Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 33-94322
WINFIELD CAPITAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-2704241
--------------------------------- -------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
237 MAMARONECK AVENUE, WHITE PLAINS, NEW YORK 10605
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 949-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
Common Stock, par value $.01 per share................ Nasdaq National Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x] The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 22, 2001 was approximately
$7,047,126.
The number of outstanding shares of the registrant's common stock as of
June 22, 2001 was 5,346,084 shares.
================================================================================
RISKS
Pursuant to Section 64(b) of the Investment Company Act of 1940, we are
required to advise you annually that Winfield Capital Corp. (the "Company") is
engaged in a high risk business. Loans to and other investments in small
business concerns are extremely speculative. Most of such concerns are privately
held. Even if a public market for the securities of such concerns exists, the
loans and other securities purchased by the Company are often restricted from
sale or other transfer for specified and significant periods of time. Thus, such
loans and other investments have little, if any, liquidity, and the Company and
you, as its shareholders, must bear significantly larger risks, including
possible losses on such investments, than otherwise would be the case with
traditional investment companies.
In addition, the Company's capital structure includes a large amount of
debt securities, all debentures issued to the Small Business Administration (the
"SBA") at fixed interest rates. Therefore, unless and until the Company is able
to invest all or substantially all of the proceeds from such debt securities at
annualized interest or at other rates of return that substantially exceed
annualized rates of interest the Company is required to pay the SBA under these
debentures, the Company's operating results will be adversely affected which, in
turn, may depress the market value of the Company's shares of common stock.
PART I
ITEM 1. BUSINESS.
Winfield Capital Corp. (the "registrant" or the "Company") was incorporated
as a New York corporation in 1972. It is a small business investment company
("SBIC") that was licensed by the Small Business Administration (the "SBA") in
1972 under the Small Business Investment Act of 1958, as amended (the "Small
Business Investment Act"). The Company is a non-diversified investment company
that has elected to be regulated as a business development company ("BDC"), a
type of closed-end investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). The Company has elected to be taxed as a "regulated
investment company" for U.S. federal income tax purposes. The Company's offices
are located at 237 Mamaroneck Avenue, White Plains, New York 10605 where its
telephone number is (914) 949-2600. The Company can also be reached via its
website at http://www.winfieldcapital.com.
As an SBIC, the Company uses funds borrowed from the SBA, together with its
own capital, to provide loans to, and to make equity investments in,
unaffiliated business concerns that (i) do not have a net worth in excess of $18
million and do not have average net income after U.S. federal income taxes for
the two years preceding any date of determination of more than $6 million, or
(ii) meet size standards set by the SBA that are measured by either annual
receipts or number of employees, depending on the industry in which such
concerns are primarily engaged ("Eligible Concerns"). The types and dollar
amounts of the loans and other investments the Company may make are limited by
the 1940 Act, the Small Business Investment Act and the regulations of the SBA
(the "SBA Regulations"). The SBA is authorized to examine the operations of the
Company, and the Company's ability to obtain funds from the SBA is also governed
by the Small Business Investment Act and the SBA Regulations. As a BDC, the
Company is required to make available significant managerial assistance to its
portfolio companies.
The Company has no independent investment advisor. The Company's loan and
other investment decisions are made by its officers, in accordance with the
Company's established investment policies and objectives, subject to oversight
by its Board of Directors. Historically, the Company has relied on its officers
to identify new financing opportunities. Following its initial public offering
("IPO") late in 1995, the Company expanded its marketing efforts and sought
transaction referrals from venture capitalists, investment bankers, attorneys,
accountants and commercial bankers. Prior to its IPO, the Company's investments
in portfolio companies were generally structured as straight loans, or as loans
with warrants to subscribe for the purchase of equity securities of the
portfolio companies. After its IPO, the Company has sought to enter into more
transactions with portfolio companies having equity components than previously
was the case. In connection with its loans to portfolio companies with equity
components, the Company has sought and will continue to seek security interests
in and liens on the assets of the borrower. To the extent it deems necessary,
the Company also seeks to obtain personal guaranties from the principals of its
borrowers and security interests in certain of the assets of such principals.
CHARACTERISTICS OF THE COMPANY'S INVESTMENTS
The Company invests in all kinds and classes of securities issued by
portfolio companies, including, but not limited to, notes and bonds, straight,
senior, subordinated, convertible and interest-paying debentures, preferred
stock, common stock, and options and warrants to purchase the foregoing. The
Company does not have a policy that limits the amount that may be invested in
any kind or class of security, except that it intends to invest approximately
(i) one-third of its assets in straight loans or debt securities and (ii)
two-thirds of its assets in loans or debt securities with equity components,
such as conversion and exchange rights and warrants, or in direct equity
investments (common stock and preferred stock).
When the Company's investments are structured as loans, they typically are
evidenced by promissory notes or equivalent instruments with a specified
maturity or due upon demand, and often are accompanied by warrants to acquire
equity interests in the borrower for nominal consideration. The loans are
usually secured by assets of the borrower, which security interests frequently
are senior to any other secured debt financing the borrower may have in place.
When appropriate, a personal guaranty of a borrower's major stockholder or
stockholders is sought, which may also be secured by such stockholders' personal
assets. The Company's loans typically have a fixed rate of interest subject to
the maximum rate allowed by the SBA (see "SBA Regulation" below), although lower
rates may be negotiated depending on the creditworthiness of the borrowers and
other relevant factors. Typically (although there may be exceptions), such loans
require periodic payments of principal and interest that fully amortize the loan
at maturity, and mature in five years or less. In addition, the Company intends
to pursue "bridge loan" opportunities (e.g., typically with maturity dates not
more than one year) as and to the extent permitted by the SBA Regulations.
Management believes that although there can be no assurance, the performance of
its investment portfolio could be enhanced by increasing the Company's equity
investments, relative to its loan portfolio.
1
Accordingly, the Company's management intends to continue seeking more financing
opportunities with equity participation and more investments with equity
components than previously were sought by the Company. There can be no assurance
that the Company will find such opportunities on terms favorable to the Company,
if at all.
Investments that we hold in our portfolio companies are "restricted
securities," as that term is defined under Rule 144. These securities may not be
sold in the absence of registration under the 1933 Act or an exemption
therefrom. As a result, our ability to sell or otherwise transfer the securities
we hold in our portfolio will be limited. The capital stock we receive from
portfolio companies is expected to be acquired primarily in private transactions
negotiated directly with the portfolio company or an affiliate. Our management
will continue to be principally responsible for conducting negotiations with
respect to our investments in portfolio companies. In addition to securities of
public companies that we receive as a result of mergers by our portfolio
companies, we may invest a portion of our other assets in the publicly traded
securities of public companies. Such investments and other investments that are
not "qualifying assets" may not exceed 30% of the value of our total assets at
the time of any such investment.
INVESTMENT OBJECTIVES AND STRATEGIES
The Company seeks both current income and long-term growth in the value of
its assets. The Company's investments are made, and are intended to continue to
be made, with the intention of having any loan repaid within five years and any
equity investment liquidated within 5 to 10 years. Situations may arise,
however, where the Company may hold an equity interest for a longer or shorter
period of time.
Prior to May 2, 1995, when there was a change in management of the Company,
the Company's investments were made primarily in very small local retail and
service businesses. Today, the Company focuses on investments in privately held
"Eligible Concerns" in industries that management considers to be growing
industries, including, but not limited to technology and other "new economy"
businesses, computer hardware/software, and consumer products manufacturers and
distributors. There can be no assurance that the Company will continue to be
able to locate investments in such businesses on terms favorable to it. If the
Company is unable to identify such investments, it would seek to reevaluate its
overall investment strategies. The Company typically concentrates its
investments in entities that are headquartered and incorporated in the
Northeastern United States, but considers investments in other parts of the
country if they are otherwise consistent with the Company's loan and other
investment selection criteria.
Generally, the Company's existing portfolio companies are expansion stage
businesses, although some are start-up and development stage companies,
including some with negative net worth and net operating losses. Under
applicable SBA Regulations, the Company may not invest more than 20% of its
"Private Capital" in any single company without SBA approval. Under the Small
Business Investment Act and the SBA Regulations, "Private Capital" is defined as
the total of paid-in capital, other than capital obtained from federal sources
(such as the SBA) and paid-in surplus. In most instances, the Company
participates in loans and other investments with other investors. Accordingly,
the Company has been able to become involved in transactions larger than would
otherwise be possible under the investment limit of 20% of its own Private
Capital.
SELECTION OF LOAN AND OTHER INVESTMENT OPPORTUNITIES
Given the Company's objective to emphasize equity investments, the Company
uses the following criteria in selecting investment opportunities:
POTENTIALLY PROFITABLE OPERATIONS. The Company attempts to identify
companies that are profitable or that it believes will become profitable in
the future.
DEVELOPMENT STAGE COMPANIES. The Company attempts to identify and
invest in development stage companies, that is, companies with a product or
service that is beyond the testing stage. The Company generally seeks to
avoid so-called "seed capital" and start-up companies.
EXPERIENCED MANAGEMENT TEAM. The Company seeks investments in
portfolio companies that have experienced management with a substantial
ownership interest and a demonstrated ability, or the potential, to
accomplish the objectives set forth in such companies' business plan.
LIQUIDATION VALUE OF ASSETS. Although the Company is not an
"asset-based" lender, the value of assets securing its loans is an
important consideration in its loan decisions. Emphasis is placed on
balance sheet assets such as inventory, plant, property and equipment.
2
GROWTH. In addition to generating sufficient cash flow to service
their debt, the Company requires that prospective borrowers have what
management believes to have a good chance of achieving substantial annual
growth.
EXIT STRATEGY. Another investment consideration is whether there is an
opportunity to liquidate the investment in a potential portfolio company in
the future. Such opportunity generally would allow the Company to realize a
gain on its equity interests that have appreciated in value, if at all,
through public offerings, sales of the portfolio company, mergers with
other companies or repurchases by the portfolio company of the Company's
equity interests. In this connection, the Company often seeks to obtain
registration rights (demand and "piggyback") as a condition to its equity
investments.
The foregoing criteria are general guidelines rather than fixed
requirements and the Company may consider such other criteria as investment
opportunities arise.
CERTAIN NON-COMPLIANCE BY PORTFOLIO COMPANIES
Although the Company's agreements with its portfolio companies require them
to furnish the Company with periodic and/or annual financial statements and to
include financial and other covenants by its borrowers in its loan agreements,
certain of its portfolio companies fail to supply the financial statements or to
otherwise comply with the covenants required of them. The Company deals with
these failures on a case-by-case basis, and the exercise by the Company of
appropriate remedies are often influenced by the payment records of such
companies.
The aggregate face amount of the Company's outstanding loans and the value
of other portfolio investments was $33,339,717 as of March 31, 2001 with loans
and notes receivable comprising 8% (92% were performing in accordance with their
terms and 8% were non-performing), equity interests and option contracts 91% and
assets acquired in liquidation of defaulted loans 1%.
There was unrealized depreciation on loans and investments of $69,828,667
for the year ended March 31, 2001 (principally reflecting the decreased market
price of ten publicly traded portfolio companies and the decreased fair
values of six privately-held portfolio companies) compared with unrealized
appreciation of $42,284,344 for the year ended March 31, 2000 (principally
reflecting the increased market price of six publicly traded portfolio companies
offset by the decreased market price of two publicly traded portfolio companies)
and unrealized appreciation of $25,323,076 for the year ended March 31, 1999.
Management believes that both the decline in unrealized value of these
investments in the fiscal year ended March 31, 2001, and the appreciation in the
value of these investments in the prior fiscal year reflect the significant
volatility in the public equity markets in general, and the high technology
sector in particular, over the past two fiscal years.
