SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-29120
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
================================================================================
(Exact Name of Registrant as Specified in its Charter)
New York 13-7110611
===============================================================================
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
c/o Raymond S. Troubh
Ten Rockefeller Plaza, Suite 712
New York, New York 10020
================================================================================
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 888-6534
Not applicable
===============================================================================
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. As of May 1, 1998 there were
2,427,281 units of beneficial interest outstanding.
<PAGE>
MICROCAP LIQUIDATING TRUST
(SUCCESSOR TO THE MICROCAP FUND, INC.)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Statements of Net Assets in Liquidation as of March 31, 1998 (Unaudited) and
December 31, 1997
Schedule of Portfolio Investments as of March 31, 1998 (Unaudited)
Statements of Operations for the Three Months ended March 31, 1998 and for
the period from February 25, 1997 to March 31, 1997 (Unaudited)
Statements of Changes in Net Assets for the Three Months ended March 31,
1998 and for the period from February 25, 1997 to March 31, 1997 (Unaudited)
Statements of Cash Flows for the Three Months ended March 31, 1998 and for the
period from February 25, 1997 to March 31, 1997 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
March 31, 1998 December 31,
(Unaudited) 1997
ASSETS
Portfolio investments at fair value (cost $2,177,500 at
<S> <C> <C> <C> <C> <C> <C>
March 31, 1998 and December 31, 1997) $ 1,592,813 $ 1,622,500
Cash and cash equivalents - unrestricted 2,649,037 2,651,802
Cash and cash equivalents - restricted 2,790,218 2,790,218
Accrued interest receivable 16,190 18,644
Other assets 242 883
---------------- --------------------
Total assets 7,048,500 7,084,047
---------------- --------------------
LIABILITIES
Accounts payable - legal 146,199 87,015
Accounts payable - other 49,650 65,662
---------------- --------------------
Total liabilities 195,849 152,677
---------------- --------------------
NET ASSETS IN LIQUIDATION $ 6,852,651 $ 6,931,370
================ ====================
Net assets per Unit of beneficial interest $ 2.82 $ 2.86
======= =======
Number of Units of beneficial interest 2,427,281 2,427,281
========= =========
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
March 31, 1998
<TABLE>
% of
Issuer / Position Cost Fair Value Net Assets(1)
Publicly-Held Securities:
Unigene Laboratories, Inc.
Warrant to purchase 475,000 shares of Common Stock
<S> <C> <C> <C> <C> <C> <C>
at $1.375, expiring 7/7/00 $ 0 $ 564,063 8.23%
------------- -------------- -------
YES! Entertainment Corporation
Warrant to purchase 11,437 shares of Common Stock
at $15.30 per share, expiring 7/16/98 0 0 0%
------------- -------------- ----------
Privately-Held Securities:
First Colony Acquisition Corp.
106,562 shares of Series A1 Preferred Stock 594,174 297,087
240,179 shares of Series B1 Preferred Stock 1,343,326 671,663
Warrant to purchase 7,560 shares of Common Stock
at $5.00, expiring 1/24/00 0 0
------------- --------------
1,937,500 968,750 14.14%
------------- -------------- --------
Oh-La-La! Inc.
9% Convertible Senior Note 140,000 34,800
9% Convertible Senior Note 100,000 25,200
------------- --------------
240,000 60,000 .88%
------------- -----------------------
Total Portfolio Investments(A) $ 2,177,500 $ 1,592,813 23.25%
============= ============== ========
</TABLE>
(1) Represents fair value as a percentage of net assets.
(A) All portfolio securities held at March 31, 1998 are non-income producing.
