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, 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)
Maryland 13-3698251
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
237 Park Avenue, 21st floor
New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
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
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date. 2,119,814 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, 1995 (Unaudited) and
February 28, 1995
Schedule of Portfolio Investments as of November 30, 1995 (Unaudited)
Statements of Operations for the Three Months Ended November 30, 1995 and 1994
(Unaudited)
Statements of Operations for the Nine Months Ended November 30, 1995 and 1994
(Unaudited)
Statements of Changes in Net Assets for the Nine Months ended November 30, 1995
and 1994 (Unaudited)
Statements of Cash Flows for the Nine Months ended November 30, 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>
November 30, 1995 February 28,
(Unaudited) 1995
ASSETS
Portfolio investments at fair value (cost $5,936,806 at
<S> <C> <C> <C> <C> <C> <C> <C>
November 30, 1995 and $8,335,962 at February 28, 1995) $ 7,129,650 $ 8,371,350
Cash and cash equivalents 9,238,487 9,033,750
Receivable from sale of securities 305,538 -
Receivable (net of unamortized discount of $1,000 at
November 30, 1995 and $0 at February 28, 1995) - Note 2 39,000 100,000
Accrued interest receivable 319,079 422,938
Deferred organizational costs (net of accumulated amortization of
$106,414 at November 30, 1995 and $76,885 at February 28, 1995) 90,451 119,980
Other assets 60,949 6,422
---------------- ----------------
Total assets 17,183,154 18,054,440
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LIABILITIES
Deferred interest income - 53,350
Accounts payable and accrued expenses 183,943 141,965
Due to Administrator 34,047 144,052
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Total liabilities 217,990 339,367
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NET ASSETS
Preferred Stock, par value $.01; 2,000,000 shares authorized;
281,917 shares issued and outstanding - Note 4 2,819 -
Common Stock, par value $.01; 10,000,000 shares authorized; 2,370,823
shares issued and 2,108,096 outstanding at November 30, 1995
and 2,204,000 shares issued and outstanding at February 28, 1995 23,708 22,040
Additional paid-in-capital 19,536,706 19,541,193
Net unrealized appreciation of portfolio investments 1,192,844 35,388
Accumulated net investment losses (100,138) -
Distribution in excess of net investment income (95,219) (95,219)
Accumulated net realized loss from portfolio investments (2,515,688) (1,788,329)
---------------- ----------------
Sub-total 18,045,032 17,715,073
Less Treasury Stock at cost (262,727 shares of common stock) - Note 3 (1,079,868) -
---------------- ----------------
Net Assets $ 16,965,164 $ 17,715,073
================ ================
Net assets per share of common stock $ 7.06 $ 8.04
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Net assets per share of preferred stock $ 7.41 -
======= ========
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
November 30, 1995
<TABLE>
% of
Issuer / Position Cost Fair Value Net Assets(1)
Publicly-Held Securities:
Alamar Biosciences, Inc.(A)
Warrant to purchase 250,000 shares of Common Stock
<S> <C> <C> <C> <C> <C> <C>
at $5.00 per share, expiring 10/14/97 $ 20,906 $ 25,000 0.15%
------------- --------------
Unigene Laboratories, Inc.(B)
Warrant to purchase 675,000 shares of Common Stock
at $1.38, expiring 5/7/00 0 168,750 .99%
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YES! Entertainment Corporation(C)
Warrant to purchase 11,438 shares of Common Stock
at $15.30 per share, expiring 7/16/98 0 0 0%
------------- --------------
Privately-Held Securities:
Bennett Environmental Inc.(D)
Warrant 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 4.25%
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First Colony Acquisition Corp.*(E)
106,563 shares of Preferred Stock 594,174 594,174
6% Convertible Promissory Note due 11/30/97 1,343,326 1,343,326
Warrant to purchase 7,560 shares of Common Stock
at $5.00, expiring 1/24/00 0 0
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1,937,500 1,937,500 11.42%
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International Communication Technologies, Inc.
