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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002 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 21, 2002 was approximately
$3,969,010.
The number of outstanding shares of the registrant's common stock as of
June 21, 2002 was 5,346,084 shares.
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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 of which are 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 registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Company has elected to be taxed as
a Regulated Investment Company ("RIC") for U.S. federal income tax purposes. The
Company's offices are located at 237 Mamaroneck Avenue, White Plains, New York
10605 and its telephone number is (914) 949-2600. The Company can also be
reached via its website at http://www.winfieldcapital.com.
As a 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 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.
SELECTED RECENT DEVELOPMENTS
According to the SBA Regulations, the Company is required to be in
compliance with the capital impairment rules, as defined by regulation 107.1830
of the SBA regulations. As of March 31, 2002, the Company was below the capital
impairment threshold by approximately $900,000. In light of the continuing
decline in the market for public and private securities after March 31, 2002,
impairment may occur in the next fiscal year. If the Company became subject to
the capital impairment rules, the SBA may declare the entire indebtedness
including accrued interest immediately due and payable. In addition, the SBA
could avail itself of any remedy available to the SBA. As such, impairment could
have a material adverse effect on the Company's financial position and
operations.
On June 17, 2002, the Company received notice from the Nasdaq Sock
Market, Inc. ("Nasdaq") that for the preceding 30 consecutive trading days, the
Company's common stock had not maintained the minimum Market Value of Publicly
Held Shares of $5,000,000 as required for continued inclusion by Marketplace
Rule 4450(a)(2) (the "Rule") on the Nasdaq National Market. Therefore, in
accordance with Marketplace Rule 4450(e)(1), subject to appeal, the Company has
90 calendar days, or until September 16, 2002, to regain compliance. If
compliance with the Rule cannot be demonstrated by September 16, 2002, the
Company's securities will be delisted from the Nasdaq National Market. If the
Company's securities are delisted, the Company will seek to list its securities
on the Nasdaq SmallCap Market which the Company had previously listed on prior
to listing on the Nasdaq National Market. The Company cannot
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predict what effect, if any, such delisting would have on the trading of its
securities.
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. 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 the Company holds in its portfolio companies are
"restricted securities," as that term is defined under Rule 144 of the
Securities Act of 1933, as amended (the "1933 Act"). These securities may not be
sold freely in the absence of registration under the 1933 Act. As a result, its
ability to sell or otherwise transfer the securities it holds in its portfolio
will be limited. The capital stock it receives from portfolio companies is
expected to be acquired primarily in private transactions negotiated directly
with the portfolio company or an affiliate. The Company's management will
continue to be principally responsible for conducting negotiations with respect
to its investments in portfolio companies. The Company may acquire securities of
public companies in connection with mergers of its portfolio companies with such
public companies. The Company may invest a portion of its 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
the Company's 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 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
Northeast, but considers investments in other parts of the country if they are
otherwise consistent with the Company's loan and other investment selection
criteria.
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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 prior 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, (i.e., 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 to invest 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.
Growth. The Company requires that prospective borrowers have
sufficient cash flow to service their debt and 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 may 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 $25,607,801 as of March 31, 2002 with loans
and notes receivable comprising 12% (19% of which were performing in accordance
with their terms and 81% were non-performing), equity interests 87% and assets
acquired in liquidation of defaulted loans 1%.
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There was unrealized depreciation on loans and investments of $8,492,858
for the year ended March 31, 2002 (principally reflecting the decreased market
price of investments in six publicly traded portfolio companies and the
decreased fair value of investments in six privately held portfolio companies)
compared with unrealized depreciation of $69,828,667 for the year ended March
31, 2001 (principally reflecting the decreased market price of investments in
ten publicly traded portfolio companies and the decreased fair value of
investments in six privately held portfolio companies) and unrealized
appreciation of $42,284,344 for the year ended March 31, 2000. Management
believes that the decline in the unrealized value of these investments in the
fiscal years ended March 31, 2002 and March 31, 2001 and the increase in the
unrealized value of these investments in the fiscal year ended March 31, 2000
reflect the significant volatility in the public equity markets in general, and
the high technology sector in particular, over the past three 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 $7,382,341 as described in the following table:
YEAR ENDED MARCH 31,
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2000 2001 2002
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Amount written-off ............................................. $864,657 $4,179,968 $2,337,716
Amount written-off as a percentage of aggregate loans and
investments and assets acquired in liquidation as of the
beginning of the year........................................ 1.9% 4.1% 7.7%
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. A SBIC can
issue such debentures in a principal amount up to either 200% or 300% of its
Private Capital, depending upon various factors.
The Company has, as approved by the SBA as of March 31, 2002, 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 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 an
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 any future
Company debentures 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 a SBIC (hereinafter referred to as an "Eligible Concern"). The
SBA Regulations also define a "Smaller Concern" as 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
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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 made by
SBICs. The maximum maturity of these loans may not exceed 20 years. A borrower
from a 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) a
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
restrictions, a SBIC can charge a borrower 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, a 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. A 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.
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 a 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:
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(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 a 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 company 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 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.
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
a 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 a SBIC, the Company must limit its investments to
Eligible Concerns and meet the minimum financing obligations applicable to
Smaller Concerns (see "SBA Regulation").
6
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 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
7
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 RIC, 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 RIC for the fiscal year ended March 31,
2002.