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Three Months Period From
Ended March 31, February 25, 1997
1998 to March 31, 1997
------------------- --------------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from U.S. Treasury Bills and repurchase agreements $ 73,756 $ 36,303
Other interest income - 2,844
Other income 11,815 -
--------------- -----------------
Total investment income 85,571 39,147
--------------- -----------------
Expenses:
Administrative expenses 18,058 14,362
Legal fees 73,711 121,063
Accounting fees 11,250 14,000
Trustee fees 25,500 8,500
Transfer agent and custodian fees 5,428 1,066
Mailing and printing - -
Other operating expenses 656 -
--------------- -----------------
Total expenses 134,603 158,991
--------------- -----------------
NET INVESTMENT LOSS (49,032) (119,844)
Change in net unrealized depreciation of investments (29,687) (352,307)
--------------- -----------------
NET DECREASE IN NET ASSETS IN LIQUIDATION $ (78,719) $ (472,151)
=============== =================
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
Three Months Period From
Ended March 31, February 25, 1997
1998 to March 31, 1997
------------------- --------------------
<S> <C> <C>
Net investment loss $ (49,032) $ (119,844)
Change in net unrealized depreciation of portfolio
investments (29,687) (352,307)
--------------- ---------------
Decrease in net assets in liquidation (78,719) (472,151)
Net assets in liquidation at beginning of period 6,931,370 9,783,311
--------------- ---------------
N ET ASSETS IN LIQUIDATION AT END OF PERIOD $ 6,852,651 $ 9,311,160
=============== ===============
Net assets per unit $ 2.82 $ 3.84
========== =========
Number of units of beneficial interest 2,427,281 2,427,281
========= =========
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
Three Months Period From
Ended March 31, February 25, 1997
1998 to March 31, 1997
-------------------- --------------------
CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (49,032) $ (119,844)
Adjustments to reconcile net investment loss to cash
(used for) provided from operating activities:
Depreciation expense - 498
Increase in payables and other liabilities 43,172 119,513
Decrease in receivables and other assets 3,095 17,790
---------------- ----------------
Cash flows (used for) provided from operating activities (2,765) 17,957
---------------- ----------------
(Decrease) increase in cash and cash equivalents (2,765) 17,957
Cash and cash equivalents at beginning of period 5,442,020 7,571,246
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,439,255 $ 7,589,203
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Purpose
The MicroCap Liquidating Trust (the "Trust"), a liquidating trust established
under the laws of the State of New York, is the successor to The MicroCap Fund,
Inc., formerly Commonwealth Associates Growth Fund, Inc. (the "Fund"). The Fund,
which was a Maryland corporation formed on January 26, 1993, was a
non-diversified, closed-end management investment company and operated as a
business development company under the Investment Company Act of 1940. The
Fund's investment objective was to achieve long-term capital appreciation of
assets, rather than current income, by investing in debt and equity securities
of emerging and established companies that management believed offered
significant growth potential.
Pursuant to its Plan of Liquidation, which was approved at a special meeting of
shareholders on July 23, 1996, the Fund transferred all of its remaining assets
and its remaining fixed and contingent liabilities to the Trust, effective as of
the close of business on February 24, 1997, the Fund's termination date.
Also effective as of the close of business on February 24, 1997, the 2,188,085
common shares and 191,357 preferred shares of the Fund, outstanding on such
date, were automatically deemed to represent 2,427,281 units of beneficial
interest in the Trust ("Units"). As a result, on February 24, 1997, each
shareholder of the Fund received one Unit of the Trust for each share of the
Fund's common stock held on such date and 1.25 Units of the Trust for each share
of the Fund's preferred stock held on such date.
2. Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Trustee. The fair value of each publicly-held
portfolio security is adjusted to the closing public market price on the last
day of the calendar quarter discounted by a factor of 0% to 20% for sales
restrictions, if any. Factors considered in the determination of an appropriate
discount include: underwriter lock-up, affiliate status by owning greater than
10% of the outstanding shares of a portfolio security, and other liquidity
factors such as the size of the Trust's position in a given portfolio company
compared to the trading history of the public security. Privately-held portfolio
securities are carried at cost until significant developments affecting the
portfolio company provide a basis for change in valuation, including adjustments
to reflect meaningful third-party transactions in the private market.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Realized gains and losses on investments sold are
computed on a specific identification basis. The Trust records its transactions
on the accrual method.