WRITE-OFFS
During the past three fiscal years, the Company has written off loans and
investments and disposed of, at a loss, assets acquired in liquidation, in the
aggregate amount of $5,511,544 as described in the following table:
YEAR ENDED MARCH 31,
------------------------------
1999 2000 2001
-------- -------- ----------
Amount written off............................. $466,919 $864,657 $4,179,968
Amount written off as a percentage of
aggregate loans and investments and assets
acquired in liquidation as of the beginning
of the year.................................. 3.5% 1.9% 4.1%
SBA FUNDING
The Small Business Investment Act and the regulations thereunder provide
for the purchase by the SBA of subordinated debentures issued by SBICs and the
guaranty by the SBA of debentures issued by SBICs to third parties. An SBIC can
issue such debentures in a principal amount up to either 200% or 300% of its
Private Capital, depending upon various factors.
Under the current SBA Regulations, the Company has, as approved by the SBA
as of March 31, 2001, Private Capital of approximately $27,000,000, which would
enable it to sell debentures to, or with a guaranty by, the SBA up to a maximum
principal amount of approximately $81,000,000 (300% of its Private Capital). The
3
Company's ability to sell such debentures is subject to the availability of SBA
program funds and other funding limitations and compliance with the SBA
Regulations. See "SBA Regulation" below.
The SBA offers eligible SBICs the opportunity to sell "participating
securities" (preferred stock or debentures having interest payable only to the
extent of earnings) to the SBA or to entities that receive SBA guaranties in the
amount up to 200% of the SBIC's Private Capital. Although the Company has the
minimum amount of Private Capital necessary to be eligible for the SBA's
participating securities program (i.e., $10,000,000), the issuance of the
debentures in the Company's public offering may disqualify the Company from
participating in the program under the provisions of the SBA Regulations and the
1940 Act. In addition, the Company believes that, to date, only partnerships
have been allowed to issue participating securities and that corporations will
not be allowed to issue participating securities.
SBA REGULATION
SBICs, such as the Company, are licensed by the SBA as part of a program
designed to stimulate the flow of private debt and/or equity capital to
"Eligible Concerns" and "Smaller Concerns." Under current SBA Regulations and
the Small Business Investment Act, an independently owned and operated business
concern that does not have a net worth in excess of $18 million and does not
have average net income after federal income taxes for the preceding two years
of more than $6 million, or meets size standards prescribed by the SBA relating
either to annual receipts or number of employees, depending on the industry in
which such business primarily operates, is eligible to receive financial
assistance from an SBIC (hence, it is referred to in this Form 10-K as an
"Eligible Concern"). The SBA Regulations also define a "Smaller Concern," which
is a concern with a net worth of $6 million or less and average annual net
profits after taxes of $2 million or less, or depending on the industry in which
the business operates, meets criteria based on the number of its employees or
its annual receipts. Commencing with its fiscal year ended March 31, 1996, the
Company was required by the SBA Regulations to earmark at least 10% of its
financing to Smaller Concerns and in each subsequent fiscal year to earmark at
least 20% of its financing to Smaller Concerns.
SBA Regulations place certain limitations on the terms of loans by SBICs.
The maximum maturity of these loans may not exceed 20 years. A borrower from an
SBIC cannot be required during the first five years to repay, on a cumulative
basis, more principal than an amount calculated on a straight-line, five-year
amortization schedule. On straight loans (without equity components), an SBIC
can charge an interest rate of up to 19% and on loans with equity components, an
annualized interest rate of up to 14%. Notwithstanding the above, an SBIC can
charge more by first computing a base rate using either the SBA debenture rate
currently in effect, plus an applicable charge permitted by the SBA, or a base
rate using the weighted average cost of the SBIC's borrowings from the SBA and
qualified third party lenders such as banks. On loans with equity components, an
SBIC may charge interest equal to 6% above the base rate used and, in the case
of a straight loan, 11% above the base rate used.
SBICs may invest directly in the equity of their portfolio companies.
However, they may not become a general partner of a non-incorporated entity or
otherwise become jointly or severally liable for the general obligations of a
non-incorporated entity. An SBIC may acquire options or warrants in its
portfolio companies. Such options and warrants may also have redemption
provisions, subject to certain restrictions. In general, however, SBICs may not
control a portfolio company. "Control", for this purpose, is defined as the
ownership (or control) of a 50% interest in the outstanding voting securities of
a portfolio company if it is held by fewer than 50 shareholders, or if there are
50 or more shareholders, a 20% to 25% interest (depending on the holdings of
other shareholders of the portfolio company).
With certain limited exceptions, SBICs may not invest overseas, in real
estate or in passive businesses, that is, businesses that are not regular and
continuous.
REGULATION AS A BUSINESS DEVELOPMENT COMPANY
The Company is a closed-end, non-diversified investment company that has
elected to be regulated as a BDC under the 1940 Act and, as such, is subject to
regulation under that Act. Among other things, the 1940 Act contains
prohibitions and restrictions relating to transactions between the Company and
its affiliates, principal underwriters and affiliates of those affiliates or
underwriters and requires that a majority of the Company's directors be persons
other than "interested persons," as defined in the 1940 Act. In addition, the
1940 Act prohibits the Company from changing the nature of its business so as to
cease to be, or to withdraw its election as, a BDC unless so authorized by the
vote of the holders of a majority of its outstanding voting securities.
4
A BDC is permitted, under specified conditions, to issue multiple classes
of indebtedness and one class of stock having rights as to voting, liquidation
and dividends which are senior to the Company's common stock (collectively,
"Senior Securities," as defined in the 1940 Act) if the asset coverage, as
defined in the 1940 Act, of any Senior Security is at least 200% immediately
after each such issuance and certain other conditions are met. On the other
hand, because the Company is an SBIC, the only asset coverage requirement
applicable to it that would give the holders of its Senior Securities
constituting indebtedness, including the Debentures, the right to elect a
majority of the Board of Directors, if on the last business day of each of 12
consecutive calendar months, the Company failed to maintain at least 100% asset
coverage. Also, while Senior Securities constituting preferred stock are
outstanding (other than preferred stock issued to or guaranteed by the SBA),
provision must be made to prohibit any distributions to shareholders or the
repurchase of such securities or shares unless the applicable asset coverage
ratios are met at the time of the distribution or repurchase. The Company may
also borrow amounts from banks evidenced by notes not to be publicly distributed
or for temporary purposes if the borrowing does not exceed 5% of the value of
its total assets. A loan is presumed to be for temporary purposes if it is
repaid within sixty days and is not extended or renewed.
Under the 1940 Act, a BDC may not acquire any asset, other than assets of
the type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") unless,
when the acquisition is made, such Qualifying Assets represent at least 70% of
its total assets. The principal categories of Qualifying Assets relevant to the
business of the Company are the following:
(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined, in
pertinent part, in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than another SBIC that is
wholly owned by the Company; and
(c) does not have any class of securities with respect to which
margin credit may be extended by a member of a national
securities exchange, broker or dealer.
(2) Securities of any eligible portfolio company that is controlled by the
BDC.
(3) Securities received in exchange for or distributed on or with respect
to securities described in items (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal place
of business) in the United States for the purpose of making investments in the
types of securities described in items (1) or (2) above and, in order to count
the securities as Qualifying Assets for the purpose of the 70% test, the BDC
must either control the issuer of the securities or make available to the issuer
of the securities significant managerial assistance. Making available
significant managerial assistance means, among other things, any arrangement
whereby a BDC, through its directors, officers or employees, offers to provide,
and, if accepted, does so provide, significant guidance and counsel concerning
the management, operations or business objectives and policies of a portfolio
company; or in the case of an SBIC (such as the Company), making loans to a
portfolio company.
VALUATION OF INVESTMENTS
Securities that are traded on a securities exchange or the Nasdaq National
Market, which are not restricted investments, are valued at the security's last
sale price on the last trading day of the period. Securities traded
over-the-counter are valued at the closing price for the valuation date.
Investments in non-public companies securities (including equity investments,
warrants and convertible instruments) are recorded at fair value, as determined
in good faith by the Board of Directors, after consideration of all pertinent
information, including factors such as significant equity financing by
sophisticated, unrelated new investors, history of positive cash flows from
operations, the market for comparable publicly traded companies (discounted for
illiquidity) and other pertinent factors. The values assigned to these securites
are based upon available information and do not necessarily represent amounts
5
which might ultimately be realized, since such amounts depend on future
circumstances and cannot reasonably be determined until the individual positions
are liquidated.
FUNDAMENTAL AND OTHER INVESTMENT POLICIES
The Company's investment objectives are to achieve a high level of current
income from interest and long-term growth through equity interests in its
portfolio companies.
FUNDAMENTAL POLICIES
In making investments and managing its portfolio, the Company will adhere
to the following fundamental policies, which may not be changed without the
approval of the holders of 50% or more of the Company's outstanding voting
securities, or the holders of 67% or more of the Company's outstanding voting
securities present at a meeting of security holders at which holders of 50% or
more of such securities are present in person or by proxy:
1. The Company will conduct its business so as to retain its status as
an SBIC and as a BDC, and to qualify as a "regulated investment company"
(as defined under the Internal Revenue Code of 1986, as amended). In order
to retain its status as an SBIC, the Company must limit its investments to
Eligible Concerns and meet the minimum financing obligations applicable to
Smaller Concerns (see "SBA Regulation").
2. The Company will not borrow money except through the issuance of
its subordinated debentures, other debentures ranking on an equal basis
with its subordinated debentures, the SBA Debentures and through one or
more bank lines of credit.
3. The Company may issue preferred stock with such terms as the Board
of Directors may determine, subject to the requirements of the 1940 Act and
the Small Business Investment Act.
4. The Company will not (i) act as an underwriter of securities
(except to the extent it may be deemed to be an "underwriter" as defined in
the Securities Act of 1933, as amended (the "Securities Act"), of
securities purchased by it in private transactions), (ii) purchase or sell
real estate or interests in real estate or real estate investment trusts
(except that the Company may acquire real estate which collateralizes its
loans or guaranties of its loans upon defaults of such loans and may
dispose of such real estate as and when market conditions permit), (iii)
sell securities short, (iv) purchase securities on margin (except to the
extent that the registrant may be deemed to have done so as a result of its
acquisition of securities in connection with loans made to portfolio
companies which are funded with borrowed money), or (v) purchase or sell
commodities or commodity contracts, including futures contracts (except
where necessary in working out distressed loans or investments).
5. The Company may write or buy put or call options in connection with
loans to, and other investments in, portfolio companies, or rights to
require the issuer of such securities to repurchase such loans and other
investments under certain circumstances.
6. The Company has no policy with respect to concentration of
investments in a particular company, industry or groups of industries,
except that it will not loan money to, or invest in, any company if such
loan or investment exceeds 20% of the Company's Private Capital, without
SBA approval.
7. The Company may make straight loans and loans with equity
components to the extent permitted under the Small Business Investment Act
and the 1940 Act.
OTHER INVESTMENT POLICIES
The Company's investment policies described below are not fundamental
policies, and may be changed, subject to the Small Business Investment Act and
the SBA Regulations, by the Company's Board of Directors without shareholder
approval:
1. Except for subsidiaries organized by the Company to hold assets
acquired in foreclosures of defaulted loans, the Company will not acquire
(i) 50% or more of the outstanding voting securities of any issuer held by
fewer than 50 shareholders, (ii) 25% or more of the outstanding voting
securities of any issuer having 50 or more shareholders, or (iii) 20% or
more of the outstanding voting securities of any
6
issuer having 50 or more shareholders if, as a result of such acquisition,
the Company would hold a number of voting securities equal to or greater
than the largest other holding of such securities.
2. The Company will not invest in companies for the purpose of
controlling management of such companies.
3. The Company will not invest in finance companies, foreign
companies, passive businesses or real estate companies, except as permitted
by the SBA.
4. The Company has no policy with respect to portfolio turnover.
Moreover, because borrowers have certain prepayment rights pursuant to SBA
Regulations, the Company cannot control or predict the frequency of
portfolio turnover.
5. Pending the investment of its funds in Eligible Concerns (including
Smaller Concerns) or as otherwise permitted by the SBA, the Company may
invest its funds in direct obligations of, or obligations guaranteed as to
principal and interest by, the United States which mature in 15 months or
less, repurchase agreements with federally insured institutions with
respect to such obligations which mature in seven days or less, or
certificates of deposit issued by a qualified federally insured institution
which mature in one year or less, or will be deposited in a qualified
federally insured institution in accounts which may be subject to
withdrawal restrictions not to exceed one year.