9% Convertible Promissory Note due 6/30/96 150,000 150,000 .88%
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Oh-La-La! Inc.(F)
9% Convertible Senior Note 140,000 140,000
9% Convertible Senior Note 100,000 100,000
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240,000 240,000 1.41%
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Optiva Corporation
150,000 shares of Common Stock 487,500 487,500 2.88%
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</TABLE>
<PAGE>
THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED) - continued
November 30, 1995
<TABLE>
% of
Issuer / Position Cost Fair Value Net Assets(1)
Shells Seafood Restaurants, Inc.*(G)
<C> <C> <C> <C> <C>
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 175,000 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 20.04%
------------- -------------- -----
Total Portfolio Investments(H) $ 5,936,806 $ 7,129,650 42.02%
============= ============== =====
</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 October 1995, the Fund sold its 150,000 common shares of Alamar
Biosciences, Inc. for $159,375, realizing a loss of $128,081.
(B) In November 1995, the Fund sold its $2 million promissory note due from
Unigene Laboratories, Inc., accrued interest thereon, and warrants to
purchase 225,000 common shares of Unigene for $2,221,330. The Fund received
an additional 75,000 warrants to purchase common shares of Unigene at $1.38
per share pursuant to a letter agreement, dated September 29, 1995.
(C) In September 1995, the Fund sold its 55,555 common shares of YES!
Entertainment Corporation for $305,538, realizing a loss of $393,662.
(D) Subsequent to the end of the quarter, in December 1995, the Fund agreed to
sell its $1.2 million secured promissory note and warrant to purchase
900,000 shares of common stock of Bennett Environmental U.S., Inc. (BEI)
back to BEI for $820,000 plus 500,000 shares of BEI common stock. Bennett
also agreed to reimburse the Fund for certain legal costs incurred in
connection with the agreement.
(E) In September 1995, the Fund made follow-on investments in First Colony
Acquisition Corp. totaling $187,500. The Fund's purchase included an
additional 10,313 shares of the company's preferred stock and an additional
6% convertible note in the amount of $129,999. In addition, the interest
rate on the Fund's existing $1,213,327 convertible note was increased from
4% to 6%.
(F) 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.
(G) During the quarter ended August 31, 1995, the Fund had agreed to extend the
maturity date of its $500,000 secured note due from Shells Seafood
Restaurants, Inc. to February 29, 1996. The initial consideration
negotiated for such extension, was the exchange of the Fund's warrant to
purchase 10,000 shares of Shells preferred stock at $25.00 per share for a
warrant to purchase 130,000 shares of Shells common stock at $3.15 per
share. During the quarter ended November 30, 1995, such consideration was
further negotiated, whereby the consideration received by the Fund for the
note extension was increased from a warrant to purchase 130,000 shares of
Shells common stock to a warrant to purchase 175,000 shares of Shells
common stock at $3.15 per share.
(H) In November 1995, the Fund received $145,728 for the redemption of its
291,456 common stock warrants of Regency Holdings (Cayman) Inc.
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended November 30,
<TABLE>
1995 1994
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INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from repurchase agreements $ 108,455 $ 120,250
Interest and dividends from portfolio investments 47,315 135,648
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Total investment income 155,770 255,898
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Expenses:
Administrative fee 42,510 44,701
Professional fees 205,875 99,852
Salary expense 58,832 33,978
Amortization of deferred organizational costs 9,843 9,843
Transfer agent and custodian fees 6,589 4,731
Directors' fees and expenses 10,000 3,894
Other operating expenses 59,202 55,826
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Total expenses 392,851 252,825
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Net investment income (loss) (237,081) 3,073
------------- ---------------
NET REALIZED AND UNREALIZED LOSS FROM
PORTFOLIO INVESTMENTS
Net realized gain (loss) from portfolio investments (376,015) 258,400
Change in net unrealized appreciation or depreciation of
portfolio investments 305,062 (1,025,976)
------------- ---------------
Net realized and unrealized loss from portfolio investments (70,953) (767,576)
------------- ---------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (308,034) $ (764,503)
============= ===============
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended November 30,
<TABLE>
1995 1994
------------- --------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from repurchase agreements $ 309,403 $ 240,341
Interest and dividends from portfolio investments 338,723 535,747