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 resources of the banking community have grown 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," "could," "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 21, 2002, 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.
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.
8
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." The reported high and low bid quotations for the
Registrant's common stock on the Nasdaq National Market from April 1, 2000 to
June 21, 2002 were as follows:
COMMON STOCK
---------------------
HIGH LOW
------- --------
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 30, 2001 ........................ 2.69 1.55
July 1 - September 30, 2001 .................... 2.10 0.62
October 1 - December 31, 2001 .................. 1.95 0.77
January 1 - March 31, 2002 ..................... 1.71 1.17
April 1 - June 21, 2002 ........................ 1.60 0.90
================================================================================
The foregoing quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and do not necessarily represent actual
transactions.
As of June 21, 2002, the Company estimates that its shares of common stock
are held by 5,441 beneficial holders. The Company paid a dividend of $1,276,189
or $.2387 per share on December 19, 2001.
ITEM 6. SELECTED FINANCIAL DATA
See Summary of Financial Information for the years ended March 31, 2002,
2001, 2000, 1999, and 1998 on the following page:
9
WINFIELD CAPITAL CORP.
SUMMARY OF FINANCIAL INFORMATION
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
Total investment income .......................... $ 1,057,404 $ 1,185,799 $ 873,445 $ 839,897 $ 1,118,127
Total investment expenses ........................ $ 3,641,686 $ 3,232,652 $ 3,432,819 $ 2,052,031 $ 1,844,342
Net realized (losses) gains on
disposition of investments ..................... $ (3,289,935) $ 1,282,344 $ 30,851,848 $ 740,829 $ (184,206)
Unrealized (depreciation) appreciation
on loans and investments ....................... $ (8,415,093) $(69,828,667) $ 42,284,344 $25,323,076 $(1,074,053)
Net (loss) income ................................ $(14,367,075) $(70,593,176) $ 70,576,818 $24,851,771 $(1,984,474)
(Loss) earnings per share ........................ $ (2.69) $ (13.20) $ 13.36 $ 4.95 $ (0.40)
Weighted average number of shares
outstanding .................................... 5,346,084 5,346,084 5,282,131 5,023,361 5,023,361
OTHER OPERATING DATA
Number of loans and other investments
outstanding at end of period .................. 37 50 64 52 46
Number of loans and other investments
originated ..................................... 4 7 22 13 16
Principal amount of loans and other
investments originated ......................... $ 367,676 $ 9,637,953 $ 18,624,388 $ 9,420,696 $11,314,223
Investment expenses as a percentage of
average net assets ............................. 22.3% 6.9% 4.8% 8.1% 19.5%
BALANCE SHEET DATA
Loans and investment portfolio
including assets acquired in
liquidation .................................... $ 14,129,234 $ 30,256,226 $102,739,179 $45,311,218 $13,364,711
Total assets ..................................... $ 32,498,086 $ 49,031,295 $126,867,621 $50,128,912 $18,233,115
SBA debentures ................................... $ 24,650,000 $ 25,550,000 $ 20,850,000 $15,300,000 $ 8,300,000
Common stock (including additional paid
in-capital) .................................... $ 23,036,159 $ 24,806,818 $ 26,968,537 $ 9,264,680 $ 9,492,599
(Accumulated deficit) retained earnings .......... $ (4,027,385) $ 1,352,362 $ (44,848) $ (301,434) $ (58,048)
Total shareholders' equity ....................... $ 7,485,666 $ 23,128,930 $ 93,722,106 $33,477,319 $ 8,625,548
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Years Ended March 31, 2002, 2001, and 2000
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires the application of accounting
policies that often involve a significant degree of judgment. Management, on an
ongoing basis, reviews estimates and assumptions. If management determines, as a
result of its consideration of facts and circumstances, that modifications of
its assumptions and estimates are appropriate, results of operations and
financial position as reported in the financial statements may change
significantly. The following sections discuss accounting policies applied in
preparing the Company's financial statements that management believes are most
dependent on the application of estimates and assumptions.
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%, rate 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 tradable, 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 de-listed from an exchange or automated trading market with
published trading reports.
Loans and assets acquired in liquidation 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 fair 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 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.
11
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.
Income Taxes
Effective April 1, 1996, the Company has elected to be taxed as a 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: 1.)
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities, 2.) meet investment diversification
requirements defined by the Code, and 3.) distribute to shareholders 90% of its
net income (other than long-term capital gains).
The Company may periodically make reclassifications among certain of its
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 a reduction of capital. All
reclassifications have been reflected on the statements of changes in
shareholders' equity.
INVESTMENT INCOME
Investment income decreased by $128,395, or a decrease of 10.8%, from
$1,185,799 for the year ended March 31, 2001 to $1,057,404 for the year ended
March 31, 2002. This reflected principally a $263,447 decrease in interest from
small business concerns due to loans being repaid, which was offset by a
$147,020 increase in interest from temporarily invested funds as a result of the
Company's decreased level of investment activity.
Investment income increased by $312,354, or an increase of 35.8%, from
$873,445 for the year ended March 31, 2000 to $1,185,799 for the year ended
March 31, 2001. 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 repayment of
outstanding loans.
DISTRIBUTION AND RETENTION OF NET LONG-TERM CAPITAL GAINS
The Company elected not to distribute a net long-term capital gain for its
excise tax year ended October 31, 2000 during calendar year 2000. As a result,
the Company accrued $23,404 of federal excise tax. The Company subsequently
distributed for this period a net long term capital gain dividend of $1,276,189
or approximately $0.2387 per share on December 19, 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.