In order to retain its status as a BDC, the Company may not acquire assets
(other than non-investment assets necessary and appropriate to its operations as
a BDC) if, after giving effect to such acquisition, the value of its Qualifying
Assets is less than 70% of the value of its total assets. See "Regulation as a
BDC". In order to qualify as a "regulated investment company," the Company is
required, among other things, to diversify its holdings as required under the
Internal Revenue Code of 1986, as amended. The Company qualified as a "regulated
investment company" for the fiscal year ended March 31, 2001.
COMPETITION
Many entities, including banks, lending companies (including other SBICs),
venture capital funds and other sources of capital, compete for loan
originations and investments similar to those made by the Company. The Company's
competition is not limited to entities that operate in the same geographical
area as the Company, as many of the Company's competitors operate throughout the
United States. Furthermore, competition for loan origination has increased as
the financial strength of the banking community has improved over the last few
years. Many of the Company's competitors have far greater financial and
personnel resources than the Company. In addition, many other SBICs use
professional investment advisors to seek and evaluate potential investments. The
Company does not have an independent investment advisor nor does it intend to
retain one.
FORWARD-LOOKING STATEMENTS
This report and accompanying notes to the financial statements may contain
forward-looking statements. For this purpose, any statements contained in this
report and accompanying notes to the financial statements that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate," or "continue" or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors.
PERSONNEL
As of June 22, 2001, the Company had four full-time employees (three of
whom are Messrs. Paul A. Perlin, Chief Executive Officer, David Greenberg,
Managing Director, and R. Scot Perlin, Chief Financial Officer and Secretary,
and one of whom handles clerical matters). In addition to its salaried
employees, the Company has from time to time engaged the services of independent
consultants as and when needed. The Company considers its relations with
employees to be satisfactory.
7
ITEM 2. PROPERTIES.
The Company operates its executive offices from rented quarters, consisting
of approximately 2,000 square feet, located in a four-story office building
under a lease expiring in November, 2002. The lease is cancelable at the
Company's option on 90 days prior written notice. Management considers that such
quarters will be adequate for the near term for the conduct of the Company's
business. The Company maintains its investment and business records at its
executive offices.
ITEM 3. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, the Company initiates
legal proceedings against borrowers in default and, where warranted, their
guarantors to seek payment of loan obligations and to take possession of
collateral. In the latter instances, these proceedings are sometimes followed by
court-authorized liquidations. All such proceedings require outside counsel with
attendant professional fees and expenses.
The Company has never been named as a defendant in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The registrant's common stock trades in the Nasdaq National Market under
the symbol, "WCAP." On November 30, 1999, the registrant's common stock ceased
trading on the Nasdaq SmallCap Market and the Boston Stock Exchange, where its
common stock had previously traded. The registrant transferred the listing of
its common stock to the Nasdaq National Market to increase the liquidity
thereof. The reported high and low bid quotations for the registrant's common
stock on the Nasdaq SmallCap Market from April 1, 1999 to November 29, 1999 and
on the Nasdaq National Market from November 30, 1999 to June 22, 2001 were as
follows:
COMMON STOCK
--------------------
HIGH LOW
------- --------
April 1 - June 30, 1999 ....................... $65.063 $18.0625
July 1 - September 30, 1999 ................... 28.25 9.875
October 1 - December 31, 1999 ................. 56.00 13.875
January 1 - March 31, 2000 .................... 46.00 18.8751
April 1 - June 30, 2000 ....................... 20.75 9.125
July 1 - September 30, 2000 ................... 17.188 10.313
October 1 - December 31, 2000 ................. 11.00 2.406
January 1 - March 31, 2001 .................... 5.594 2.031
April 1 - June 22, 2001 ....................... 2.69 1.55
======================================
The foregoing quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and do not necessarily represent actual
transactions.
As of June 7, 2001, the Company estimates that its shares of common stock
are held by 4,849 beneficial holders.
The Company has made no dividend distributions during the fiscal year ended
March 31, 2001, but may elect to do so in the future.
ITEM 6. SELECTED FINANCIAL DATA.
See Summary of Financial Information for the years ended March 31, 2001,
2000, 1999, 1998, and 1997 on the following page:
8
WINFIELD CAPITAL CORP.
SUMMARY OF FINANCIAL INFORMATION
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA
Total investment income .................. $ 1,185,799 $ 873,445 $ 839,897 $ 1,118,127 $ 1,436,957
Total investment expenses ................ $ 3,232,652 $ 3,432,819 $ 2,052,031 $ 1,844,342 $ 1,731,499
Net realized gains (losses) on
disposition of investments ............. $ 1,282,344 $ 30,851,848 $ 740,829 $ (184,206) $ 57,349
Unrealized (depreciation) appreciation
on loans and investments ............... $(69,828,667) $ 42,284,344 $25,323,076 $(1,074,053) $ 581,745
Net (loss) income ........................ $(70,593,176) $ 70,576,818 $24,851,771 $(1,984,474) $ 344,552
(Loss) earnings per share ................ $ (13.20) $ 13.36 $ 4.95 $ (0.40) $ 0.07
Weighted average number of shares
outstanding ............................ 5,346,084 5,282,131 5,023,361 5,023,361 5,023,361
OTHER OPERATING DATA
Number of loans and other investments
outstanding at end of period ........... 50 64 52 46 42
Number of loans and other investments
originated ............................. 7 22 13 16 7
Principal amount of loans and other
investments originated ................. $ 9,637,953 $ 18,624,388 $ 9,420,696 $11,314,223 $ 3,959,335
Investment expenses as a percentage of
average net assets ..................... 5.5% 4.8% 8.1% 19.5% 16.6%
BALANCE SHEET DATA
Loans and investment portfolio
including assets acquired in
liquidation ............................ $ 30,256,226 $102,739,179 $45,311,218 $13,364,711 $ 4,908,905
Total assets ............................. $ 49,031,295 $126,867,621 $50,128,912 $18,233,115 $20,748,682
SBA debentures ........................... $ 25,550,000 $ 20,850,000 $15,300,000 $ 8,300,000 $ 8,900,000
Common stock (including additional
paid-in capital) ....................... $ 24,806,818 $ 26,968,537 $ 9,264,680 $ 9,492,599 $10,901,063
Realized retained earnings (deficit) ..... $ 1,352,362 $ (44,848) $ (301,434) $ (58,048) $ (556,091)
Total shareholders' equity ............... $ 23,128,930 $ 93,722,106 $33,477,319 $ 8,625,548 $10,610,022
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Years Ended March 31, 2001, 2000, and 1999
------------------------------------------
INVESTMENT INCOME
Investment income increased by $312,354 from $873,445 for the year ended
March 31, 2000 to $1,185,799 for the year ended March 31, 2001, an increase of
35.8%. This reflected principally $497,160 in increased interest from
temporarily invested funds as a result of the Company's sale of investments
(primarily non-income producing equity investments) and a decreased level of new
investment activity. These increases were partially offset by decreases in
interest from small business concerns and other income of $134,726 and $51,880,
respectively due to a decrease in loan investments, partly as a result of the
Company's increased emphasis on equity investments and the prepayment of
outstanding loans.
Investment income increased by $33,548 from $839,897 for the year ended
March 31, 1999 to $873,445 for the year ended March 31, 2000, an increase of
4.0%. This reflected principally $42,755 in increased interest from temporarily
invested funds as a result of the Company's sale of investments (primarily non-
income producing equity investments) and higher prevailing interest rates. There
was also an increase in other income of $55,759 principally due to a portfolio
company stock dividend of $65,794. These increases were partially offset by
decreases in interest from small business concerns and loan processing fees of
$17,242 and $47,724, respectively due to a decrease in loan investments.
RETENTION OF NET LONG-TERM CAPITAL GAIN
The Company elected not to distribute a net long-term capital gain on a tax
basis of $1,220,385 during calendar year 2000. As a result, the Company accrued
$23,404 of federal excise tax. The Company expects to distribute this net
long-term capital gain during calendar year 2001. The Company elected to retain
an undistributed net long-term taxable capital gain of $30,543,582 for the year
ended March 31, 2000. In relation to this gain, the Company paid federal capital
gains tax of $10,690,254 and state capital gains tax of $103,688. The Company's
financial results for the year ended March 31, 2000 reflected the retention of
this net long-term capital gain. Pursuant to the requirements of Subchapter M of
the Internal Revenue Code, the Company timely notified shareholders that they
were to include their portion of the undistributed net long-term capital gain as
income for the tax year that included March 31, 2000.
INTEREST EXPENSE
Interest expense increased by $229,301 from $1,529,954 for the year ended
March 31, 2000 to $1,759,255 for the year ended March 31, 2001 due to new
indebtedness of $5,000,000 incurred in 2001 less $300,0000 repaid in 2001 to the
SBA and $3,300,000 indebtedness to the SBA incurred in the last month of 2000.
Interest expense increased by $653,416 from $876,538 for the year ended March
31, 1999 to $1,529,954 for the year ended March 31, 2000 due to new indebtedness
of $6,300,000 incurred in 2000 to the SBA less $750,000 repaid in 2000 and
$7,000,000 indebtedness to the SBA incurred in the last month of 1999.
OPERATING EXPENSES
The Company's operating expense decreased from $1,902,865 for the year
ended March 31, 2000 to $1,473,397 for the year ended March 31, 2001, primarily
as a result of decreases in professional fees of $377,386 due to a lower level
of legal fees incurred in the pending investigation relating to the indictments
filed in July 1999 against the Company's former underwriter and in other
operating expenses of $177,517 (principally related to a decrease in stock
record and financial printing costs of $89,979). Partially offsetting these
decreases, payroll and payroll related expenses increased by $83,570 due to
increased officer salaries. General and administrative expenses and depreciation
and amortization expenses also increased $31,334 and $10,531, respectively.
The Company's operating expense increased from $1,175,493 for the year
ended March 31, 1999 to $1,902,865 for the year ended March 31, 2000, primarily
as a result of an increase in professional fees of $220,812 due to legal fees
incurred in the pending investigation relating to the indictments filed in July
1999 against the Company's former underwriter as well as increased accounting
fees of $62,894. Payroll and payroll related expenses increased by $131,689 due
to increased officer salaries. Stock record and financial printing costs
increased
10
by $114,725 due to the cost of listing the Company on the Nasdaq National Market
along with increases in both stock transfer and printing costs. The Company
accrued $100,000 for state taxes as a result of the retained realized gains and
insurance expense increased $50,457 due to increases in both officers and
directors liability and fidelity bond coverage.
REALIZED GAINS OR LOSSES ON EQUITY INVESTMENTS
The Company realizes gains or losses on its equity investments or rights to
acquire equity investments upon the disposition or write-offs thereof. The
realized gain for the year ended March 31, 2001 of $1,282,344 reflected long
term capital gains on equity securities of $5,449,466 and a bad debt recovery of
$12,846 offset by write-offs totaling $4,179,968. The realized gain for the year
ended March 31, 2000 of $30,851,848 reflected long term capital gains on equity
securities of $31,578,579, short term gains on equity securities of $96,972 and
a bad debt recovery of $40,954 offset by write-offs totaling $864,657.
UNREALIZED APPRECIATION OR DEPRECIATION OF LOANS AND INVESTMENTS
As an investment company, the Company evaluates its investment portfolio
periodically to determine the fair value of the portfolio and, accordingly, does
not maintain an allowance for loan losses similar to commercial banks. Any
change in the fair value of loans and other investments is reflected in
unrealized appreciation or depreciation of loans and investments. There was
unrealized depreciation on loans and investments of $69,828,667 for the year
ended March 31, 2001 (principally reflecting the decreased market prices of ten
publicly traded portfolio companies and the decreased fair values of six
investments in privately-held portfolio companies as well as the aforementioned
realized net gain on the sale of equities) compared with unrealized appreciation
of $42,284,344 for the year ended March 31, 2000 (principally reflecting the
increased market prices of six publicly traded portfolio companies offset by the
decreased market prices of two publicly traded portfolio companies as well as
the aforementioned realized net gain on the sale of equities) and unrealized
appreciation of $25,323,076 for the year ended March 31, 1999.