Income Taxes - The Trust is a complete pass-through entity for federal income
tax purposes and, accordingly, is not subject to income tax. Instead, each
beneficiary of the Trust is required to take into account, in accordance with
such beneficiary's method of accounting, such beneficiary's pro rata share of
the Trust's income, gain, loss, deduction or expense, regardless of the amount
or timing of distributions to beneficiaries.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
Cash and Cash Equivalents - The Trust invests its available cash in U.S.
Treasury Bills and overnight repurchase agreements collateralized by securities
issued by the U.S. Government or its agencies. Such investments are considered
to be cash equivalents for the statement of cash flows.
The cash and cash equivalents of the Trust include restricted cash of
approximately $2.8 million, comprised of $2.4 million relating to the Regency
Holdings (Cayman) Inc. litigation, $250,000 relating to certain indemnification
agreements with Mr. Raymond S. Troubh, the Trustee of the Trust, and certain of
the Fund's former directors and officers and $120,000 relating to the potential
reimbursement of out-of-pocket expenses of a shareholder group that had
solicited proxies in opposition to the Fund's Plan of Liquidation. See Notes 4
and 5 below.
3. Related Party Transactions
In July 1996, the Fund entered into an agreement with Raymond S. Troubh, whereby
Mr. Troubh provided management services to the Fund in connection with its Plan
of Liquidation and has continued to provide such services to the Trust during
its liquidation. For services rendered under the agreement, Mr. Troubh receives
$8,500 per month, plus 1% of the amount of each distribution (other than the
initial distribution paid by the Fund on August 30, 1996), plus a percentage of
any proceeds of sale or other revenues received by the Fund or the Trust in
excess of the investment in the particular asset. Mr. Troubh was paid 5% of such
excess for amounts received in 1996 and 1997 and will be paid 4% in 1998, 2% in
1999 and 0% thereafter.
4. Litigation
The Trust is a creditor of PSSS, Inc., formerly Oh-La-La! Inc. ("PSSS"), which
is the subject of proceedings under Chapter 11 of the United States Bankruptcy
Code pending in San Francisco, California (the "Bankruptcy Case"). In connection
with the Bankruptcy Case, Oh-La-La! International, S.A. ("International"), one
of PSSS's largest shareholders, has filed a precautionary proof of claim (the
"Precautionary Proof of Claim"), on behalf of International and other similarly
situated shareholders of PSSS, against, among others, the Trust, certain other
creditors of PSSS, and parties involved in the intended underwriting for, and
conduct of, an initial public offering which PSSS had anticipated would have
occurred in or about 1994. The Precautionary Proof of Claim alleges a claim for
damages as a result of, among other things, (a) the failure to effectuate the
intended initial public offering, and (b) the Bankruptcy Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders. PSSS and
International have taken no other action regarding this claim. The Trust denied
liability for the claims set forth in the Precautionary Proof of Claim. A global
settlement has been reached between and among PSSS, International, the Trust and
several other parties, pursuant to which the Trust will have no liability for
the claims set forth in the Precautionary Proof of Claim (the "Settlement"). The
Settlement has been preliminarily approved by the Bankruptcy Court and is
subject to final approval upon confirmation of a plan of liquidation for PSSS.
Recovery on account of the Trust's claims as a creditor of PSSS is contingent
upon a number of factors beyond the Trust's control.
Regency Holdings (Cayman) Inc. ("Holdings") and Regency Maritime Corp.
