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 June 30, 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 August 1, 1997 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 June 30, 1998 (Unaudited)
and December 31, 1997
Schedule of Portfolio Investments as of June 30, 1998 (Unaudited)
Statements of Operations for the three months ended June 30, 1998 and 1997
(Unaudited)
Statements of Operations for the six months ended June 30, 1998 and for
the period from February 25, 1997 to June 30, 1997
(Unaudited)
Statements of Changes in Net Assets for the six months ended June 30, 1998
and for the period from February 25, 1997 to June
30, 1997 (Unaudited)
Statements of Cash Flows for the six months ended June 30, 1998 and for the
period from February 25, 1997 to June 30, 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>
June 30, 1998 December 31,
(Unaudited) 1997
ASSETS
Portfolio investments at fair value (cost $2,177,500 at June 30, 1998
<S> <C> <C> <C> <C>
and December 31, 1997) $ 1,310,781 $ 1,622,500
Cash and cash equivalents - unrestricted 2,680,658 2,651,802
Cash and cash equivalents - restricted 2,790,218 2,790,218
Accrued interest receivable 15,633 18,644
Other assets 50,382 883
--------------- ----------------
Total assets 6,847,672 7,084,047
--------------- ----------------
LIABILITIES
Accounts payable and accrued expenses 65,337 152,677
--------------- ----------------
Total liabilities 65,337 152,677
--------------- ----------------
NET ASSETS IN LIQUIDATION $ 6,782,335 $ 6,931,370
=============== ================
Net assets per unit of beneficial interest $ 2.79 $ 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)
June 30, 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 $ 282,031 4.17%
------------- -------------- -------
YES! Entertainment Corporation(A)
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 14.28%
------------- -------------- --------
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(B) $ 2,177,500 $ 1,310,781 19.33%
============= ============== ========
</TABLE>
(1) Represents fair value as a percentage of net assets.
(A) The Trust's warrant to purchase 11,437 common shares of Yes! Entertainment
Corporation expired unexercised on July 16, 1998.
(B) All portfolio securities held at June 30, 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 Three Months
Ended Ended
June 30, 1998 June 30, 1997
--------------------- -----------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from short-term investments $ 70,257 $ 95,851
Other interest income - 6,021
Other income 186,298 -
Miscellaneous - 1,196
--------------- ----------------
Total 256,555 103,068
--------------- ----------------
Expenses:
Administrative fees 18,779 11,616
Legal fees (16,729) 3,024
Accounting fees 12,639 17,425
Trustee fees 25,500 25,500
Transfer agent and custodian fees 4,986 5,672
Mailing and printing expenses (438) 1,463
Other operating expenses 102 630
--------------- ----------------
Total expenses 44,839 65,330
--------------- ----------------
NET INVESTMENT INCOME 211,716 37,738
Change in net unrealized depreciation of investments (282,032) 704,094
--------------- ----------------
NET (DECREASE) INCREASE IN NET
ASSETS IN LIQUIDATION $ (70,316) $ 741,832
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Period From
Six Months February 25,
Ended 1997 to
June 30, 1998 June 30, 1997
-------------------- ------------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from short-term investments $ 144,013 $ 132,154
Other interest income - 8,865
Other income 186,298 -
Miscellaneous 11,815 1,196
--------------- ---------------
Total investment income 342,126 142,215
--------------- ---------------
Expenses:
Administrative fees 36,837 25,978
Legal fees 56,982 124,087
Accounting fees 23,889 31,425
Trustee fees 51,000 34,000
Transfer agent and custodian fees 10,414 6,738
Mailing and printing expenses (438) 1,463
Other operating expenses 758 630
--------------- ---------------
Total expenses 179,442 224,321
--------------- ---------------
NET INVESTMENT INCOME (LOSS) 162,684 (82,106)
Change in net unrealized depreciation of investments (311,719) 351,787
--------------- ---------------
NET (DECREASE) INCREASE IN NET
ASSETS IN LIQUIDATION $ (149,035) $ 269,681
=============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
Period From
Six Months February 25,
Ended 1997 to
June 30, 1998 June 30, 1997
<S> <C> <C>
Net investment income (loss) $ 162,684 $ (82,106)
Change in net unrealized appreciation or depreciation of