OPTION CONTRACTS - DERIVATIVES
Pursuant to a letter received from the SBA in October 2000 granting
permission to use hedging activities to protect its security positions, the
Company, beginning in January 2001, utilized put and call option contracts to
minimize market risks of its investments in publicly held companies. The Company
adopted Statement of Financial Accounting Standards No. 133, as amended by
Statements No. 137 and No. 138, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, (referred to hereafter as "SFAS 133"), on January 1, 2001.
SFAS 133 requires that an entity recognize all derivative instruments in the
balance sheet and measure those financial instruments at fair value. All changes
in the fair market value of financial instruments are included as changes in the
unrealized appreciation or depreciation of investments in the Statement of
Operations. All option contracts entered into in the fiscal year ended March 31,
2001 are presented at fair value based on the market price of exchange-listed
options. The unrealized net appreciation was $842,726 on these option contracts
for the fiscal year ended March 31, 2001. As of March 31, 2001, there were no
realized gains or losses from derivative activity as all option contracts had
not become due as of year-end.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash and short-term marketable
securities totaling $17,855,691. Subsequent to March 31, 2001, the Company sold
shares in a portfolio company for gross proceeds of approximately $550,000. The
Company believes that its cash and short-term marketable securities, along with
both its possible use of additional SBA debenture funding and ability to sell
certain of its publicly traded portfolio investments, will be adequate to meet
both the investment opportunities that the Company anticipates and its working
capital needs through March 31, 2002.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
-----------------
Reports of Independent Accountants ....................... F-1
Balance Sheets ........................................... F-2
Statements of Operations ................................. F-3
Statements of Changes in Shareholders' Equity ............ F-4
Statements of Cash Flows ................................. F-5
Financial Highlights (Per Share Data and
Ratios/Supplemental Data) .............................. F-6
Notes to Financial Statements ............................ F-7 through F-16
Portfolio of Investments ................................. F-17 through F-22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 2001.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 2001.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements:
See Item 8 of Part II hereof.
(b) No reports on Form 8-K were filed during the fourth quarter of the
registrant's fiscal year ended March 31, 2001.
(c) Exhibits:
3(A). Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 1(A) to the registrant's registration
statement in SEC File No. 33-94322.
3(B). Certificate of Amendment of Certificate of Incorporation,
incorporated by reference to Exhibit 1(B) to the
registrant's registration statement in SEC File No.
33-94322.
3(C). By-laws, as amended, incorporated by reference to Exhibit 2
to the registrant's registration statement in SEC File No.
33-94322.
4(B). Form of Debenture incorporated by reference to Exhibit 3(C)
to the registrant's registration statement in SEC File No.
33-94322.
4(C). Agency Agreement for the Debentures, incorporated by
reference to Exhibit 3(D) to the registrant's registration
statement in SEC File No. 33-94322.
10(A). Indemnification Agreement, incorporated by reference to
Exhibit 4 to the registrant's registration statement in SEC
File No. 33-94322.
10(B). Stock Option Plan, incorporated by reference to Exhibit 5 to
the registrant's registration statement in SEC File No.
33-94322.
10(C). Registrant's License from SBA, incorporated by reference to
Exhibit 6 to the registrant's registration statement in SEC
File No. 33-94322.
10(E)(2). Stock Option Agreement with Paul A. Perlin, incorporated by
reference to Exhibit 8(B) to the registrant's registration
statement in SEC File No. 33-94322.
10(I). Employment Agreement with Paul A. Perlin, dated April 4,
2001 as of November 1, 2000, filed herewith.
10(J). Employment Agreement with David Greenberg, dated April 4,
2001 as of November 1, 2000, filed herewith.
11. Statement of Computation of (Loss) Earnings Per Share,
incorporated herein by reference to the Notes to the
Financial Statements included in this report.
(d) Financial Statement Schedules: The schedules specified under
Regulation S-X are either included in this Form 10-K, not applicable
or are immaterial to the Company's financial statements for each of
the three years in the period ended March 31, 2001.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
WINFIELD CAPITAL CORP.
Dated: June 26, 2001
By: /s/ PAUL A. PERLIN
---------------------------------------
PAUL A. PERLIN
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: June 26, 2001 By: /s/ PAUL A. PERLIN
---------------------------------------
PAUL A. PERLIN
CHAIRMAN OF THE BOARD
(CHIEF EXECUTIVE OFFICER) & DIRECTOR
Dated: June 26, 2001 By: /s/ R. SCOT PERLIN
---------------------------------------
R. SCOT PERLIN
(CHIEF FINANCIAL OFFICER & CHIEF
ACCOUNTING OFFICER) & DIRECTOR
Dated: June 26, 2001 By: /s/ DAVID GREENBERG
---------------------------------------
DAVID GREENBERG
MANAGING DIRECTOR & DIRECTOR
Dated: June 26, 2001 By: /s/ JOEL I. BARAD
---------------------------------------
JOEL I. BARAD
DIRECTOR
Dated: June 26, 2001 By: /s/ BARRY J. GORDON
---------------------------------------
BARRY J. GORDON
DIRECTOR
Dated: June 26, 2001 By: /s/ BRUCE A. KAUFMAN
---------------------------------------
BRUCE A. KAUFMAN
DIRECTOR
Dated: June 26, 2001 By: /s/ ALLEN L. WEINGARTEN
---------------------------------------
ALLEN L. WEINGARTEN
DIRECTOR
14
EXHIBIT INDEX
10(I). Employment Agreement with Paul A. Perlin, dated
April 4, 2001 as of November 1, 2000.
10(J). Employment Agreement with Paul A. Perlin, dated
April 4, 2001 as of November 1, 2000.
15
WINFIELD CAPITAL CORP.
FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND 2000
INDEX TO FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
--------
Report of Independent Accountants..................................... F-1
Balance Sheets
(At March 31, 2001 and 2000)....................................... F-2
Statements of Operations
(For each of the three years in the period ended March 31, 2001)... F-3
Statements of Changes in Shareholders' Equity
(For each of the three years in the period ended March 31, 2001)... F-4
Statements of Cash Flows
(For each of the three years in the period ended March 31, 2001)... F-5
Financial Highlights.................................................. F-6
Per Share Data
(For the years ended March 31, 2001 and 2000)
Ratios/Supplemental Data
(For the years ended March 31, 2001 and 2000)
Notes to Financial Statements......................................... F-7-F-16
Portfolio of Investments.............................................. F-17-F-22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Winfield Capital Corp.
(A Small Business Investment Company licensed by
the U.S. Small Business Administration):
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Winfield
Capital Corp. at March 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules listed
in the accompanying index present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PricewaterhouseCoopers LLP
New York, NY
June 13, 2001
F-1
WINFIELD CAPITAL CORP.
BALANCE SHEETS
MARCH 31,
------------------------------
2001 2000
------------- -------------
ASSETS
Investments, at value:
Loans and notes receivable (cost: $2,695,390 and $6,708,130,
respectively) ........................................................... $ 2,609,686 $ 6,573,132
Equity interests in small business concerns (cost: $30,432,064 and
$28,908,046, respectively) ............................................. 26,694,051 95,943,961
Option contracts ........................................................... 730,403 --
Assets acquired in liquidation (cost: $324,586 and $324,586, respectively) . 222,086 222,086
------------- -------------
TOTAL INVESTMENTS ................................................. 30,256,226 102,739,179
Cash and cash equivalents ...................................................... 1,993,337 23,314,112
Short-term marketable securities ............................................... 15,862,354 --
Accrued interest receivable .................................................... 188,879 142,243
Receivable from broker ......................................................... 46,599 --
Furniture and equipment (net of accumulated depreciation of $29,333
and $23,313, respectively) ................................................. 14,069 12,580
Other assets (principally deferred debenture costs) ............................ 669,831 659,507
------------- -------------
TOTAL ASSETS ...................................................... $ 49,031,295 $ 126,867,621
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debentures payable to the U.S. Small Business Administration ................... $ 25,550,000 $ 20,850,000
Subordinated debentures payable ................................................ -- 1,065,177
Income taxes payable ........................................................... 23,404 10,690,254
Accrued expenses ............................................................... 328,961 535,472
Deferred income ................................................................ -- 4,612
------------- -------------
TOTAL LIABILITIES ................................................. 25,902,365 33,145,515
------------- -------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock - $.001 par value; Authorized - 1,000,000 shares; issued and
outstanding - none
Common stock - $.01 par value; Authorized - 30,000,000 shares at March 31,
2001 and 10,000,000 shares at March 31, 2000; issued
and outstanding - 5,346,084 shares at March 31, 2001 and 2000 ........... 53,461 53,461
Additional paid-in capital ................................................. 24,753,357 26,915,076
Retained earnings (accumulated deficit) (dated May 2, 1995) ................ 1,352,362 (44,848)
Unrealized (depreciation) appreciation on investments, net ................. (3,030,250) 66,798,417
------------- -------------
TOTAL SHAREHOLDERS' EQUITY ........................................ 23,128,930 93,722,106
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $ 49,031,295 $ 126,867,621
============= =============
The accompanying notes are an integral part of the financial statements.
F-2
WINFIELD CAPITAL CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Investment income:
Interest from small business concerns ................................ $ 428,557 $ 563,283 $ 580,525
Interest from invested idle funds .................................... 733,054 235,894 193,139
Loan processing fees ................................................. 5,484 3,684 51,408
Other income ......................................................... 18,704 70,584 14,825
------------ ------------ ------------
TOTAL INVESTMENT INCOME ...................................... 1,185,799 873,445 839,897
------------ ------------ ------------
Expenses:
Interest ............................................................. 1,759,255 1,529,954 876,538
Payroll and payroll related expenses ................................. 745,544 661,974 530,285
General and administrative expenses .................................. 369,101 337,767 225,551
Professional fees .................................................... 185,050 562,436 341,624
Depreciation and amortization ........................................ 69,058 58,527 48,610
Other operating costs ................................................ 104,644 282,161 29,423
------------ ------------ ------------
TOTAL INVESTMENT EXPENSES .................................... 3,232,652 3,432,819 2,052,031
------------ ------------ ------------
INVESTMENT LOSS - NET ........................................ (2,046,853) (2,559,374) (1,212,134)
------------ ------------ ------------
Realized gains on investments, net ..................................... 1,282,344 30,851,848 740,829
Change in unrealized (depreciation) appreciation
of investments ....................................................... (69,828,667) 42,284,344 25,323,076
------------ ------------ ------------
(LOSS) GAIN ON INVESTMENTS, NET .............................. (68,546,323) 73,136,192 26,063,905
------------ ------------ ------------
NET (DECREASE) INCREASE IN
SHAREHOLDERS' EQUITY RESULTING
FROM OPERATIONS ........................................... $(70,593,176) $ 70,576,818 $ 24,851,771
------------ ------------ ------------
Per share net (decrease) increase in shareholders' equity resulting from
operations:
Basic .............................................................. $ (13.20) $ 13.36 $ 4.95
------------ ------------ ------------
Diluted ............................................................ $ (13.20) $ 12.09 $ 4.54
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-3
WINFIELD CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
RETAINED EARNINGS
(ACCUMULATED DEFICIT)
---------------------------
UNDISTRIBUTED NET UNREALIZED
COMMON STOCK ADDITIONAL NET UNDISTRIBUTED APPRECIATION
------------------------ PAID-IN INVESTMENT REALIZED (DEPRECIATION) ON
SHARES AMOUNT CAPITAL INCOME/(LOSS) GAIN/(LOSS) INVESTMENTS - NET TOTAL
----------- ----------- ------------ ------------- ------------- ----------------- ------------
Balance - April 1, 1998 ... 5,023,361 $ 50,234 $ 9,442,365 $ -- $ (58,048) $ (809,003) $ 8,625,548
Net increase (decrease)
in shareholders's
equity resulting from
operations .............. (1,212,134) 740,829 25,323,076 24,851,771
Reclassification
pursuant to SOP 93-2
as described in Note 2 .. (227,919) 1,211,148 (983,229)
----------- ----------- ------------ ------------ ------------ ------------- ------------
Balance - March 31, 1999 5,023,361 50,234 9,214,446 (986) (300,448) 24,514,073 33,477,319
Exercise of common
stock options ........... 322,723 3,227 354,996 358,223
Net increase (decrease)
in shareholders'
equity resulting
from operations ......... (2,559,374) 30,851,848 42,284,344 70,576,818
Deemed distribution
on realized gain ........ (10,690,254) (10,690,254)
Reclassification
pursuant to SOP 93-2
as described in Note 2 .. 17,345,634 2,515,512 (19,861,146) --
----------- ----------- ------------ ------------ ------------ ------------- ------------
Balance - March 31, 2000 .. 5,346,084 53,461 26,915,076 (44,848) -- 66,798,417 93,722,106
Net (decrease) increase
in shareholders'
equity resulting from
operations .............. (2,046,853) 1,282,344 (69,828,667) (70,593,176)
Reclassification
pursuant to SOP 93-2
as described in Note 2 .. (2,161,719) 2,167,873 (6,154) --
----------- ----------- ------------ ------------ ------------ ------------- ------------
Balance - March 31, 2001 .. 5,346,084 $ 53,461 $ 24,753,357 $ 76,172 $ 1,276,190 $ (3,030,250) $ 23,128,930
========= =========== ============ ============ ============ ============= ============
The accompanying notes are an integral part of the financial statements.
