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Microcap & Penny Stocks : WCAP - Winfield Capital: Insider buying -- Ignore unavailable to you. Want to Upgrade?

To: peter michaelson who wrote (1077)	7/6/1999 2:03:00 PM
From: Jason Compson	Read Replies (1) \| Respond to of 1305

Marconi- I think you are right and would go even further. Why bother to hedge out the risk, isn't this just a great short? For example, let's look at what the earnings will be for the quarter ending June 30. If we take the portfolio (as provided in the 3/31 10K) and calculate its value based on 6/30 market values, then earnings will be a loss of $3 mm. It's hard to get too excited over that. I know that CMRC has had a nice run since 6/30 (up $45/share), but even if we include it at today's price, then earnings would be $4.6 mm. Pretty good, but why should we capitalize those earnings? They are worth what they are worth and cannot be expected to continue. After CMRC, there are only four internet companies (with a cost of $2.8 mm) that are yet to go public. Let's assume that those companies are worth 10x what WCAP paid for them and let's include CMRC at today's price, then the NAV of WCAP grows to $66 mm. But the stock is trading at a market cap in excess of $173 mm. That is just plain silly. WCAP, as a RIC (a regulated investment company, see the Income Taxes footnote in the WCAP 10K), must distribute over 90% of its investment income and realized capital gains. Why is this important? Well, think about how WCAP will increase its NAV. If they sell CMRC or COOL or whatever, they must either distribute the proceeds to shareholders or pay capital gains taxes. If they distribute the proceeds then there is almost no capital left for the company to invest to increase its NAV by the $100mm necessary to justify its current stock price. If they don't distribute the gains, then they have to pay taxes, thereby cutting the government in on 1/3 of all of its existing and future gains. Distributing the gains to shareholders is the rational thing to do, except that the officers want to sell the stock at its current ridiculous valuation. The current valuation would collapse if the invested capital was reduced back to $9 mm or so following a distribution of capital gains. So that management can continue to sell (see all the Form 144's filed by insiders) shares, they may well pay the taxes and screw the shareholders. For those looking for historical precedents, I would suggest that you examine what happened to Sirrom Capital last summer. It is so similar to WCAP that it is scary. ------ Previous

To: peter michaelson who wrote (1077)	7/6/1999 2:22:00 PM
From: Marconi	Respond to of 1305

Thank you for the kindly comment Mr. Michaelson: Looks like CMRC, Commerce One, biz.yahoo.com should add $2 to the underlying holdings of WCAP. I did not take into account the discount for the 180 day lockup. WCAP's largest position to my recollection is COOL, which last time I reviewed Tom Hua's figures (about 2 months ago), was at around 15, and presently is around 10. Bluestone Software is WCAP's next IPO prospect. See news at: biz.yahoo.com WCAP remains essentially a closed end fund per their statement, "Winfield Capital is a small business investment company ...pursuant to funding programs sponsored by the SBA and is a non-diversified, closed-end investment company....", and with less than $1/sh in SBA loan activity business. The earnings reported the last year are one-time IPO capital gains, not business loan earnings. I expect the 10-Q coming out mid-August should reflect a drop in apparent earnings (the largely once-only capital gains from IPO's), a decline which started in the 4th quarter but was not broken out quarterly for the annual report, and hence masked by netting the year. The aggregate reporting is consistent with the previous annual report for WCAP. WCAP continues to report routinely and reasonably IMO. I expect the August 10-Q to trigger rationalization of the stock into the teens if it clues present investors into reviewing the financial statements, and possibly something closer to a closed end fund valuation , which is typically 70-80% of NAV, not 500%, which would be mid single digits for WCAP properly. The major caution remains, if the mania in other sectors of the market continues to carry lunacy into WCAP, it is hard to predict the behavior of crazies. WCAP is a small cap stock and it takes little money to move it. The longer term confidence factor for me is with prospects that many more secondary and tertiary internet stocks are going to continue cycling down in fits and jutters, and the bulge of IPO's WCAP booked last year in internet stocks is behind WCAP, I expect some serious rationalization of WCAP's price a year forward. Arbitraging WCAP is possible for the long run. It will still take margin to hold both sides of the arbitrage, and there remains some minor exposure to new deals. But the bulk of the assets were already recognized in IPO's in the last year. Something on the order of 10% of portfolio as a maximum position would be reasonable for the long term. The wiggles in price meanwhile should be manageable. Best regards, m