------------- -------------
Total investment income 648,126 776,088
------------- -------------
Expenses:
Administrative fee 128,533 136,653
Professional fees 292,788 183,569
Salary expense 161,277 105,620
Amortization of deferred organizational costs 29,529 29,529
Transfer agent and custodian fees 17,967 10,797
Directors' fees and expenses 22,952 18,963
Other operating expenses 95,218 94,740
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Total expenses 748,264 579,871
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Net investment income (loss) (100,138) 196,217
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NET REALIZED AND UNREALIZED GAIN FROM
PORTFOLIO INVESTMENTS
Net realized loss from portfolio investments (727,359) (161,149)
Change in net unrealized appreciation of portfolio investments 1,157,456 669,307
------------- -------------
Net realized and unrealized gain from portfolio investments 430,097 508,158
------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 329,959 $ 704,375
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the Nine Months Ended November 30,
<TABLE>
1995 1994
---------------- ----------
Change in net assets resulting from operations:
<S> <C> <C>
Net investment income (loss) $ (100,138) $ 196,217
Net realized loss from portfolio investments (727,359) (161,149)
Change in net unrealized appreciation of portfolio investments 1,157,456 669,307
---------------- ----------------
Net increase in net assets resulting from operations 329,959 704,375
---------------- ----------------
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)
---------------- ----------------
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 (749,909) 263,575
Net assets at beginning of period 17,715,073 17,548,222
---------------- ----------------
NET ASSETS AT END OF PERIOD $ 16,965,164 $ 17,811,797
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
THE MICROCAP FUND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended November 30,
<TABLE>
1995 1994
-------------- ---------
CASH FLOWS PROVIDED FROM (USED FOR ) OPERATING
ACTIVITIES
<S> <C> <C>
Net investment income (loss) $ (100,138) $ 196,217
Adjustments to reconcile net investment income (loss) to cash
provided from (used for) operating activities:
Amortization of discounted receivable (3,000) (43,547)
Amortization of deferred organizational costs 29,529 29,529
Increase (decrease) in payables (121,377) 86,440
(Increase) decrease in receivables and other assets 49,332 (181,747)
-------------- ---------------
Cash flows provided from (used for) operating activities (145,654) 86,892
-------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Purchase of portfolio investments (3,937,500) (3,843,773)
Net proceeds from the sale of portfolio investments 1,427,759 5,776,510
Repayment/sale of notes 3,940,000 2,720,000
Deposit released from escrow - 255,000
-------------- ---------------
Cash flows provided from investing activities 1,430,259 4,907,737
-------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Common stock repurchased (1,079,868) -
-------------- ---------------
Increase in cash and cash equivalents 204,737 4,994,629
Cash and cash equivalents at beginning of period 9,033,750 4,475,544
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,238,487 $ 9,470,173
============== ===============
</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 quarter or year to date 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 November 30, 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 nine months ended November 30, 1995, 158,883
shares of preferred stock were converted into 166,827 shares of common stock.
4. Litigation
The Fund is a respondent in an arbitration claim Warner v. Commonwealth
Associates Growth Fund, Inc. before the American Arbitration Association
commenced in December 1995 by Stephen J. Warner, the former President, Chief
Executive Officer and Portfolio Manager of the Fund. The claim alleges breach of
contract and fraud in connection with the termination of employment and
consulting agreements between him
<PAGE>
THE MICROCAP FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
and the Company and damages in the amount of $200,000, plus punitive damages.
The Fund has answered, moved to dismiss portions of, and asserted affirmative
defenses to, the Statement of Claim. The Fund believes that the allegations in
the Statement of Claim are without merit and intends to defend the arbitration
vigorously.
5. Subsequent Events
On October 11, 1995, Commonwealth Associates Asset Management, Inc. terminated
the Administrative Agreement with the Company effective December 10, 1995. From
such date to present, the Fund has been self administered.
<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, 1995 and 1994, the Fund had net realized
and unrealized losses from portfolio investments of $70,953 and $767,576,
respectively. For the nine months ended November 30, 1995 and 1994 the Fund had
net realized and unrealized gains from portfolio investments of $430,097 and
$508,158, respectively.