("Maritime") (collectively "Regency") along with other related entities are
debtors in a bankruptcy case pending in the United States Bankruptcy Court for
the Southern District of New York, 95 B 45197 (TLB). In that bankruptcy case,
Regency initiated an adversary proceeding against the Fund and certain other
persons and entities to recover monies that it paid them on the ground that such
payments constituted voidable preferences or fraudulent conveyances under the
Bankruptcy Code. Holdings maintains that a payment made to the Fund between 90
days and one year prior to the filing of Regency's bankruptcy petition in the
amount of $1,940,000 to satisfy a bridge loan the Fund made to Regency, is a
voidable preference because Kamal Mustafa, the former president of the Fund, was
a director of Regency (and therefore an insider) for a portion of the time that
such amounts
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
were due and owing. Holdings also maintains that such relationship had an impact
on the decision to pay these amounts. Additionally, Holdings maintains that a
payment of $145,728 made to the Fund to redeem certain warrants issued with
respect to the loan transaction was made within 90 days of the filing of the
bankruptcy petition and is therefore a voidable preference without regard to
whether Mustafa was an insider. The Fund has served an answer denying the
allegations of the amended complaint and is vigorously contesting Regency's
claims. Pursuant to an order filed with the Bankruptcy Court, the Trust has set
aside approximately $2.4 million in an interest-bearing cash account pending
resolution by the Bankruptcy Court of the adversary proceeding. Substantial
discovery has been undertaken. A limited trial based upon written submissions to
address the validity of Regency's preference claims was held in December 1997
and resulted in a judgment in favor of the Trust, dismissing the preference
claims with prejudice. It is expected that a trial on the fraudulent conveyance
claims will be held during 1998.
5. Other Information
On July 15, 1996, the Fund entered into a settlement agreement with a group of
shareholders of the Fund's common stock that had solicited proxies in opposition
to the Fund's Plan of Liquidation (the "13D Group"). Under the settlement
agreement, the Fund and the 13D Group agreed that, (i) certain members of the
13D Group and affiliated persons would cease to have business dealings with or
receive compensation from the Fund, (ii) a 13D Group member would have the right
to receive notice of and attend all meetings of the Board of Directors and any
committee meeting thereof, and (iii) subject to the approval of the Securities
and Exchange Commission (the "SEC"), the Trust would reimburse the 13D Group for
its reasonable out of pocket expenses up to $120,000 in connection with the 13D
Group's efforts. An application relating to such reimbursement by the Trust to
the 13D Group was filed with the SEC on September 27, 1996.
Effective on August 1, 1996, the Fund entered into indemnification agreements
with Mr. Raymond Troubh and certain of the Fund's former directors and officers.
Pursuant to such agreements, the Fund established an escrow account that
contains approximately $250,000 in cash or cash equivalents to provide for
potential legal fees and settlement payments relating to certain actions that
may arise against such individuals relating to activity involving the Fund.
6. Classification of Portfolio Investments
The Trust's investments were categorized as follows as of March 31, 1998:
<TABLE>
Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- --------------- --------------- -----------
<S> <C> <C> <C>
Preferred Stock $ 1,937,500 $ 968,750 14.14%
Common Stock 0 564,063 8.23%
Debt Securities 240,000 60,000 .88%
---------------- -------------- ------
Total $ 2,177,500 $ 1,592,813 23.25%
================ ============== ======
Country/Geographic Region
Western U.S. $ 240,000 $ 60,000 .88%
Eastern U.S. 1,937,500 1,532,813 22.37%
---------------- -------------- ------
Total $ 2,177,500 $ 1,592,813 23.25%
================ ============== ======
Industry
Biotechnology $ 0 $ 564,063 8.23%
Consumer Products 1,937,500 968,750 14.14%
Food Services 240,000 60,000 .88%
---------------- -------------- -------
Total $ 2,177,500 $ 1,592,813 23.25%
================ ============== ======
</TABLE>
* Represents fair value as a percentage of net assets.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
As of March 31, 1998, the Trust held cash and cash equivalents totaling
$5,439,255, of which $2,790,218 was restricted due to certain contingencies, as
discussed below. The Trust's cash balances are invested in U.S. Treasury Bills
or overnight repurchase agreements collateralized by securities issued by the
U.S. Government or its agencies. Interest earned from such investments for the
three month period ended March 31, 1998, totaled $73,756. Interest earned from
such cash balances in future periods is subject to fluctuations in short-term
interest rates and changes in the Trust's cash balances.