12
INTEREST EXPENSE
Interest expense increased by $151,139 from $1,759,255 for the year ended
March 31, 2001 to $1,910,394 for the year ended March 31, 2002 due to additional
borrowings of $5,000,000 from the SBA incurred in March, 2001. 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 $300,000 repaid in 2001 to the SBA and
$3,300,000 indebtedness to the SBA incurred in the last month of 2000.
OPERATING EXPENSES
The Company's operating expenses increased from $1,473,397 for the year
ended March 31, 2001 to $1,731,292 for the year ended March 31, 2002 as a result
of increases in payroll and payroll related expenses of $133,985 due primarily
to increased officer salaries and the implementation of a Company 401(k) Plan in
fiscal year 2002, professional fees of $74,830 due primarily to increased tax
advisory and audit-related fees and general and administrative costs of $79,280
due primarily to a full year of directors' fees (first paid in the last quarter
of fiscal year 2001). Partially offsetting these increases were decreases in
other operating costs that netted to $30,200.
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.
REALIZED LOSSES OR GAINS 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 loss of $3,289,935 for the year ended March 31, 2002 reflected
long-term net capital losses on equity securities of $1,039,442 and write-offs
totaling $2,337,716 offset by an equity security recovery of $87,223. 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 $8,492,858 for the year
ended March 31, 2002 (principally reflecting the decreased market price of
investments in six publicly traded portfolio companies and the decreased fair
value of investments in six privately held portfolio companies as well as the
aforementioned realized net loss on the sale of equities) compared with an
unrealized depreciation of $69,828,667 for the year ended March 31, 2001
(principally reflecting the decreased market prices of investments in ten
publicly traded portfolio companies and the decreased fair value of investments
in six privately held portfolio companies as well as the aforementioned realized
net gain on the sale of equities) and an unrealized appreciation of $42,284,344
for the year ended March 31, 2000.
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
13
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 were 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. During the fiscal year ended March 31,
2002, all the option contracts became due. As of March 31, 2002, the Company has
no option contracts outstanding as part of its portfolio.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company held cash and short-term marketable
securities totaling $17,170,167. Subsequent to March 31, 2002, the Company
received $197,369 which was being held in escrow related to a sale of shares in
a portfolio company. The Company believes that its cash and short-term
marketable securities, along with both its possible use of an additional SBA
debenture funding of $4,000,000 awarded in February, 2002 and its 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, 2003.
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-17
Portfolio of Investments ................................................. F-18 through F-23
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, 2002.
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, 2002.
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, 2002.
14
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, 2002.
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, 2002.
(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 incorporated by reference to
Exhibit 10(I) to the Registrant's Form 10-K for the fiscal
year ended March 31, 2001 in SEC File No. 33-94322.
10(J). Employment Agreement with David Greenberg, dated April 4,
2001 as of November 1, 2000, incorporated by reference to
Exhibit 10(J) to the Registrant's Form 10-K for the fiscal
year ended March 31, 2001 in SEC File No. 33-94322.
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, 2002.
15
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, 2002
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, 2002 By: /s/ PAUL A. PERLIN
-----------------------------------
Paul A. Perlin
Chairman of the Board
(Chief Executive Officer) & Director
Dated: June 26, 2002 By: /s/ R. SCOT PERLIN
-----------------------------------
R. Scot Perlin
(Chief Financial Officer &
Chief Accounting Officer) & Director
Dated: June 26, 2002 By: /s/ DAVID GREENBERG
-----------------------------------
David Greenberg
Managing Director & Director
Dated: June 26, 2002 By: /s/ JOEL I. BARAD
-----------------------------------
Joel I. Barad
Director
Dated: June 26, 2002 By: /s/ BARRY J. GORDON
-----------------------------------
Barry J. Gordon
Director
Dated: June 26, 2002 By: /s/ BRUCE A. KAUFMAN
-----------------------------------
Bruce A. Kaufman
Director
Dated: June 26, 2002 By: /s/ ALLEN L. WEINGARTEN
-----------------------------------
Allen L. Weingarten
Director
16
WINFIELD CAPITAL CORP.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
---------
Report of Independent Accountants....................................... F-1
Balance Sheets
(At March 31, 2002 and 2001)......................................... F-2
Statements of Operations
(For each of the three years in the period ended March 31, 2002)..... F-3
Statements of Changes in Shareholders' Equity
(For each of the three years in the period ended March 31, 2002)..... F-4
Statements of Cash Flows
(For each of the three years in the period ended March 31, 2002)..... F-5
Financial Highlights.................................................... F-6
Per Share Operating Performance
(For the years ended March 31, 2002 and 2001)
Ratios/Supplemental Data
(For the years ended March 31, 2002 and 2001)
Notes to Financial Statements........................................... F-7-F-17
Portfolio of Investments................................................ F-18-F-23
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, 2002 and 2001, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 2002 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 18, 2002
F-1
WINFIELD CAPITAL CORP.