Realized Gains and Losses - For the three and nine months ended November 30,
1995, the Fund had a net realized loss from its portfolio investments of
$376,015 and $727,359, respectively. During the three months ended November 30,
1995, the Fund sold 150,000 shares of Alamar Biosciences, Inc. common stock in
the public market for $159,375, realizing a loss of $128,081. In September 1995,
the Fund sold 55,555 shares of YES! Entertainment Corporation common stock in
the public market for $305,538, realizing a loss of $393,662. Also, during the
quarter ended November 30, 1995, the Fund realized a gain of $145,728 from the
redemption of its Regency Holdings (Cayman), Inc. warrants back to the company.
During the three months ended August 31, 1995, there were no realized gains or
losses from portfolio investments. 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.
For the three and nine months ended November 30, 1994, the Fund had a net
realized gain of $258,400 and a net realized loss of $161,149 from its portfolio
investments, respectively. For the three months ended November 30, 1994, the
Fund had a $258,400 realized gain from the sale of 47,852 common shares of
Loronix Information Systems, Inc. During May and June 1994, the Fund had an
additional $18,990 gain from the sale of 100,000 common shares of Alamar
Biosciences, Inc. These gains were offset by a $438,539 realized loss from the
sale of marketable securities completed in the first half of the Fund's 1994
fiscal year. In March 1994, the Fund sold its $1,500,000 investment in EMARC,
Inc. for $1,500,000, resulting in no gain or loss.
Unrealized Gains and Losses - For the three and nine months ended November 30,
1995, the Fund had a net increase in unrealized appreciation of its portfolio
investments totaling $305,062 and $1,157,456, respectively. The $1,157,456
increase for the nine months ended November 30, 1995 consisted of a $1,366,456
net unrealized gain due to the upward revaluation of the Fund's portfolio
investments offset by a $209,000 net transfer from unrealized gain to realized
gain relating to the sale of the Fund's investments in Silverado Foods, Regency,
YES! Entertainment and Alamar, as discussed above. The $1,366,456 net unrealized
gain for the nine months ended November 30, 1995, includes the $1,500,000 upward
revaluation of the Fund's investment in Shells Seafood Restaurants, Inc., which
is negotiating with investment bankers to underwrite an initial public offering.
For the three and nine months ended November 30, 1994, the Fund had a $1,025,976
net decrease and a $669,307 net increase in unrealized appreciation of its
portfolio investments, respectively. The $669,307 increase to net unrealized
appreciation includes an $831,256 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 $161,949 net transfer from unrealized gain to
realized gain relating to the portfolio investments and marketable securities
sold during the nine month period, as discussed above.
Investment Income and Expenses
For the three months ended November 30, 1995 and 1994, the Fund had a net
investment loss of $237,081 and net investment income of $3,073, respectively.
For the nine months ended November 30, 1995 and 1994, the Fund had a net
investment loss of $100,138 and net investment income of $196,217, respectively.
An increase in interest earned from repurchase agreements for the nine months
ended November 30, 1995 was more than offset by a decrease in interest and
dividend income earned from portfolio investments for the nine months ended
November 30, 1995 compared to the same period in 1994. Interest from repurchase
agreements was $309,403 and $240,341 for the nine months ended November 30, 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 nine months ended November 30, 1995. Interest and dividends earned
from portfolio investments for the nine months ended November 30, 1995 and 1994
was $338,723 and $535,747, respectively. This decrease primarily resulted from a
decrease in the income producing debt securities held by the Fund during the
1995 period compared to the same period in 1994 and the write-off during the
1995 period of accrued interest receivable relating to the Fund's debt
investments in Weir-Jones Marketing, Inc. totaling $92,863, and Bennett
Environmental, Inc. totaling $112,266. Aggregate investment income declined by
$127,962 for the nine months ended November 30, 1995 coupled with an increase in
operating expenses of $168,393 compared to the same period in 1994. The increase
in operating expenses primarily was attributable to an increase in professional
fees and salary expense for the nine months ended November 30, 1995, compared to
the same period in 1994.
Commonwealth Associates Asset Management, Inc. (the "Administrator") was
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 received an administrative fee at the annual rate of
1% of the net assets of the Fund. Such fee was determined and payable quarterly.