The restricted cash and cash equivalents balance of approximately $2.8 million,
is comprised of $2.4 million relating to the Regency Holdings (Cayman) Inc.
litigation, $250,000 relating to certain indemnification agreements with Mr.
Raymond S. Troubh, the Trustee of the Trust, and certain of the former directors
and officers of The MicroCap Fund, Inc. (the "Fund") and $120,000 relating to
the potential reimbursement of out-of-pocket expenses of a shareholder group
that had solicited proxies in opposition to the Fund's Plan of Liquidation. See
Notes 4 and 5 of the Notes to Financial Statements.
Results of Operations
The Trust is pursuing the orderly liquidation of its assets and subsequent
distribution to unit holders of the proceeds from such liquidation, including
the Trust's remaining cash balances, after payment of all current, future and
contingent liabilities. Prior to the creation of the Trust, the Fund had begun
to pursue this objective upon the approval of its Plan of Liquidation in July
1996.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the three months ended March 31, 1998, the Trust had a $29,687 unrealized
loss resulting from the downward revaluation of its investment in Unigene
Laboratories, Inc., due to the reduced public market price of Unigene common
stock at the end of the period. There were no realized gains or losses from
portfolio investments during the three months ended March 31, 1998.
For the period from February 25, 1997 to March 31, 1997 (the "1997 Period"), the
Trust had a $352,307 unrealized loss from its remaining portfolio investments
resulting from the net downward revaluation of its publicly-held portfolio
investments, primarily due to the reduced public market price of Unigene
Laboratories, Inc. common stock at the end of the period. There were no realized
gains or losses from portfolio investments during the 1997 Period.
Investment Income and Expenses
For three months ended March 31, 1998 and for the 1997 Period, the Trust had a
net investment loss of $49,032 and $119,844, respectively. The decrease in net
investment loss for the three months ended March 31, 1998 compared to the 1997
Period primarily was due to a $46,424 increase in investment income and a
$24,388 decrease in operating expenses for the 1998 period. The increase in
investment income primarily was due to an increase in interest income from
short-term investments of $37,453 for the three months ended March 31, 1998
compared to the 1997 Period. This increase reflects the longer full three month
period for 1998 compared to the shorter 1997 Period of slightly over one month.
The decrease in operating expenses for the three months ended March 31, 1998
compared to the 1997 Period primarily was due to a $47,352 decrease in legal
fees, partially offset by a $22,964 increase in other operating expenses. This
net decrease in legal fees primarily is the result of reduced litigation
expenses and restructuring costs during the three months ended March 31, 1998
compared to the 1997 Period. The increase in other operating expenses reflects
the longer full three month period for 1998 compared to the shorter 1997 Period
of slightly over one month.
Net Assets in Liquidation
As of March 31, 1998, net assets in liquidation totaled $6,852,651, a decrease
of $78,719 from net assets in liquidation of $6,931,370 at December 31, 1997.
This decrease was comprised of the $29,687 net unrealized loss from portfolio
investments and the $49,032 net investment loss for the three months ended March
31, 1998. As of March 31, 1998, the net asset value per Unit was $2.82, compared
to $2.86 per Unit as of December 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Trust is a creditor of PSSS, Inc., formerly Oh-La-La! Inc. ("PSSS"), which
is the subject of proceedings under Chapter 11 of the United States Bankruptcy
Code pending in San Francisco, California (the "Bankruptcy Case"). In connection
with the Bankruptcy Case, Oh-La-La! International, S.A. ("International"), one
of PSSS's largest shareholders, has filed a precautionary proof of claim (the
"Precautionary Proof of Claim"), on behalf of International and other similarly
situated shareholders of PSSS, against, among others, the Trust, certain other
creditors of PSSS, and parties involved in the intended underwriting for, and
conduct of, an initial public offering which PSSS had anticipated would have
occurred in or about 1994. The Precautionary Proof of Claim alleges a claim for
damages as a result of, among other things, (a) the failure to effectuate the
intended initial public offering, and (b) the Bankruptcy Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders. PSSS and
International have taken no other action regarding this claim. The Trust denied
liability for the claims set forth in the Precautionary Proof of Claim. A global
settlement has been reached between and among PSSS, International, the Trust and
several other parties, pursuant to which the Trust will have no liability for
the claims set forth in the Precautionary Proof of Claim (the "Settlement"). The
Settlement has been preliminarily approved by the Bankruptcy Court and is
subject to final approval upon confirmation of a plan of liquidation for PSSS.