BALANCE SHEETS
MARCH 31,
----------------------------
2002 2001
------------ ------------
ASSETS
Investments, at value:
Loans and notes receivable (cost: $2,942,591 and $2,695,390,
respectively) ........................................................... $ 1,176,887 $ 2,609,686
Equity interests in small business concerns (cost: $22,340,624 and
$30,432,064, respectively) .............................................. 12,784,997 26,694,051
Option contracts ........................................................... -- 730,403
Assets acquired in liquidation (cost: $324,586 and $324,586, respectively) . 167,350 222,086
------------ ------------
TOTAL INVESTMENTS ........................................................ 14,129,234 30,256,226
Cash and cash equivalents .................................................... 4,416,989 1,993,337
Short-term marketable securities ............................................. 12,753,178 15,862,354
Accrued interest receivable .................................................. 341,806 188,879
Receivable from broker ....................................................... -- 46,599
Receivable from escrow account ............................................... 197,369 --
Furniture and equipment (net of accumulated depreciation of $36,195
and $29,333, respectively) ................................................. 18,931 14,069
Other assets (principally deferred debenture costs) .......................... 640,579 669,831
------------ ------------
TOTAL ASSETS .................................................... $ 32,498,086 $ 49,031,295
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debentures payable to the U.S. Small Business Administration ................. $ 24,650,000 $ 25,550,000
Income taxes payable ......................................................... -- 23,404
Accrued expenses ............................................................. 362,420 328,961
------------ ------------
TOTAL LIABILITIES ............................................... 25,012,420 25,902,365
------------ ------------
Commitments and contingencies (Note 5)
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,
2002 and 2001; issued and outstanding--
5,346,084 shares at March 31, 2002 and 2001 .............................. 53,461 53,461
Additional paid-in capital ................................................. 22,982,698 24,753,357
(Accumulated deficit) retained earnings (dated May 2, 1995) ................ (4,027,385) 1,352,362
Unrealized (depreciation) appreciation on investments, net ................. (11,523,108) (3,030,250)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ...................................... 7,485,666 23,128,930
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................... $ 32,498,086 $ 49,031,295
============ ============
The accompanying notes are an integral part of the financial statements.
F-2
WINFIELD CAPITAL CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Investment income:
Interest from small business concerns ................................ $ 165,110 $ 428,557 $ 563,283
Interest from invested idle funds .................................... 880,074 733,054 235,894
Loan processing fees ................................................. 927 5,484 3,684
Other income ......................................................... 11,293 18,704 70,584
------------ ------------ ------------
TOTAL INVESTMENT INCOME ...................................... 1,057,404 1,185,799 873,445
------------ ------------ ------------
Expenses:
Interest ............................................................. 1,910,394 1,759,255 1,529,954
Payroll and payroll related expenses ................................. 879,529 745,544 661,974
General and administrative expenses .................................. 448,381 369,101 337,767
Professional fees .................................................... 259,880 185,050 562,436
Depreciation and amortization ........................................ 85,358 69,058 58,527
Other operating costs ................................................ 58,144 104,644 282,161
------------ ------------ ------------
TOTAL INVESTMENT EXPENSES .................................... 3,641,686 3,232,652 3,432,819
------------ ------------ ------------
INVESTMENT LOSS - NET ........................................ (2,584,282) (2,046,853) (2,559,374)
------------ ------------ ------------
Realized (losses) gains on investments, net ............................ (3,289,935) 1,282,344 30,851,848
Change in unrealized (depreciation) appreciation
of investments ....................................................... (8,492,858) (69,828,667) 42,284,344
------------ ------------ ------------
(LOSS) GAIN ON INVESTMENTS, NET .............................. (11,782,793) (68,546,323) 73,136,192
------------ ------------ ------------
NET (DECREASE) INCREASE IN
SHAREHOLDERS' EQUITY RESULTING
FROM OPERATIONS ........................................... $(14,367,075) $(70,593,176) $ 70,576,818
============ ============ ============
Per share net (decrease) increase in shareholders' equity resulting from
operations:
Basic .............................................................. $ (2.69) $ (13.20) $ 13.36
============ ============ ============
Diluted ............................................................ $ (2.69) $ (13.20) $ 12.09
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-3
WINFIELD CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(ACCUMULATED DEFICIT)
RETAINED EARNINGS UNREALIZED
---------------------------- APPRECIATION
NET NET (DEPRECIATION)
COMMON STOCK ADDITIONAL UNDISTRIBUTED UNDISTRIBUTED ON
------------------- PAID-IN INVESTMENT REALIZED INVESTMENTS-
SHARES AMOUNT CAPITAL INCOME/(LOSS) GAIN/(LOSS) NET TOTAL
--------- ------- ----------- ------------- ------------- -------------- ------------
Balance--April 1, 1999 ......... 5,023,961 $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 ........ 5,346,684 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 ........ 5,346,684 53,461 24,753,357 76,172 1,276,190 (3,030,250) 23,128,930
Net (decrease) increase in
shareholders' equity resulting
from operations .............. (2,584,282) (3,289,935) (8,492,858) (14,367,075)
Dividends paid ................. (1,276,189) (1,276,189)
Reclassification
as described in Note 2 ....... (1,770,659) 2,612,856 (842,197) --
--------- ------- ----------- ----------- ------------ ------------ ------------
Balance--March 31, 2002 ........ 5,346,684 $53,461 $22,982,698 $ 104,746 $ (4,132,131) $(11,523,108) $ 7,485,666
========= ======= =========== =========== ============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4