portfolio investments (311,719) 351,787
--------------- ----------------
(Decrease) increase in net assets resulting from operations (149,035) 269,681
Cash distributions paid or accrued - (2,427,281)
--------------- ----------------
Decrease in net assets for the period (149,035) (2,157,600)
Net assets in liquidation at beginning of period 6,931,370 9,783,311
--------------- ----------------
NET ASSETS IN LIQUIDATION AT END OF PERIOD $ 6,782,335 $ 7,625,711
=============== ================
Net assets per unit of beneficial interest at end of period $ 2.79 $ 3.14
============ ============
Number of units of beneficial interest at end of period 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>
Period From
Six Months February 25,
Ended 1997 to
June 30, 1998 June 30, 1997
----------------- ------------------
CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
<S> <C> <C>
Net investment income (loss) $ 162,684 $ (82,106)
Adjustments to reconcile net investment income (loss) to cash
provided from operating activities:
Depreciation expense - 1,835
Decrease in payables and other liabilities (87,340) (110,916)
(Increase) decrease in receivables and other assets (46,488) 216,185
--------------- ---------------
Cash flows provided from operating activities 28,856 24,998
--------------- ---------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Covered call options written - 37,500
--------------- ---------------
Cash flows provided from investing activities - 37,500
--------------- ---------------
Increase in cash and cash equivalents 28,856 62,498
Cash and cash equivalents at beginning of period 5,442,020 7,571,246
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,470,876 $ 7,633,744
=============== ===============
</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
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.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
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.
The Trust is a creditor of PSSS, Inc., formerly known as Oh-La-La! Inc.
("PSSS"). PSSS confirmed its reorganization plan on May 15, 1998. Pursuant to
the confirmed plan, the Trust may receive a payment on account of its claim
against PSSS if funds become available for distribution. Currently, it is
uncertain whether there will ever be any funds to distribute, or the timing of
any distribution if funds ever become available.
6. Other income
This includes income received as a result of the settlement of certain claims
against former counsel by the Fund, Commonwealth Associates, Falk and Warner.
The terms of the settlement agreement provide that there will be a further
payment on January 15, 1999.
7. Classification of Portfolio Investments
The Trust's investments were categorized as follows as of June 30, 1998:
<TABLE>
% of
Type of Investments Cost Fair Value Net Assets*
- ------------------- --------------- --------------- -----------
<S> <C> <C> <C>
Preferred Stock $ 1,937,500 $ 968,750 14.28%
Common Stock 0 282,031 4.17%
Debt Securities 240,000 60,000 .88%
---------------- -------------- ------
Total $ 2,177,500 $ 1,310,781 19.33%
================ ============== ======
Country/Geographic Region
Western U.S. $ 240,000 $ 60,000 .88%
Eastern U.S. 1,937,500 1,250,781 18.45%
---------------- -------------- ------
Total $ 2,177,500 $ 1,310,781 19.33%
================ ============== ======
Industry
Biotechnology $ 0 $ 282,031 4.17%
Consumer Products 1,937,500 968,750 14.28%
Food Services 240,000 60,000 .88%
---------------- -------------- -------
Total $ 2,177,500 $ 1,310,781 19.33%
================ ============== ======
</TABLE>
* Represents fair value as a percentage of net assets
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
8. Subsequent Event - Cash Distribution
On August 4, 1998, the Trust declared an interim liquidating distribution
totaling $1,820,461, or $.75 per Unit. Such distribution will be paid on August
28, 1998 to unit holders of record on August 14, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
On June 30, 1998, the Trust had cash and cash equivalents totaling $5,470,876,
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
and six months ended June 30, 1998, totaled $70,257 and $144,013, respectively.
Interest earned from such cash balances in future periods is subject to
fluctuations in short-term interest rates and changes in amounts invested in
such securities.
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 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 of the Notes to
Financial Statements.