F-4
WINFIELD CAPITAL CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
--------------------------------------------
2001 2000* 1999*
------------ ------------ ------------
Operating activities:
Net (decrease) increase in shareholders' equity
resulting from operations ......................................... $(70,593,176) $ 70,576,818 $ 24,851,771
Adjustments to reconcile net (decrease) increase
in shareholders' equity resulting from operations
to net cash used in operating activities:
Realized (gains) on investments, net ............................ (1,282,344) (30,851,848) (740,829)
Stock dividends reinvested ...................................... (18,130) (41,059) --
Change in unrealized depreciation (appreciation) of investments . 69,828,667 (42,284,344) (25,323,076)
Depreciation and amortization of fixed assets ................... 6,020 4,771 6,577
Amortization of debenture costs ................................. 80,997 82,485 70,763
Accretion of subordinated debentures ............................ 23,823 40,837 40,837
(Increase) decrease in receivable from broker ................... (46,599) 782,624 --
(Increase) decrease in accrued interest receivable .............. (60,803) (7,236) 29,549
(Increase) decrease in other assets ............................. 83,679 (91,945) 18,559
Increase in income taxes payable ................................ 23,404 -- --
(Decrease) in deferred income ................................... (4,612) (19,684) (20,608)
(Decrease) increase in accrued expenses ......................... (206,511) 232,514 23,796
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES ...................... (2,165,585) (1,576,067) (1,042,661)
------------ ------------ ------------
Investing activities:
Purchases of short-term marketable securities ....................... (15,809,113) (338,000) (1,201,919)
Proceeds from the maturity of short-term marketable securities ...... -- 434,973 4,664,506
Proceeds from recovery of bad debt .................................. 12,846 40,954 --
Cost of assets acquired in liquidation .............................. -- -- (6,500)
Proceeds from sale of equity interests .............................. 12,085,228 32,924,581 377,907
Investments originated .............................................. (9,637,953) (18,624,388) (9,420,696)
Proceeds from collection of loans ................................... 1,343,242 1,311,171 2,187,485
Net premiums received from option contracts ......................... 112,323 -- --
Acquisition of fixed assets ......................................... (7,509) (4,554) (759)
Proceeds on sale of assets acquired in liquidation .................. -- -- 196,579
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ........ (11,900,936) 15,744,737 (3,203,397)
------------ ------------ ------------
Financing activities:
Proceeds from debentures payable to the SBA ......................... 5,000,000 6,300,000 7,000,000
Repayment of debentures payable to the SBA .......................... (300,000) (750,000) --
Repayment of subordinated debentures ................................ (1,089,000) -- --
Proceeds from exercise of options ................................... -- 358,223 --
Debenture costs paid ................................................ (175,000) (190,500) (175,000)
Payment of federal income tax - deemed distribution ................. (10,690,254) -- --
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........ (7,254,254) 5,717,723 6,825,000
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........... (21,320,775) 19,886,393 2,578,942
Cash and cash equivalents - beginning of year ....................... 23,314,112 3,427,719 848,777
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR .................... $ 1,993,337 $ 23,314,112 $ 3,427,719
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................. $ 1,740,843 $ 1,418,238 $ 799,521
============ ============ ============
Supplemental schedule of non-cash investing and financing activities:
Conversion of loans and notes receivable into equity interests ...... $ 2,714,167 $ -- $ --
============ ============ ============
Federal income tax - deemed distribution ............................ $ -- $ 10,690,254 $ --
============ ============ ============
Fixed assets fully depreciated and written off to
accumulated depreciation .......................................... $ -- $ 56,285 $ --
============ ============ ============
* Certain prior year amounts have been reclassified to conform with the 2001
presentation.
The accompanying notes are an integral part of the financial statements.
F-5
WINFIELD CAPITAL CORP.
FINANCIAL HIGHLIGHTS
YEARS ENDED MARCH 31,
---------------------------
2001 2000
----------- -----------
PER SHARE OPERATING PERFORMANCE
Shareholders' equity, beginning of period ...................... $ 17.53 $ 6.66
----------- -----------
Investment loss - net .......................................... (0.38) (0.48)
Net realized and unrealized (loss) gain
on investments ................................................. (12.82) 13.68
----------- -----------
Total from investment operations ............................... (13.20) 13.20
=========== ===========
Shareholders' equity, end of year .............................. $ 4.33 $ 17.53
=========== ===========
Per share market value, end of year ............................ $ 2.13 $ 21.38
=========== ===========
Shares outstanding, end of year ................................ 5,346,084 5,346,084
=========== ===========
RATIO/SUPPLEMENTAL DATA
Shareholders' equity, end of period ............................ $23,128,930 $93,722,106
Ratio of investment expenses to average shareholders' equity ... 5.53% 4.81%
Ratio of investment loss, net to average shareholders' equity... 3.50% 3.58%
F-6
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
1. ORGANIZATION:
Winfield Capital Corp. (the "registrant" or the "Company") was
incorporated as a New York corporation in 1972. The Company is a small
business investment company ("SBIC") that was licensed by the U.S. Small
Business Administration (the "SBA") in 1972 under the Small Business
Investment Act of 1958, as amended (the "Small Business Investment Act").
The Company is a non-diversified investment company that has elected to be
regulated as a business development company ("Business Development
Company"), a type of closed-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Beginning April 1, 1996,
the Company elected to be taxed as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended.
The Company uses funds borrowed from the SBA, together with its own
capital, to provide loans to, and make equity investments in, independently
owned and operated business concerns that, in accordance with SBA
Regulations, (i) do not have a net worth in excess of $18 million and do
not have average net income after federal income taxes for the preceding
two years of more than $6 million, or (ii) meet size standards set by the
SBA that are measured by either annual receipts or number of employees,
depending on the industry in which such concerns are primarily engaged
("Eligible Concerns"). The Company invests in all kinds and classes of
securities of portfolio companies, including, but not limited to, notes and
bonds; straight, senior, subordinated, convertible and interest-paying
debentures, preferred stock, common stock, and options and warrants to
purchase the foregoing. The Company seeks both current income and long-term
growth in the value of its assets. The Company's investments are made, and
will continue to be made, with the intention of having loans repaid within
five years and equity investments liquidated within 5 to 10 years.
Situations may arise, however, where the Company may hold an equity
interest for a shorter or longer period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Valuation of Investments
Securities that are traded on a securities exchange or the Nasdaq
National Market, which are not restricted investments, are valued at the
security's last sales price on the last trading day of the period.
Securities traded over-the-counter are valued at the closing price for the
valuation date. A valuation discount is applied if the number of securities
held is substantial in relation to the average daily trading volume.
The Company's investments in restricted securities of public companies
are valued at the closing price on the valuation date less a discount rate
of 10% to 30%, which is determined by the Board of Directors of the Company
(the "Board of Directors") based upon applicable factors such as resale
restrictions, contractual agreement, size of position held and trading
history of the portfolio company. In some cases, a discount of greater than
30% may be used based upon applicable factors including, but not limited to
(by way of example): 1) whether the portfolio company will be financially
solvent at the time such restricted securities become freely tradeable, 2)
whether the Company has knowledge of material non-public information about
the portfolio company which it is not at liberty to disclose in connection
with its sale of the securities of such portfolio company and 3) the risk
that the portfolio company's securities might be delisted from an exchange
or automated trading market with published trading reports. Investments in
restricted securities, which have been subjected to a discount as
determined by the Board of Directors amounted to $37,500 and $21,703,752 as
of March 31, 2001 and 2000, respectively.
F-7
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
Loans and other investments for which no public market exists are
stated at "fair value" as determined in good faith by the Board of
Directors. The carrying values of loans to small business concerns are
based on the Board of Directors' evaluation of the financial condition of
the borrowers and/or the underlying collateral. The values assigned are
considered to be amounts which could be realized in the normal course of
business which anticipates the Company holding the loans to maturity and
realizing the face value of the loans. The carrying value of loans normally
corresponds to cost less amortized original issue discount, if any, unless
adverse factors lead to a determination of value at a lower amount. In such
instances, the Company records an increase in unrealized depreciation of
investments to reduce the carrying value of such loans to a value, as
determined by the Board of Directors.
Investments in non-public companies securities (including equity
investments, warrants and convertible instruments) are recorded at fair
value as determined in good faith by the Board of Directors, after
consideration of all pertinent information, including factors such as
significant equity financing by sophisticated, unrelated new investors,
history of positive cash flows from operations, the market for comparable
publicly traded companies (discounted for illiquidity) and other pertinent
factors. The values assigned to these securities are based upon available
information and do not necessarily represent amounts which might ultimately
be realized, since such amounts depend on future circumstances and cannot
reasonably be determined until the individual positions are liquidated.
Certain of the Company's loans are delinquent as to the required
principal and/or interest due under the respective loan agreements. Loans
are generally considered to be in default when they become 180 days past
due pursuant to SBA regulations. However, on a case by case basis,
management will consider, based on available information, the
appropriateness of the continued accrual of interest and the carrying value
of the loan.
At March 31, 2001 and 2000, the investment portfolio included
investments totaling $19,570,709 and $21,464,505, respectively, whose
values had been estimated by the Board of Directors in the absence of
readily ascertainable market values. Because of the inherent uncertainty of
the valuations, the values may differ significantly from the values that
would have been used had a ready market for the securities existed, and the
differences could be material.
At March 31, 2001, 2000 and 1999, all investments were in small
business concerns located in the United States of America.
Realized and Unrealized Gain or Loss
Realized gains or losses are recorded upon disposition of investments
and calculated as the difference between the proceeds from such
dispositions and the cost basis determined using the specific
identification method. The cost of investments that in the Board of
Directors' judgment have become permanently impaired, in whole or in part,
are written off, and such amounts are reported as realized losses. For the
fiscal years ended March 31, 2001, 2000 and 1999, realized losses from
write-offs totaled $4,179,968, $864,657, and $466,919, respectively.
At March 31, 2001 and 2000, the aggregate gross unrealized
depreciation of investments was $10,702,658 and $2,795,920, respectively,
and the aggregate gross unrealized appreciation of investments was
$7,619,167 and $69,594,337, respectively, resulting in a net unrealized
depreciation of $3,083,491 and net unrealized appreciation $66,798,417,
respectively. All other
F-8
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
changes in the valuation of portfolio investments are included as changes
in the unrealized appreciation or depreciation of investments in the
statement of operations.