WINFIELD CAPITAL CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
--------------------------------------------
2002 2001* 2000*
------------ ------------ ------------
Operating activities:
Net (decrease) increase in shareholders' equity resulting from operations .... $(14,367,075) $(70,593,176) $ 70,576,818
Adjustments to reconcile net (decrease) increase in shareholders' equity
resulting from operations to net cash used in operating activities:
Realized losses (gains) on investments, net ............................. 3,289,935 (1,282,344) (30,851,848)
Stock dividends reinvested .............................................. -- (18,130) (41,059)
Change in unrealized depreciation (appreciation) of investments ......... 8,395,076 69,881,908 (42,284,344)
Change in unrealized depreciation (appreciation) of
short-term marketable securities ..................................... 97,782 (53,241) --
Depreciation and amortization of fixed assets ........................... 6,862 6,020 4,771
Amortization of debenture costs ......................................... 78,496 80,997 82,485
Accretion of subordinated debentures .................................... -- 23,823 40,837
Decrease (increase) in receivable from broker ........................... 46,599 (46,599) 782,624
(Increase) in accrued interest receivable ............................... (152,927) (60,803) (7,236)
(Increase) decrease in other assets ..................................... (9,244) 83,679 (91,945)
(Decrease) increase in income taxes payable ............................. (23,404) 23,404 --
(Decrease) in deferred income ........................................... -- (4,612) (19,684)
Increase (decrease) in accrued expenses ................................. 33,459 (206,511) 232,514
------------ ------------ ------------
Net cash used in operating activities .............................. (2,604,441) (2,165,585) (1,576,067)
------------ ------------ ------------
Investing activities:
Purchases of short-term marketable securities ............................... (13,735,656) (15,809,113) (338,000)
Proceeds from the maturity of short-term marketable securities .............. 16,732,951 -- 434,973
Proceeds from recovery of bad debt .......................................... -- 12,846 40,954
Proceeds from sale of equity interests and return of capital ................ 4,524,282 12,085,228 32,924,581
Investments originated ...................................................... (367,676) (9,637,953) (18,624,388)
Proceeds from collection of loans ........................................... 102,105 1,343,242 1,311,171
Net premiums received from option contracts ................................. -- 112,323 --
Acquisition of fixed assets ................................................. (11,724) (7,509) (4,554)
------------ ------------ ------------
Net cash provided by (used in) investing activities ................ 7,244,282 (11,900,936) 15,744,737
------------ ------------ ------------
Financing activities:
Proceeds from debentures payable to the SBA ................................. -- 5,000,000 6,300,000
Repayment of debentures payable to the SBA .................................. (900,000) (300,000) (750,000)
Repayment of subordinated debentures ........................................ -- (1,089,000) --
Proceeds from exercise of options ........................................... -- -- 358,223
Debenture costs paid ........................................................ (40,000) (175,000) (190,500)
Dividends paid .............................................................. (1,276,189) -- --
Payment of federal income tax - deemed distribution ......................... -- (10,690,254) --
------------ ------------ ------------
Net cash (used in) provided by financing activities ................ (2,216,189) (7,254,254) 5,717,723
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ................... 2,423,652 (21,320,775) 19,886,393
Cash and cash equivalents - beginning of year ............................... 1,993,337 23,314,112 3,427,719
------------ ------------ ------------
Cash and cash equivalents - end of year ............................ $ 4,416,989 $ 1,993,337 $ 23,314,112
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 1,889,523 $ 1,740,843 $ 1,418,238
============ ============ ============
Supplemental schedule of non-cash investing and financing activities:
Conversion of loans and notes receivable into equity interests .............. $ 18,370 $ 2,714,167 $ --
------------ ------------ ------------
Receivable from escrow account .............................................. $ 197,369 $ -- $ --
------------ ------------ ------------
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 2002 presentation.
F-5
WINFIELD CAPITAL CORP.
FINANCIAL HIGHLIGHTS
YEARS ENDED MARCH 31,
----------------------------
2002 2001
----------- ------------
Per Share Operating Performance
Shareholders' equity, beginning of period ...................... $ 4.33 $ 17.53
----------- ------------
Investment loss--net ........................................... (0.48) (0.38)
Net realized and unrealized (loss) gain
on investments ................................................. (2.21) (12.82)
----------- ------------
Total from investment operations ............................... (2.69) (13.20)
----------- ------------
Dividends paid ................................................. (0.24) --
----------- ------------
Shareholders' equity, end of year .............................. $ 1.40 $ 4.33
=========== ============
Per share market value, end of year ............................ $ 1.37 $ 2.13
=========== ============
Shares outstanding, end of year ................................ 5,346,084 5,346,084
=========== ============
Ratio/Supplemental Data
Shareholders' equity, end of period ............................ $ 7,485,666 $ 23,128,930
Ratio of investment expenses to average shareholders' equity ... 22.25% 6.92%
Ratio of investment loss, net to average shareholders' equity .. 15.79% 4.38%
F-6
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
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.
In the fiscal year ended March 31, 2002, the Company, in accordance
with the Securities and Exchange Commission Guidelines and the AICPA Audit
of Investment Companies Guide, eliminated the 10% blockage discount in
calculating the fair market value of its portfolio securities listed on
national exchanges. If the Company had not changed its method of estimating
the fair market value of its portfolio securities, the additional loss for
the fiscal year 2002 would have been $179,220, or an additional loss of
$.03 per share.