On August 4, 1998, the Trust declared an interim liquidating distribution
totaling $1,820,461, or $.75 per Unit. Such distribution will be paid on August
28, 1998 to unit holders of record on August 14, 1998. The Trust expects to make
one or more additional cash distributions to beneficiaries of the Trust as the
remaining assets are liquidated and after the payment of and reserve for all
current and contingent liabilities.
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, or provision for, all
current, future and contingent liabilities. Prior to the creation of the Trust,
the Fund had begun to pursue this objective with the approval of its Plan of
Liquidation in July 1996.
Realized and Unrealized Gains and Losses from Portfolio Investments
For the three and six months ended June 30, 1998, the Trust had unrealized
losses from its remaining portfolio investments of $282,032 and $311,719,
respectively. The Trust had no realized gains or losses from its portfolio
investments during the three and six months ended June 30, 1998.
The $311,719 unrealized loss for the six months ended June 30, 1998, resulted
from the net downward revaluation of the Trust's investment in Unigene
Laboratories, Inc., due to the decreased public market price of Unigene common
stock at the end of the period.
For the three months ended June 30, 1997, and for the period from February 25,
1997 to June 30, 1997 (the "1997 Period"), the Trust had unrealized gains from
its remaining portfolio investments of $704,094 and $351,787, respectively. The
Trust had no realized gains or losses from its portfolio investments during the
three months ended June 30, 1997 and the 1997 Period.
The $351,787 unrealized gain for the 1997 Period resulted from the net upward
revaluation of the Trust's publicly-held portfolio investments, primarily due to
the increased public market price of Unigene common stock at the end of the
period.
Investment Income and Expenses
For the three months ended June 30, 1998 and 1997, the Trust had net investment
income of $211,716 and $37,738, respectively. For the six months ended June 30,
1998 and for the 1997 Period, the Trust had net investment income of $162,684
and a net investment loss $82,106, respectively.
The increase in net investment income for the three months ended June 30, 1998,
as compared to the same period in 1997, resulted from a $153,487 increase in
investment income and a $20,491 decrease in operating expenses. The increase in
investment income primarily was due to the $186,298 of other income recorded
during the 1998 period and discussed in Note 6 of Notes to Financial Statements.
Interst income from short-term investments decreased $25,564 primarily due to a
decrease in funds available for investment in such securities during the three
months ended June 30, 1998.
The decrease in operating expenses for the three months ended June 30, 1998, as
compared to the same period in 1997, primarily was due to a decrease in legal
fees which resulted from the reversal of certain legal expenses during the three
months ended June 30, 1998 that had been accrued in prior periods.
Net investment income of $162,684 for the six months ended June 30, 1998 as
compared to a net investment loss of $82,106 for the 1997 Period, resulted from
a $199,911 increase in investment income and a $44,879 decrease in operating
expenses. The increase in investment income primarily was due to the $186,298 of
other income recorded during the six months ended June 30, 1998 and discussed in
Note 6 of Notes to Financial Statements. Interest income from short-term
investments also increased $11,859, reflecting the longer full six month period
for 1998 compared to the shorter 1997 Period of slightly over four months.
The decrease in operating expenses for the six months ended June 30, 1998
compared to the 1997 Period was due to a $67,105 decrease in legal fees,
partially offset by a $22,226 increase in other operating expenses. The decrease
in legal fees primarily was the result of the reversal of certain legal expenses
accrued in prior periods, as discussed above. The increase in other operating
expenses reflects the longer full six month period for 1998 compared to the
shorter 1997 Period of slightly over four months.
Net Assets in Liquidation
As of June 30, 1998, net assets in liquidation totaled $6,782,335, a decrease of
$149,035 from net assets in liquidation of $6,931,370 at December 31, 1997. This
decrease is comprised of the $162,684 net investment income offset by the
$311,719 net unrealized loss from portfolio investments for the six months ended
June 30, 1998. As of June 30, 1998, the net asset value per Unit was $2.79,
compared to $2.86 per Unit as of December 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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.
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: August 13, 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 PERIOD ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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