Description of Loan Terms
The Company's loans to small business concerns range up to
approximately $2,200,000 in size, typically have a five-year maturity, and,
in many cases, are convertible into common stock or are accompanied by
warrants to purchase common stock of the borrower at a nominal exercise
price, subject in most cases to certain conditions.
The loans bear interest at rates ranging from 6.7% to 18.0%, per
annum. Interest is payable in monthly, quarterly, or semi-annual
installments with principal payments payable either over the term of the
loan or at maturity. These loans are generally collateralized by the assets
of the borrower, certain of which are subject to prior liens, and/or
guarantees. The Company seeks to maximize the difference, or "spread,"
between the rate at which it borrows funds from the SBA and the rate at
which it lends these funds to small business concerns. Interest rates are
subject to a cap determined by the SBA.
The Company also participates in syndicated loans.
Option Contracts - Derivatives
The Company adopted Statement of Financial Accounting Standards No.
133 as amended by Statements No. 137 and No. 138, Accounting for Derivative
Instruments and Hedging Activities, (referred to hereafter as "SFAS 133"),
on January 1, 2001. At that time, the Company did not have any derivatives.
SFAS 133 requires that an entity recognize all derivative instruments in
the balance sheet and measure those financial instruments at fair value.
All changes in the fair market value of financial instruments are included
as changes in the unrealized appreciation or depreciation of investments in
the Statement of Operations.
Assets Acquired in Liquidation
Assets acquired in liquidation ("Liquidations") include those loan
balances for which collateral in real estate and other assets have been
obtained by the Company and which have been or are in the process of being
liquidated. These Liquidations are carried at a value as determined in good
faith by the Board of Directors based upon amounts which the Company
expects to realize upon disposition of the collateral, on a discounted
basis, after reasonable selling expenses. The Company capitalizes
expenditures related to Liquidations subsequent to foreclosure on the
collateral, and accrued interest receivable as of the date of such
foreclosure, if the Board of Directors expects such amounts to be recovered
by the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash and cash equivalents.
The carrying amount reported in the balance sheet for cash and cash
equivalents securities approximates fair value.
F-9
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
Short-term Marketable Securities
The carrying value reported in the balance sheet for short-term
marketable securities approximates fair value. Interest income earned on
short-term marketable securities for the fiscal year ended March 31, 2001,
2000 and 1999, was $130,894, $0 and $0, respectively.
Deferred Debenture Costs
SBA debenture costs are amortized over ten years, which represents the
terms of the SBA debentures.
Revenue Recognition
Interest income is recognized as it is earned on short-term marketable
securities and debt investments. Dividend income from equity investments is
recognized as of the ex-dividend date.
Deferred Income
Loan origination fees paid to the Company are deferred and amortized
over the terms of the respective loans. Upon prepayment of loans, loan
processing fees are recognized in full.
Furniture and Equipment
Furniture and equipment are carried at cost. The Company depreciates
furniture and equipment over an estimated useful life of 10 years using the
straight-line method except for computer equipment which is depreciated
under an accelerated method over five years.
Income Taxes
Effective April 1, 1996, the Company has elected to be taxed as a
regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code (the "Code"). If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of
its assets and the distribution of its net income, the Company is taxed as
a pass-through entity which acts as a partial conduit of income to its
shareholders.
In order to maintain its RIC status, the Company must in general: a)
derive at least 90% of its gross income from dividends, interest and gains
from the sale or disposition of securities b) meet investment
diversification requirements defined by the Code and c) distribute to
shareholders 90% of its net income (other than long-term capital gains).
Pursuant to Statement of Position 93-2, "Determination, Disclosure,
and Financial Statement Presentation of Income, Gain, and Return of Capital
Distributions by Investment Companies," ("SOP 93-2"), the Company may
periodically make reclassifications among certain of their capital accounts
as a result of timing and characterization of certain income and capital
gains distributions determined annually in accordance with federal tax
regulation. The reclassifications may result in reduction of capital. All
reclassifications have been reflected on the statements of changes in
shareholders' equity.
F-10
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
The Company elected to retain an undistributed net long-term taxable
capital gain of $30,543,582 for the year ended March 31, 2000. In relation
to this gain, the Company paid federal capital gains tax of $10,690,254 and
state capital gains tax of $103,688. Pursuant to the requirements of
Subchapter M of the Internal Revenue Code, the Company timely notified
shareholders that they were to include their portion of the undistributed
net long-term capital gains as income tax for the tax year that included
March 31, 2000. The Company elected not to distribute a net long-term
capital gain on a tax basis of $1,220,385 during the calendar year ended
2000. As a result, the Company accrued $23,404 of federal excise taxes. The
Company expects to distribute this net long-term capital gain during the
calendar year ended 2001.
Stock Options
The Company accounts for stock-based compensation relating to its
stock option plan using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations ("APB No. 25"). Under APB No. 25,
compensation cost is measured as the excess, if any, of the quoted market
price of the Company's shares at the date of grant over the exercise price
of the option granted. No compensation cost has been recognized in
connection with the Company's stock option plans. The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation" (see Note 7).
Per Share Data
Under SFAS No. 128 "Earnings Per Share", net increase (decrease) in
shareholders' equity per share is computed by dividing net increase
(decrease) in shareholders' equity by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock.
Risks and Uncertainties
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940,
the Company is required to advise shareholders annually that the Company is
engaged in a high risk business. Loans and other investments to small
business concerns are extremely speculative. Most of such concerns are
privately held. Even if a public market for the securities of such concerns
exists, the loans and other securities purchased by the Company are often
restricted against sale or other transfer for specified periods of time.
Thus, such loans and other investments have little, if any, liquidity, and
the Company must bear significantly larger risks, including possible losses
on such investments, than would be the case with traditional investment
companies. The market value of public securities may fluctuate
significantly in response to factors which are beyond the Company's
control.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
F-11
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
assets and liabilities at the date of the financial statements and the
reported amounts of income and expense during the reporting period. The
most significant estimates relate to the valuation of securities. Actual
results could differ from those estimates.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Short-term marketable securities
As of March 31, 2001, short-term marketable securities were comprised
of the following:
U.S. Government obligations..................... $ 7,548,674
Certificates of deposit......................... 8,313,680
-----------
$15,862,354
===========
As of March 31, 2001, unrealized appreciation on short-term marketable
securities was $53,241.
Debentures payable to the U.S. Small Business Administration
The carrying amount of the Company's debentures payable to the SBA
approximates fair value.
Option Contracts
Beginning in January 2001, the Company utilized put and call option
contracts to minimize market risks of its investments in publicly held
companies. All option contracts entered into in the fiscal year ended March
31, 2001 are presented at fair value based on the market price of
exchange-listed options. The unrealized net appreciation was $842,726 on
these option contracts for the fiscal year ended March 31, 2001. As of
March 31, 2001, there were no realized gains or losses from derivative
activity as all option contracts had not become due as of year-end.
F-12
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
4. DEBENTURES PAYABLE TO THE U.S. SMALL BUSINESS ADMINISTRATION:
Debentures payable to the SBA at March 31, 2001, with interest payable
semi-annually, consist of the following:
INTEREST RATE
Amount DUE DATE (PER ANNUM)
----------- -------- -------------
$ 900,000............................. 09/01/01 8.330%
750,000............................. 09/01/05 6.875%
600,000............................. 09/01/05 6.875%
5,000,000............................. 06/01/06 7.710%
3,000,000............................. 03/01/09 6.240%
4,000,000............................. 03/01/09 6.240%
3,000,000............................. 09/01/09 7.220%
3,300,000............................. 03/01/10 7.640%
5,000,000............................. 03/01/11 6.353%
-----------
$25,550,000
===========
Under the terms of the debentures, the Company may not repurchase or
retire any of its capital stock, make any distributions to its shareholders
other than dividends out of retained earnings pursuant to SBA regulations
or increase officers' salaries without the prior written approval of the
SBA. In January 2001, the Company paid non-refundable commitment fees of
$150,000 to the SBA to reserve and draw down $5,000,000 of SBA Guaranteed
Debentures plus an underwriters fee of $25,000. In November 1999, the
Company paid a non-refundable commitment fee of $33,000 to the SBA to
reserve $3,300,000 of Guaranteed Debentures. Additional fees of $82,500
have been charged to the Company with the drawdown in November 1999 of the
$3,300,000. An additional fee of $175,000 has been charged to the Company
with the drawdown in January 1999 of $7,000,000 of such SBA Debentures.
5. SUBORDINATED DEBENTURES:
In October 1995, in conjunction with its public offering of common
stock, the Company issued 6.5% subordinated debentures due in October 2000
with warrants attached. The debentures were unsecured with no sinking fund
provision and were not issued under a trust agreement. The debentures had
been discounted to yield an effective interest rate of 8.0%. At March 31,
2000, the debentures were carried, net of unamortized discount, as follows:
2000
----------
Face value of debentures................................... $1,089,000
Less, unamortized discount................................. 23,823
----------
$1,065,177
==========
The debentures were fully paid in October 2000.
F-13
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
6. COMMITMENTS:
The Company has operating leases on an office facility expiring
through November 30, 2002 with aggregate minimum rental commitments as
follows:
FISCAL YEAR ENDING
MARCH 31,
------------------
2002........................................... $ 41,406
2003........................................... 28,251
--------
$ 69,657
========
Rent expense was $41,817, $40,069 and $38,948 for the years ended
March 31, 2001, 2000 and 1999, respectively.
In November 2000, the Company entered into employment agreements with
two officers which expire October 31, 2002. The agreements provide for
aggregate compensation of $541,080 in the first year and $568,134 in the
second year.
7. STOCK OPTION PLAN:
In October 1995 and amended by shareholder vote in September 1997, the
Company adopted the 1995 stock option plan (the "Plan") by which 1,250,000
shares of common stock were reserved for issuance pursuant to options
granted under the Plan. Under the Plan, options intended to qualify as
"incentive stock options" under Section 422 of the Code ("Qualified
Options"), options not intended to qualify as qualified options, stock
appreciation rights ("SARs") and shares of Restricted Common Stock may be
granted or issued.
Qualified Options granted to Eligible Employees (as defined in the
Plan) will be exercisable at a price equal to the fair market value of the
shares at the time the Qualified Option is granted, or, if no such market
value is determinable, at the current net asset value of such shares,
except for options granted to any employee who owns 10% or more of the
outstanding stock of the Company (a "10% stockholder"), for which the
exercise price may not be less than 110% of the current fair market value
of the common stock. If the aggregate fair market value (determined at the
time the Qualified Option is granted) of the shares exercisable for the
first time by any grantee during any calendar year exceeds $100,000, such
excess shares may not be treated as a Qualified Option. No Qualified Option
may be exercised more than 10 years after the date on which it is granted,
except that such period may not exceed five years in the case of an option
granted to a 10% stockholder.
Options not intended to qualify as qualified options may be granted to
Eligible Employees under the Plan and shall have such exercise prices and
such other terms and conditions as the Compensation Committee (the
"Committee") may determine in its discretion, subject to the requirements
of the 1940 Act.
The Plan is administered by the Board of Directors. The Board of
Directors will determine who is eligible to participate in the Plan and the
number of shares, if any, on which options are to be granted, the SARs, if
any, to be granted with respect to such options and the shares of
restricted Common Stock, if any, to be issued, to eligible parties.
Options granted under the Plan will not be transferable, other than by
the laws of descent and distribution, and during the grantee's life may be
exercised only by such grantee. All rights to
F-14
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
exercise options will terminate upon termination for cause of the holder's
employment or directorship.
The Plan also provides that shares of restricted Common Stock may be
granted to eligible employees on such terms and in such amounts as the
Committee determines. Such shares of Stock will be issued under a written
agreement which will contain restrictions on transfers thereof as may be
required by law and as the Committee may determine in its discretion.
The Plan will terminate when there have been granted shares of Common
Stock and options on the total number of shares authorized by the Plan or
by action of the Board of Directors, but in no event later than June 12,
2005. The authorized number of shares may be increased, and the Plan's date
of termination may be extended, only by shareholder action.