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 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
F-7
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
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 $0 and $131,249 as of March 31, 2002 and 2001, respectively
Loans and assets acquired in liquidation 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 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, 2002 and 2001, the investment portfolio included
investments totaling $11,835,621 and $19,570,709, respectively, whose fair
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, 2002, 2001 and 2000, 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
F-8
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
reported as realized losses. For the fiscal years ended March 31, 2002,
2001 and 2000, realized losses from write-offs totaled $2,337,716,
$4,179,968 and $864,657, respectively.
At March 31, 2002 and 2001, the aggregate gross unrealized
depreciation of investments was $11,605,575 and $10,702,658, respectively,
and the aggregate gross unrealized appreciation of investments was $127,008
and $7,619,167, respectively, resulting in a net unrealized depreciation of
$11,478,567 and $3,083,491, respectively. All other 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 6.0% to 16.5%, 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.
F-9
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
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.
Short-term Marketable Securities
Short-term marketable securities are carried at fair value. Interest
income earned on short-term marketable securities for the fiscal year ended
March 31, 2002, 2001 and 2000, was $821,713, $130,894, 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: 1)
derive at least 90% of its gross income from dividends, interest and gains
from the sale or disposition of securities 2) meet investment
diversification requirements defined by the Code and 3) distribute to
shareholders 90% of its net income (other than long-term capital gains).
The Company may periodically make reclassifications among certain of
its 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
F-10
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
a reduction of capital. All reclassifications have been reflected on the
statements of changes in shareholders' equity.
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 $1,276,189 during the calendar year ended
2000. As a result, the Company accrued $23,404 of federal excise taxes. The
Company subsequently distributed 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 6).
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
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.
F-11
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
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 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 investments. Actual
results could differ from those estimates.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Short-term marketable securities
As of March 31, 2002 and 2001, short-term marketable securities
consisted of the following:
MARCH 31,
-----------------------------
2002 2001
------------ ------------
U.S. Government obligations............ $ 6,073,735 $ 7,548,674
Certificates of deposit................ 6,679,443 8,313,680
------------ ------------
$ 12,753,178 $ 15,862,354
============ ============
As of March 31, 2002, unrealized depreciation on short-term marketable
securities was $44,541. 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. During the
fiscal year ended March 31, 2002, all option contracts became due. As of
March 31, 2002, the Company has no option contracts outstanding as part of
its portfolio.
F-12
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
4. DEBENTURES PAYABLE TO THE U.S. SMALL BUSINESS ADMINISTRATION:
Debentures payable to the SBA at March 31, 2002, with interest payable
semi-annually, consist of the following:
INTEREST RATE
Amount DUE DATE (PER ANNUM)
----------- -------- -----------
$ 750,000 ................................... 9/1/05 6.875%
600,000 ................................... 9/1/05 6.875%
5,000,000 ................................... 6/1/06 7.710%
3,000,000 ................................... 3/1/09 6.240%
4,000,000 ................................... 3/1/09 6.240%
3,000,000 ................................... 9/1/09 7.220%
3,300,000 ................................... 3/1/10 7.640%
5,000,000 ................................... 3/1/11 6.353%
-----------
$24,650,000
===========
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 February 2002, the Company paid a non-refundable commitment fee of
$40,000 to the SBA to reserve $4,000,000 of SBA Guaranteed Debentures. As
of March 31, 2002, the Company has not drawn down on this commitment. 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.
5. COMMITMENTS AND CONTINGENCIES:
According to the SBA Regulations, the Company is required to be in
compliance with the capital impairment rules, as defined by regulation
107.1830 of the SBA Regulations. As of March 31, 2002, the Company was
below the capital impairment threshold by approximately $900,000. In light
of the continuing decline in the market for public and private securities
after March 31, 2002, impairment may occur in the next fiscal year. If the
Company became subject to the capital impairment rules, the SBA could
declare the entire indebtedness including accrued interest immediately due
and payable. In addition, the SBA could avail itself of any remedy
available to the SBA. As such, impairment could have a material adverse
effect on the Company's financial position and operations.
The Company has operating leases on an office facility expiring
through November 30, 2002 with aggregate minimum rental commitments for
fiscal year ending March 31, 2003 of $28,251. Rent expense was $45,291,
$41,817, and $40,069 for the years ended March 31, 2002, 2001 and 2000,
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.
F-13
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
6. STOCK OPTION PLAN:
In October 1995, which was subsequently amended by shareholder vote in
September 1997, the Company adopted the 1995 stock option plan (the "Plan")
under 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% shareholder"), 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.
In the case of an option granted to a 10% shareholder, such period may not
exceed five years.
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 of the
Company (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 determines 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 exercise options will expire
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 Common 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.
F-14
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Stock option activity for the past three years has been as follows:
2002 2001 2000
--------------------- -------------------- -----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- --------
Balance, beginning of fiscal year .... 862,563 $ 1.17 862,563 $ 1.17 1,185,286 $ 1.16
Granted .............................. 12,000 1.68 -- --
Exercised ............................ -- -- (322,723) 1.11
Expired .............................. -- -- --
------- ------- ---------
Balance, end of fiscal year .......... 874,563 1.19 862,563 1.17 862,563 1.17
======= ======= =========
Options exercisable
at end of fiscal year .............. 778,563 $ 1.14 778,563 $ 1.14 778,563 $ 1.14
======= ======= =========
During fiscal year 2002, the Board of Directors approved the extension
of the expiration date of 856,563 stock options for an additional number of
years up to the maximum ten years stipulated in the Plan. In accordance
with Financial Accounting Standard Board Interpretation Number 44,
"Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion Number 25", no compensation cost was incurred
with the extension as the exercise prices of the options were higher than
their fair value at the date of modification.
