227,290 0 0
</TABLE>
Item 5. Other Information.
The Fund's warrants to purchase Ordinary Shares of Regency Holdings (Cayman),
Inc. (the "Warrants") are currently the subject of litigation initiated by the
Fund against Regency. The Fund claims that, as a result of the June 24, 1995
default by Regency under the terms of the promissory note issued to the Fund by
Regency in connection with the Fund's original investment in Regency (the
"Note") and its subsequent failure to repay the Note within the time frame
designated, certain default provisions contained in the Warrants and in the Note
became operational. Pursuant to such default provisions, the Fund believes that
the Warrants, which were previously exercisable to purchase 291,456 Ordinary
Shares at $6.75 per share, became exercisable to purchase approximately
1,774,890 Ordinary Shares at $.50 per share.
Regency, on the other hand, alleges that because it repaid the Note on July 17,
1995, the default provisions pertaining to the Warrants never became operational
and that pursuant to the terms of the Warrants it was entitled to mandatorily
redeem them at $.50 per Warrant or $145,728 ($.50 x 291,456). Regency has placed
$145,728 in escrow as payment for such alleged redemption.
The Fund believes that, as a result of Regency's default, the Warrants are not
mandatorily redeemable and that even if they were, the redemption price would
have to be $887,445 ($.50 x 1,774,890).
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: October 16, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MICROCAP
FUND, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED AUGUST 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 8,735,962
<INVESTMENTS-AT-VALUE> 9,623,744
<RECEIVABLES> 612,234
<ASSETS-OTHER> 19,058
<OTHER-ITEMS-ASSETS> 7,301,182
<TOTAL-ASSETS> 17,556,218
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 283,020
<TOTAL-LIABILITIES> 283,020
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,536,720
<SHARES-COMMON-STOCK> 2,076,751
<SHARES-COMMON-PRIOR> 2,204,000
<ACCUMULATED-NII-CURRENT> 41,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,139,673)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 887,782
<NET-ASSETS> 17,273,198
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 492,356
<OTHER-INCOME> 0
<EXPENSES-NET> 355,413
<NET-INVESTMENT-INCOME> 136,943
<REALIZED-GAINS-CURRENT> (351,344)
<APPREC-INCREASE-CURRENT> 852,394
<NET-CHANGE-FROM-OPS> 637,993
<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> (498,222)
<ACCUMULATED-NII-PRIOR> (95,219)
<ACCUMULATED-GAINS-PRIOR> (1,788,329)
<OVERDISTRIB-NII-PRIOR> (95,219)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 17,494,135
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