Stock option activity was as follows:
2001 2000 1999
------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- --------- -------- --------- --------
Balance, beginning of fiscal year..... 862,563 $ 1.17 1,185,286 $ 1.16 1,249,572 $ 1.16
Granted............................... -- -- --
Exercised............................. -- (322,723) 1.11 --
Expired............................... -- -- (64,286) 1.16
------- --------- ---------
Balance, end of fiscal year........... 862,563 1.17 862,563 1.17 1,185,286 1.16
------- --------- ---------
Options exercisable
at end of fiscal year............... 778,563 1.14 778,563 1.14 1,101,286 1.12
======= ========= =========
Had the Company measured compensation expense under SFAS No. 123 there
would be no change to net income and net income per share for the years
ended March 31, 2001, 2000 and 1999.
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants - expected volatility of 40%; risk-free
interest rate of approximately 6.1%; and expected lives ranging from 3 to 6
years.
8. CONCENTRATION OF CREDIT AND MARKET RISK:
Financial instruments, which potentially subject the Company to
concentrations of credit risk consists of cash and cash equivalents and
short-term marketable securities of $17,855,691 and $23,314,112 at March
31, 2001 and 2000, respectively. Cash is invested with banks in amounts
that, at times, exceed insurable limits. Short-term marketable securities
are invested in U.S. government obligations and certificates of deposits.
As of March 31, 2001, 51% of the Company's total investment market
value is held in five equity securities, Commerce One, Inc., Engenia
Software, Inc., Evoke Software Corporation, Open Solutions, Inc., and
Silicon Motion, Inc. As of March 31, 2000, 60% of the Company's total
investment market value was held in two equity securities, Commerce One,
Inc. and Cyberian Outpost, Inc.
F-15
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
9. (LOSS) EARNINGS PER COMMON SHARE:
The reconciliation of basic and diluted (loss) earnings per common
share computation is as follows:
YEARS ENDED MARCH 31,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Basic and diluted (loss) earnings per common share
Net (loss) earnings available for common stock
equivalent shares deemed to have a dilutive effect $(70,593,176) $ 70,576,818 $ 24,851,771
============ ============ ============
Per share net (decrease) increase in shareholders'
equity resulting from operations
Basic ............................................ $ (13.20) $ 13.36 $ 4.95
============ ============ ============
Diluted .......................................... $ (13.20) $ 12.09 $ 4.54
============ ============ ============
Shares used in computation:
Basic
Weighted average common shares ................. 5,346,084 5,282,131 5,023,361
============ ============ ============
Diluted:
Weighted average common shares ................. 5,346,084 5,282,131 5,023,361
------------ ------------ ------------
Common stock equivalents ....................... (A) 554,428 453,300
============ ============ ============
5,346,084 5,836,559 5,476,661
============ ============ ============
(A) For the year ended March 31, 2001, the effect of exercising the outstanding
stock options would have been anti-dilutive and, therefore, the use of
common stock equivalent shares was not considered.
F-16
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2001
LOANS AND NOTES RECEIVABLES
LOAN
MATURITY INTEREST FAIR % OF NET
COMPANY NAME INDUSTRY DATE RATE(%) COST VALUE ASSETS
- ------------------------------------- -------------------- --------- -------- ---------- ---------- --------
LOANS
D&S Diner Rte 7 Cobleskill Diner
Corp.(a)(b) Restaurant 16-Oct-00 16.25 $ 24,049 $ -- 0.0%
H. Lockings Corp. Food Service 19-Jul-95 16.25 26,366 26,366 0.1%
HPA Monon Corp. Trailer Manufacturer 15-May-02 12.00 2,000,000 2,000,000 8.6%
No-Name Deli/Grocery, Inc.(a) Food Service 01-Aug-93 16.50 144,979 144,979 0.6%
Phone Management Enterprises, Inc.(a) Communication 18-Sep-01 None 61,655 -- 0.0%
Senior Housing Concepts Assisted Living 09-Sep-01 18.00 180,000 180,000 0.8%
NOTES RECEIVABLE
Gabriel Lamanna Real Estate 01-Mar-04 11.50 53,808 53,808 0.2%
957 South Elmora, Inc.(a) Real Estate 01-Dec-04 7.50 78,150 78,150 0.3%
Vassar Development Corp. Real Estate 07-Apr-03 10.00 126,383 126,383 0.5%
---------- ---------- -----
Total Loans and Notes Receivable $2,695,390 $2,609,686 11.1%
========== ========== =====
- -----------
(a) non-income producing or past due as to required principal and/or interest
(b) foreclosed upon
F-17
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2000
LOANS AND NOTES RECEIVABLES
LOAN
MATURITY INTEREST FAIR % OF NET
COMPANY NAME INDUSTRY DATE RATE(%) COST VALUE ASSETS
- ------------------------------------- -------------------- --------- -------- ---------- ---------- --------
LOANS
D&S Diner Rte 7 Cobleskill Diner
Corp.(a)(b) Restaurant 16-Oct-00 16.25 $ 30,009 $ 5,009 0.0%
Diversified Development, LLC (c) Land Development 23-Dec-02 16.00 430,000 430,000 0.5%
Diversified Development, LLC Land Development 20-Jun-01 14.00 600,000 600,000 0.6%
e-Media, LLC (d) Web Design 07-Jun-00 10.00 2,200,000 2,200,000 2.3%
H. Lockings Corp. Food Service 19-Jul-95 16.25 30,765 30,765 0.0%
HPA Monon Corp. Trailer Manufacturer 15-May-02 12.00 2,000,000 2,000,000 2.1%
Improved Drinking Water & Pool Co.(c) Swimming Pools 31-Dec-99 12.00 2,000 2,000 0.0%
Matt-Con Services Corp. Construction 01-Nov-99 10.00 29,209 29,209 0.0%
(formerly Francis A. Lee, Inc.)
No-Name Deli/Grocery, Inc. (a) Food Service 01-Aug-93 16.50 142,484 52,484 0.1%
Phone Management Enterprises, Inc.(a) Communication 18-Sep-01 None 62,839 42,841 0.0%
Pseudo Programs, Inc. (d) Web Media 02-Aug-00 8.50 500,000 500,000 0.5%
Senior Housing Concepts Assisted Living 12-Sep-00 18.00 380,000 380,000 0.4%
NOTES RECEIVABLE
Gabriel Lamanna Real Estate 01-Mar-04 11.50 68,012 68,012 0.1%
957 South Elmora, Inc. (a) Real Estate 01-Dec-04 7.50 89,280 89,280 0.1%
Vassar Development Corp. Real Estate 07-Apr-03 10.00 143,532 143,532 0.2%
---------- ---------- ----
Total Loans and Notes Receivable $6,708,130 $6,573,132 6.9%
========== ========== ====
- -----------
(a) non-income producing or past due as to required principal and/or interest
(b) foreclosed upon
(c) repaid subsequent to year end
(d) converted into equity subsequent to year end
F-18
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2001
EQUITY INTERESTS
COMPANY NAME INDUSTRY NUMBER OF SHARES
- ----------------------------- -------------------------- -----------------------------------------
Accent Optical Technologies, Inc. Optoelectronics 585,366 Shares, Unregistered Series A Preferred Stock
Big Engines Acquisition Corporation E-Marketing Services 52,631 Shares, Unregistered Series A Preferred Stock
(formerly Big Foot IMS, Inc.)
Capstone Turbine Corporation (a) Alternative Energy 70,000 Shares, Common Stock
Commerce One, Inc. (a) Enterprise 354,018 Shares, Common Stock
Procurement Software 331,128 Shares, Common Stock
Creative Foods, Inc. (a) Specialty Baking Warrant to Purchase Common Stock
Cyberian Outpost, Inc. (a) On-Line Retailer 466,330 Shares, Common Stock
375,000 Shares, Common Stock
489,130 Shares, Common Stock
79,395 Shares, Common Stock
National Center Residences, LLC Dormitory Management Preferred Return Units
(formerly Dowling Residences LLC)
e-Media, Inc. Rich Media Delivery 586,667 Shares, Unregistered Series A Preferred Stock
Engenia Software, Inc. Collaborative Services Software 418,680 Shares, Unregistered Series C Preferred Stock
EoExchange, Inc. Information Search Platform 233,644 Shares, Unregistered Series D Preferred Stock
Eprise Corporation (a) Web Content Management 127,323 Shares, Restricted Common Stock
etang.com, Inc. Internet Service Provider 60,000 Shares, Unregistered Series B Preferred Stock
Evoke Software Corporation Data Management Software 1,219,512 Shares, Unregistered Series E Preferred Stock
HPA Monon Corp. Trailer Manufacturer 625,000 Shares, Unregistered Convertible
Preferred Stock
HearMe (a) VoIP Application Platform 227,273 Shares, Common Stock
Hewlett-Packard Company (a) Computer Hardware & Storage 27,818 Shares, Common Stock
Homepoint Corporation Home Furnishings Management 10,875 Shares, Unregistered Series B Preferred Stock
Software
InfoSpace.com, Inc. (a) Internet Infrastructure Services 40,016 Shares, Common Stock
5,012 Shares, Common Stock
Independence Brewing Co. (a) Brewing 949,941 Shares, Common Stock
Information Markets Corp. Knowledge Sharing Solutions 328,947 Shares, Unregistered Series B Preferred Stock
Internet Gift Registries, Inc. On-line Gift Registry 50,000 Shares, Unregistered Series B Preferred Stock
Warrant to purchase 60,000 shares of common stock
MarketFirst Software, Inc. E-Marketing Solutions 938,881 Shares, Unregistered Series D Preferred Stock
myGeek.com, Inc. On-Line Personal Shopper 287,969 Shares, Unregistered Series A Preferred Stock
NeoPlanet, Inc. Branding Solutions 62,448 Shares, Unregistered Series B Preferred Stock
Open Solutions, Inc. Electronic Commerce Banking & 281,116 Shares, Unregistered Series F Preferred Stock
Enterprise Processing Applications
Petroleum Place, Inc. Energy Internet Marketplace 25,372 Shares, Unregistered Series C Preferred Stock
and Portal
Rowecom Inc. (a) Intranet Knowledge Subscriptions 133,476 Shares, Common Stock
ScreamingMedia Inc. (a) Digital Content Network 133,333 Shares, Common Stock
31,849 Shares, Common Stock
Silicon Motion, Inc. Semiconductors 438,597 Shares, Unregistered Series E Preferred Stock
Smith & Wollensky Restaurant Group, Owns and Manages Restaurants 16,920 Shares, Unregistered Series A Preferred Stock
Inc. (formerly New York Restaurant
Group, Inc.)
Styleclick, Inc. (a) Web Design & Merchandising Warrant to Purchase Common Stock
U.S. Wireless Data, Inc. (a) Internet-based Wireless 83,333 Shares, Restricted Common Stock
Transaction Processing
Total Equity Interests
COST OR % OF
CONTRIBUTED FAIR NET
Company Name VALUE VALUE ASSETS
- ----------------------------- ------------ ------------ ------
Accent Optical Technologies, Inc. $ 1,200,000 $ 1,200,000 5.2%
Big Engines Acquisition Corporation 499,994 166,998 0.7%
(formerly Big Foot IMS, Inc.)