The following table summarizes information about the stock options
outstanding as of March 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED-
AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
-------- ----------- ---------------- -----------
$ 1.11 464,277 5.99 404,277
$ 1.16 366,286 3.13 366,286
$ 1.50 4,000 5.14 4,000
$ 1.53 20,000 4.92 4,000
$ 1.68 12,000 4.70 --
$ 5.00 8,000 1.59 --
------- -------
874,563 778,563
======= =======
Had the Company measured compensation expense under SFAS No. 123,
there would be no material impact to net (decrease) increase in
shareholders' equity resulting from operations and per share net (decrease)
increase in shareholders' equity resulting from operations for the years
ended March 31, 2002, 2001 and 2000.
F-15
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
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 - expected volatility of 132%; risk-free interest rate of
approximately 4.3%; and expected lives ranging from 3 to 6 years.
7. CONCENTRATION OF CREDIT AND MARKET RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and
short-term marketable securities of $17,170,167 and $17,855,691 at March
31, 2002 and 2001, respectively. Cash is invested with banks in amounts
which, at times, exceed insurable limits. Short-term marketable securities
are invested in U.S. government obligations and certificates of deposits.
As of March 31, 2002, 71% of the Company's total investment value is
held in six equity securities, Accent Optical Technologies, Inc., Commerce
One, Inc., Engenia Software, Inc., Evoke Software Corporation, Open
Solutions, Inc. and Petroleum Place, Inc. 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.
8. (LOSS) EARNINGS PER COMMON SHARE:
The reconciliation of basic and diluted (loss) earnings per common
share computation is as follows:
YEARS ENDED MARCH 31,
--------------------------------------------
2002 2001 2000
------------ ------------ -----------
Net (loss) earnings available for common stock
equivalent shares deemed to have a dilutive effect.......... $(14,367,075) $(70,593,176) $70,576,818
============ ============ ===========
Per share net (decrease) increase in shareholders'
equity resulting from operations
Basic....................................................... $ (2.69) $ (13.20) $ 13.36
============ ============ ===========
Diluted..................................................... $ (2.69) $ (13.20) $ 12.09
============ ============ ===========
Shares used in computation:
Basic
Weighted average common shares............................ 5,346,084 5,346,084 5,282,131
============ ============ ===========
Diluted:
Weighted average common shares............................ 5,346,084 5,346,084 5,282,131
============ ============ ===========
Common stock equivalents.................................. (A) (A) 554,428
------------ ------------ -----------
5,346,084 5,346,084 5,836,559
============ ============ ===========
(A) For the years ended March 31, 2002 and 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.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
9. SUBSEQUENT EVENT:
On June 17, 2002, the Company received notice from the Nasdaq Stock
Market, Inc. ('Nasdaq') that for the preceding 30 consecutive trading days,
the Company's common stock had not maintained the minimum Market Value of
Publicly Held Shares of $5,000,000 as required for continued inclusion by
Marketplace Rule 4450(a)(2) (the "Rule") on the Nasdaq National Market.
Therefore, in accordance with Marketplace Rule 4450(e)(1), subject to
appeal, the Company has 90 calendar days, or until September 16, 2002, to
regain compliance. If compliance with the Rule cannot be demonstrated by
September 16, 2002, the Company's securities will be delisted from the
Nasdaq National Market. If the Company's securities are delisted, the
Company will seek to list its securities on the Nasdaq SmallCap Market,
which the Company had previously listed on prior to listing on the Nasdaq
National Market. The Company cannot predict what effect, if any, such
delisting would have on the trading of its securities.