For the three months ended November 30, 1995 and 1994, the administrative fee
was $42,510 and $44,701, respectively. For the nine months ended November 30,
1995 and 1994, the administrative fee was $128,533 and $136,653, respectively.
The Administrator terminated the Administrative Agreement effective December 10,
1995. The Fund has been self-administered since such termination.
Net Assets
At November 30, 1995, the Fund's net assets were $16,965,164, a decrease of
$749,909 from net assets of $17,715,073 at February 28, 1995. Net assets
resulting from operations for the nine month period increased $329,959,
comprised of $100,138 of net investment loss and $430,097 of net realized and
unrealized gain from portfolio investments. This increase was more than offset
by a $1,079,868 decrease in net assets resulting from the repurchase by the Fund
of 262,727 shares of its common stock in the public market during the period.
At November 30, 1995, the net asset value per share of common stock and
preferred stock was $7.06 and $7.41, 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 nine months ended November 30, 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 nine months ended November 30, 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
nine months ended November 30, 1995 of $329,959 increased the net asset value
per share of common and preferred stock by $.14 and $.15, respectively.
For the nine months ended November 30, 1994, the Fund had a net increase in net
assets from operations of $704,375, or $.32 per share of common stock, comprised
of net investment income of $196,217 and net realized and unrealized gain from
portfolio investments of $508,158. At November 30, 1994, the Fund's net assets
were $17,811,797, or $8.08 per share of common stock.
Liquidity and Capital Resources
The Fund invests its available cash in repurchase agreements collateralized by
securities issued by the U.S. Government or its agencies. Such investments
provide the Fund with the liquidity necessary to purchase portfolio investments
as opportunities for investment arise.
On November 30, 1995, the Fund had cash and cash equivalents totaling $9,238,487
available to fund operations and to purchase additional portfolio investments.
The available funds balance represents an increase of $204,737 from such balance
at February 28, 1995. For the three and nine months ended November 30, 1995, the
Fund earned $108,455 and $309,403 from such investments, respectively. Interest
earned from these investments in future periods is subject to fluctuations in
short-term interest rates and changes in funds available for investment.
During the nine months ended November 30, 1995, the Fund used $1,079,868 to
repurchase 262,727 shares of its common stock. Additionally, during the period,
the Fund made new and follow-on investments totaling $3,937,500 and received
$5,367,759 from the sale of certain portfolio investments and the repayment of
certain debt securities. Additionally, the Fund used $145,654 to fund operations
for the nine months ended November 30, 1995.
<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.
No matter was submitted to a vote of security holders during the period covered
by this report.
Item 5. Other Information.
On October 11, 1995, Commonwealth Associates Asset Management, Inc. terminated
the Administrative Agreement with the Fund effective December 10, 1995. From
such date to present, the Fund has been self-administered.
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 12, 1996
<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 NOVEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 5,936,806
<INVESTMENTS-AT-VALUE> 7,129,650
<RECEIVABLES> 663,617
<ASSETS-OTHER> 151,400
<OTHER-ITEMS-ASSETS> 9,238,487
<TOTAL-ASSETS> 17,183,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 217,990
<TOTAL-LIABILITIES> 217,990
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,536,706
<SHARES-COMMON-STOCK> 2,108,096
<SHARES-COMMON-PRIOR> 2,204,000
<ACCUMULATED-NII-CURRENT> (100,138)
<OVERDISTRIBUTION-NII> (95,219)
<ACCUMULATED-NET-GAINS> (2,515,688)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,192,844
<NET-ASSETS> 16,965,164
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 648,126
<OTHER-INCOME> 0
<EXPENSES-NET> 748,264
<NET-INVESTMENT-INCOME> (100,138)
<REALIZED-GAINS-CURRENT> (727,359)
<APPREC-INCREASE-CURRENT> 1,157,456
<NET-CHANGE-FROM-OPS> 329,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> 0
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<NET-CHANGE-IN-ASSETS> (871,286)
<ACCUMULATED-NII-PRIOR> (95,219)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<AVERAGE-NET-ASSETS> 17,340,119
<PER-SHARE-NAV-BEGIN> 0
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</TABLE>