Capstone Turbine Corporation (a) 466,900 1,787,625 7.7%
Commerce One, Inc. (a) 411,634 2,972,689 12.9%
499,998 2,780,482 12.0%
Creative Foods, Inc. (a) -- 530 0.0%
Cyberian Outpost, Inc. (a) 715,040 262,311 1.1%
1,000,000 210,938 0.9%
750,000 275,136 1.2%
254,930 44,660 0.2%
National Center Residences, LLC 170,418 170,418 0.7%
(formerly Dowling Residences LLC)
e-Media, Inc. 2,200,000 1,100,000 4.8%
Engenia Software, Inc. 2,600,002 2,600,002 11.2%
EoExchange, Inc. 499,998 299,998 1.3%
Eprise Corporation (a) 500,000 75,171 0.3%
etang.com, Inc. 500,000 500,000 2.2%
Evoke Software Corporation 2,500,000 2,500,000 10.8%
HPA Monon Corp. -- -- 0.0%
HearMe (a) 1,500,001 102,273 0.4%
Hewlett-Packard Company (a) 491,882 869,869 3.8%
Homepoint Corporation 725,036 181,259 0.8%
InfoSpace.com, Inc. (a) 400,129 80,116 0.3%
50,000 10,009 0.0%
Independence Brewing Co. (a) 4,755 636 0.0%
Information Markets Corp. 499,999 499,999 2.2%
Internet Gift Registries, Inc. 500,000 500,000 2.2%
MarketFirst Software, Inc. 999,908 499,908 2.2%
myGeek.com, Inc. 1,000,000 100,000 0.4%
NeoPlanet, Inc. 750,000 187,500 0.8%
Open Solutions, Inc. 2,620,000 2,620,000 11.3%
Petroleum Place, Inc. 1,499,992 1,499,992 6.5%
Rowecom Inc. (a) 1,302,726 90,096 0.4%
ScreamingMedia Inc. (a) 470,400 203,999 0.9%
185,043 57,328 0.2%
Silicon Motion, Inc. 2,000,001 2,000,001 8.6%
Smith & Wollensky Restaurant Group, 163,278 112,859 0.5%
Inc. (formerly New York Restaurant
Group, Inc.)
Styleclick, Inc. (a) -- -- 0.0%
U.S. Wireless Data, Inc. (a) 500,000 131,249 0.6%
------------ ------------ -----
Total Equity Interests $ 30,432,064 $ 26,694,051 115.3%
============ ============ =====
- -----------------------------
(a) Publicly traded at March 31, 2001
F-19
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2000
EQUITY INTERESTS
COMPANY NAME INDUSTRY NUMBER OF SHARES
- -------------------------- -------------------------- ----------------------------------------------------------
Big Foot IMS, Inc. E-Marketing Services 52,631 Shares, Unregistered Series A Preferred Stock
Bluestone Software, Inc. (a) Software Provider 87,170 Shares, Restricted Common Stock
Capstone Turbine Corporation Alternative Energy 187,500 Shares, Unregistered Series G Preferred Stock
Commerce One, Inc. (a) Enterprise 252,009 Shares, Common Stock
Procurement Software 165,564 Shares, Restricted Common Stock
Cool Zone, Inc. Cooling Systems 40,000 Shares, Unregistered Common Stock
Creative Foods, Inc. (a) Specialty Baking Warrant to Purchase Common Stock
Cyberian Outpost, Inc. (a) On-Line Retailer 466,330 Shares, Common Stock
375,000 Shares, Common Stock
489,130 Shares, Common Stock
79,395 Shares, Common Stock
Diversified Development, LLC. Land Development Warrant to Purchase Common Stock
Dowling Residences LLC. Dormitory Management Preferred Return Units
DRS Technologies, Inc. (a) Computer Systems Warrant to purchase 25,000 shares of Common Stock
(bought NAI Technologies, Inc.) (from exchange of NAI Technologies, Inc. warrant)
EoExchange, Inc. Portal and Search Engine 233,644 Shares, Unregistered Series D Preferred Stock
Eprise Corporation (a) Web Content Management 127,323 Shares, Restricted Common Stock
E-Stamp Corporation (a) Internet Postage 121,241 Shares, Restricted Common Stock
Service 20,100 Shares, Common Stock
etang.com, Inc. Internet Service Provider 60,000 Shares, Unregistered Series B Preferred Stock
HPA Monon Corp. Trailer Manufacturer 625,000 Shares, Unregistered Convertible
Preferred Stock
HQ Global Workplaces, Inc. Office Leasing 65,000 Shares, Unregistered Common Stock
(formerly Alliance National, Inc.)
HearMe (a) On-Line Communities and 227,273 Shares, Common Stock
(formerly Mpath Interactive, Inc.) Audio Technology
Homepoint Corporation On-line Home Furnishings 10,875 Shares, Unregistered Series B Preferred Stock
InfoSpace.com, Inc. (a) Internet Infrastructure 22,558 Shares, Common Stock
2,506 Shares, Restricted Common Stock
Independence Brewing Co. (a) Brewing 949,941 Shares, Common Stock
Internet Gift Registries, Inc. On-line Gift Registry 50,000 Shares, Unregistered Series B Preferred Stock
Warrant to purchase 60,000 shares of common stock
Juno Online Services, Inc. (a) Internet Service Provider 256,846 Shares, Common Stock
MarketFirst Software, Inc. E-Marketing Solutions 938,881 Shares, Unregistered Series D Preferred Stock
myGeek.com, Inc. On-Line Personal Shopper 287,969 Shares, Unregistered Series A Preferred Stock
NeoPlanet, Inc. Branding Solutions 62,448 Shares, Unregistered Series B Preferred Stock
New York Restaurant Group, Inc. Owns and Manages Restaurants 16,920 Shares, Unregistered Series A Preferred Stock
Open Port Technology, Inc. IP Network Communication 621,118 Shares, Unregistered Series E Preferred Stock
Services Software
Open Solutions, Inc. Electronic Commerce Banking & 281,116 Shares, Unregistered Series F Preferred Stock
Enterprise Processing Applications
Petroleum Place, Inc. Energy Internet Marketplace 25,372 Shares, Unregistered Series C Preferred Stock
and Portal
PNV Inc. Trucking Community 93,750 Shares, Restricted Common Stock
(formerly Park N'View Inc.) (a) Telecommunications. Cable TV 7,018 Shares, Restricted Common Stock
and Internet Access
Pseudo Programs, Inc. On-Line Programming 462,963 Shares, Unregistered Series D Preferred Stock
Rowecom Inc. (a) Intranet Knowledge Subscriptions 153,676 Shares, Common Stock
ScreamingMedia Inc. Digital Content Network 42,000 Shares, Unregistered Series B Preferred Stock
Styleclick.com, Inc. (a) On-Line Retailer 47,000 Shares, Common Stock
SynQuest, Inc. Enterprise Optimization Software 40,300 Shares, Unregistered Series G Preferred Stock
TeraStor Corporation Data Storage Technology 485,437 Shares, Unregistered Series E Preferred Stock
U.S. Wireless Data, Inc. (a) Internet-based Wireless 50,000 Shares, Unregistered Series C Preferred Stock
Transaction Processing
Vivid Semiconductor, Inc. Semi-Conductor 440,000 Shares, Unregistered Series E Preferred Stock
Manufacturer 79,366 Shares, Unregistered Series F-1 Preferred Stock
Total Equity Interests
COST OR % OF
CONTRIBUTED FAIR NET
COMPANY NAME VALUE VALUE ASSETS
- ---------------------------- ------------ ------------ -----
Big Foot IMS, Inc. $ 499,994 $ 499,994 0.5%
Bluestone Software, Inc. (a) 749,999 2,059,391 2.2%
Capstone Turbine Corporation 750,000 750,000 0.8%
Commerce One, Inc. (a) 586,054 33,851,109 36.1%
499,998 17,297,299 18.5%
Cool Zone, Inc. 200,000 25,000 0.0%
Creative Foods, Inc. (a) -- 3,680 0.0%
Cyberian Outpost, Inc. (a) 715,040 3,567,425 3.8%
1,000,000 2,868,750 3.1%
750,000 3,741,845 4.0%
254,930 607,372 0.6%
Diversified Development, LLC. -- -- 0.0%
Dowling Residences LLC. 198,004 198,004 0.2%
DRS Technologies, Inc. (a) -- -- 0.0%
(bought NAI Technologies, Inc.)
EoExchange, Inc. 499,998 499,998 0.5%
Eprise Corporation (a) 500,000 1,403,736 1.5%
E-Stamp Corporation (a) 999,998 625,907 0.7%
341,700 133,414 0.1%
etang.com, Inc. 500,000 500,000 0.5%
HPA Monon Corp. -- -- --
HQ Global Workplaces, Inc. -- 58,500 0.1%
(formerly Alliance National, Inc.)
HearMe (a) 1,500,001 5,164,779 5.5%
(formerly Mpath Interactive, Inc.)
Homepoint Corporation 725,036 725,036 0.8%
InfoSpace.com, Inc. (a) 450,000 2,952,711 3.2%
50,000 218,681 0.2%
Independence Brewing Co. (a) 4,755 3,819 0.0%
Internet Gift Registries, Inc. 500,000 500,000 0.5%
Juno Online Services, Inc. (a) 1,646,661 3,640,792 3.9%
MarketFirst Software, Inc. 999,908 999,908 1.1%
myGeek.com, Inc. 1,000,000 1,000,000 1.1%
NeoPlanet, Inc. 750,000 750,000 0.8%
New York Restaurant Group, Inc. 163,278 163,278 0.2%
Open Port Technology, Inc. 1,000,000 1,000,000 1.1%
Open Solutions, Inc. 2,620,000 2,620,000 2.8%
Petroleum Place, Inc. 1,499,992 1,499,992 1.6%
PNV Inc. 750,000 295,313 0.3%
(formerly Park N'View Inc.) (a) 65,801 22,109 0.0%
Pseudo Programs, Inc. 500,000 500,000 0.5%
Rowecom Inc. (a) 1,499,997 2,351,241 2.5%
ScreamingMedia Inc. 470,400 470,400 0.5%
Styleclick.com, Inc. (a) 516,236 465,299 0.5%
SynQuest, Inc. 250,263 250,263 0.3%
TeraStor Corporation 500,000 509,708 0.5%
U.S. Wireless Data, Inc. (a) 500,000 500,000 0.5%
Vivid Semiconductor, Inc. 1,650,000 550,000 0.5%
250,003 99,208 0.1%
------------ ------------ -----
Total Equity Interests $ 28,908,046 $ 95,943,961 102.2%
============ ============ =====
- --------------------------
(a) Publicly traded at March 31, 2000
F-20
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2001
OPTION CONTRACTS
PREMIUM % OF
(RECEIVED)/ FAIR NET
UNDERLYING SECURITY NUMBER OF CONTRACTS MATURITY DATE PAID VALUE ASSETS
- -------------------------------- --------------------------- ------------- ----------- ----------- ------
Capstone Turbine Corporation (a) 200 Put Option Contracts 18-May-01 $ 73,700 $ 28,740 0.1%
200 Call Option Contracts 18-May-01 (87,550) (90,000) -0.4%
500 Put Option Contracts 17-Aug-01 314,125 175,000 0.8%
500 Call Option Contracts 17-Aug-01 (350,875) (400,000) -1.7%
Commerce One, Inc. (a) 1,000 Put Option Contracts 20-Jul-01 430,248 1,029,800 4.5%
1,000 Call Option Contracts 20-Jul-01 (491,971) (13,137) -0.1%
---------- ---------- ----
Total Option Contracts $ (112,323) $ 730,403 3.2%
========== ========== ====
- ---------
(a) Publicly traded at March 31, 2001
F-21
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2001 AND 2000
ASSETS ACQUIRED IN LIQUIDATION
MARCH 31, 2001
----------------------------------
FAIR % OF NET
COMPANY NAME COST VALUE ASSETS
- ------------------------------------- -------- -------- --------
Maypat Realty Corp. ......................... $162,063 $ 77,063 0.3%
The Partition Corp. ......................... 137,816 137,816 0.6%
Suburban Enterprises, Inc. .................. 24,707 7,207 0.0%
-------- -------- ----
TOTAL ASSETS ACQUIRED IN LIQUIDATION ..... $324,586 $222,086 0.9%
======== ======== ====
MARCH 31, 2000
----------------------------------
FAIR % OF NET
COMPANY NAME COST VALUE ASSETS
- ------------------------------------- -------- -------- --------
Maypat Realty Corp. ......................... $162,063 $ 77,063 0.1%
The Partition Corp. ......................... 137,816 137,816 0.1%
Suburban Enterprises, Inc. .................. 24,707 7,207 0.0%
-------- -------- ----
TOTAL ASSETS ACQUIRED IN LIQUIDATION ..... $324,586 $222,086 0.2%
======== ======== ====
F-22