F-17
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2002
LOANS AND NOTES RECEIVABLE
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 22,834 22,834 0.3%
Horizon Medical Products, Inc. Medical Devices 16-Mar-04 6.00 250,000 250,000 3.3%
HPA Monon Corp. (a) Trailer Manufacturer 15-May-02 12.00 2,000,000 320,000 4.3%
No-Name Deli/Grocery, Inc. (a) Food Service 1-Aug-93 16.50 189,875 189,875 2.5%
Phone Management Enterprises, Inc.(a) Communication 18-Sep-01 None 61,655 -- 0.0%
Senior Housing Concepts Assisted Living 3-Sep-02 12.00 120,000 120,000 1.6%
NOTES RECEIVABLE
Gabriel Lamanna Real Estate 1-Mar-04 11.50 37,881 37,881 0.5%
957 South Elmora, Inc. (a) Real Estate 1-Dec-04 6.68 70,416 70,416 0.9%
Vassar Development Corp. Real Estate 7-Apr-03 10.00 165,881 165,881 2.2%
---------- ---------- ----
Total Loans and Notes Receivable $2,942,591 $1,176,887 15.7%
========== ========== ====
- -----------------
(a) non-income producing or past due as to required principal and/or interest
(b) foreclosed upon
F-18
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2001
LOANS AND NOTES RECEIVABLE
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 1-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 9-Sep-01 18.00 180,000 180,000 0.8%
NOTES RECEIVABLE
Gabriel Lamanna Real Estate 1-Mar-04 11.50 53,808 53,808 0.2%
957 South Elmora, Inc. (a) Real Estate 1-Dec-04 7.50 78,150 78,150 0.3%
Vassar Development Corp. Real Estate 7-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-19
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2002
EQUITY INTERESTS
COMPANY NAME INDUSTRY NUMBER OF SHARES
- ----------------------------- --------------------------- -----------------------------------
Accent Optical Technologies, Inc. Optoelectronics 585,366 Shares,
Unregistered Series A Preferred Stock
Bigfoot Interactive, Inc. E-Marketing Services 177,815 Shares,
(formerly Big Engines Acquisition Unregistered Series B Preferred Stock
Corporation)
Commerce One, Inc. (a) Enterprise 254,018 Shares, Common Stock
Procurement Software 331,128 Shares, Common Stock
Creative Foods, Inc. (a) Specialty Baking Warrant to Purchase Common Stock
divine, inc. (a) Collaboration, Interaction 308,542 Shares, Common Stock
& Knowledge Solutions 97,932 Shares, Common Stock
Engenia Software, Inc. Collaborative Services Software 418,680 Shares,
Unregistered Series C Preferred Stock
etang.com, Inc. Internet Service Provider 11,306 Shares, Unregistered Common 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
Hewlett-Packard Company (a) Computer Hardware & Storage 27,818 Shares, Common Stock
Homepoint Corporation Home Furnishings Management 10,875 Shares,
Software Unregistered Series B Preferred Stock
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
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
National Center Residences, LLC Dormitory Management Preferred Return Units
NeoPlanet, Inc. Branding Solutions 62,448 Shares,
Unregistered Series B Preferred Stock
Open Solutions, Inc. Electronic Commerce Banking
& Enterprise Processing 281,116 Shares,
Applications Unregistered Series F Preferred Stock
Petroleum Place, Inc. Energy Internet Marketplace 25,372 Shares,
and Portal Unregistered Series C Preferred Stock
Primedia Inc. (a) Special Interest Magazine Publisher 27,667 Shares, Common Stock
ScreamingMedia Inc. (a) Digital Content Network 113,333 Shares, Common Stock
31,849 Shares, Common Stock
Streaming Media Corporation Rich Media Delivery 586,667 Shares,
(formerly e-Media, Inc.) Unregistered Series A Preferred Stock
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
- -----------------------------
(a) Publicly traded at March 31, 2002
COST OR % OF
CONTRIBUTED FAIR NET
COMPANY NAME VALUE VALUE ASSETS
- ----------------------------- -------------- ----------- --------
Accent Optical Technologies, Inc.
$ 1,200,000 $ 1,200,000 16.0%
Bigfoot Interactive, Inc.
(formerly Big Engines Acquisition 518,364 185,369 2.5%
Corporation)
Commerce One, Inc. (a) 295,359 396,268 5.3%
499,998 516,560 6.9%
Creative Foods, Inc. (a) -- 2,364 0.0%
divine, inc. (a) 500,000 154,271 2.1%
1,274,422 48,966 0.7%
Engenia Software, Inc.
2,600,002 2,600,002 34.7%
etang.com, Inc. 412,504 -- 0.0%
Evoke Software Corporation
2,500,000 1,250,000 16.7%
HPA Monon Corp.
-- -- 0.0%
Hewlett-Packard Company (a) 491,882 499,055 6.7%
Homepoint Corporation
725,036 153,595 2.1%
InfoSpace.com, Inc. (a) 400,129 60,976 0.8%
50,000 7,618 0.1%
Independence Brewing Co. (a) 4,755 -- 0.0%
MarketFirst Software, Inc.
999,908 499,908 6.7%
myGeek.com, Inc. 1,000,000 100,000 1.3%
National Center Residences, LLC 142,830 142,830 1.9%
NeoPlanet, Inc.
750,000 19,689 0.3%
Open Solutions, Inc.
2,620,000 2,620,000 35.0%
Petroleum Place, Inc.
1,499,992 1,499,992 20.0%
Primedia Inc. (a) 500,000 87,704 1.2%
ScreamingMedia Inc. (a) 470,400 247,066 3.3%
185,043 69,431 0.9%
Streaming Media Corporation
(formerly e-Media, Inc.) 2,200,000 220,000 2.9%
Styleclick, Inc. (a) -- -- 0.0%
U.S. Wireless Data, Inc. (a) 500,000 203,333 2.7%
------------ ----------- -----
Total Equity Interests $ 22,340,624 $12,784,997 170.8%
============ =========== =====
F-20
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 113,333 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
- -----------------------------
(a) Publicly traded at March 31, 2001
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%
============ ============ =====
F-21
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-22
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 2002 AND 2001
ASSETS ACQUIRED IN LIQUIDATION
MARCH 31, 2002
-------------------------------
FAIR % OF NET
COMPANY NAME COST VALUE ASSETS
- ------------ -------- -------- ------
Maypat Realty Corp. ....................... $162,063 $ 77,063 1.0%
The Partition Corp. ....................... 137,816 90,287 1.2%
Suburban Enterprises, Inc. ................ 24,707 -- 0.0%
-------- -------- ---
Total Assets Acquired in Liquidation ...... $324,586 $167,350 2.2%
======== ======== ===
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%
======== ======== ===
F-23