Recovery on account of the Trust's claims as a creditor of PSSS is contingent
upon a number of factors beyond the Trust's control.
Regency Holdings (Cayman) Inc. ("Holdings") and Regency Maritime Corp.
("Maritime") (collectively "Regency") along with other related entities are
debtors in a bankruptcy case pending in the United States Bankruptcy Court for
the Southern District of New York, 95 B 45197 (TLB). In that bankruptcy case,
Regency initiated an adversary proceeding against the Fund and certain other
persons and entities to recover monies that it paid them on the ground that such
payments constituted voidable preferences or fraudulent conveyances under the
Bankruptcy Code. Holdings maintains that a payment made to the Fund between 90
days and one year prior to the filing of Regency's bankruptcy petition in the
amount of $1,940,000 to satisfy a bridge loan the Fund made to Regency, is a
voidable preference because Kamal Mustafa, the former president of the Fund, was
a director of Regency (and therefore an insider) for a portion of the time that
such amounts were due and owing. Holdings also maintains that such relationship
had an impact on the decision to pay these amounts. Additionally, Holdings
maintains that a payment of $145,728 made to the Fund to redeem certain warrants
issued with respect to the loan transaction was made within 90 days of the
filing of the bankruptcy petition and is therefore a voidable preference without
regard to whether Mustafa was an insider. The Fund has served an answer denying
the allegations of the amended complaint and is vigorously contesting Regency's
claims. Pursuant to an order filed with the Bankruptcy Court, the Trust has set
aside approximately $2.4 million in an interest-bearing cash account pending
resolution by the Bankruptcy Court of the adversary proceeding. Substantial
discovery has been undertaken. A limited trial based upon written submissions to
address the validity of Regency's preference claims was held in December 1997
and resulted in a judgment in favor of the Trust, dismissing the preference
claims with prejudice. It is expected that a trial on the fraudulent conveyance
claims will be held during 1998.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was brought to a vote of security holders during the period covered by
this report.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROCAP LIQUIDATING TRUST
/s/ Raymond S. Troubh
Raymond S. Troubh
Trustee
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE MICROCAP LIQUIDATING TRUST'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 2,177,500
<INVESTMENTS-AT-VALUE> 1,592,813
<RECEIVABLES> 16,190
<ASSETS-OTHER> 242
<OTHER-ITEMS-ASSETS> 5,439,255
<TOTAL-ASSETS> 7,048,500
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 195,849
<TOTAL-LIABILITIES> 195,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,427,281
<SHARES-COMMON-PRIOR> 2,427,281
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (584,687)
<NET-ASSETS> 6,852,651
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 73,756
<OTHER-INCOME> 11,815
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<NET-INVESTMENT-INCOME> (49,032)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (29,687)
<NET-CHANGE-FROM-OPS> (78,719)
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (78,719)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<AVERAGE-NET-ASSETS> 6,892,011
<PER-SHARE-NAV-BEGIN> 2.856
<PER-SHARE-NII> (.021)
<PER-SHARE-GAIN-APPREC> (.012)
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<PER-SHARE-NAV-END> 2.823
<EXPENSE-RATIO> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
