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, 1999
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 2, 1999 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, 1999 (Unaudited) and
December 31, 1998
Schedule of Portfolio Investments as of June 30, 1999 (Unaudited)
Statements of Operations for the three months ended June 30, 1999 and 1998
(Unaudited)
Statements of Operations for the six months ended June 30, 1999 and 1998
(Unaudited)
Statements of Changes in Net Assets for the six months ended June 30, 1999
and 1998 (Unaudited)
Statements of Cash Flows for the six months ended June 30, 1999 and 1998
(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, 1999 December 31,
(Unaudited) 1998
Assets
<S> <C>
Portfolio investments at fair value (cost $1,937,500 as of
June 30, 1999 and December 31, 1998) $ 484,375 $ 484,375
Cash and cash equivalents - unrestricted 1,041,599 813,832
Cash and cash equivalents - restricted 370,000 2,790,218
Accrued interest receivable 5,498 14,826
Other receivables - 50,000
--------------- ----------------
Total assets 1,901,472 4,153,251
--------------- ----------------
Liabilities
Accounts payable and accrued expenses 16,324 81,513
Litigation settlement reserve - 278,200
--------------- ----------------
Total liabilities 16,324 359,713
--------------- ----------------
Net Assets in Liquidation $ 1,885,148 $ 3,793,538
=============== ================
Net assets in liquidation per Unit of beneficial interest $ 0.78 $ 1.56
======== ======
Number of Units of beneficial interest outstanding 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)
As of June 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Fair Value
as a % of
Issuer / Position Cost Fair Value Net Assets(1)
Publicly-Held Securities:
Unigene Laboratories, Inc.
Warrant to purchase 475,000 shares of Common Stock
at $1.375, expiring 7/7/00 $ 0 $ 0 0.00%
------------- -------------- -------
Privately-Held Securities:
First Colony Acquisition Corp.
106,562 shares of Series A1 Preferred Stock 594,174 148,544
240,179 shares of Series B1 Preferred Stock 1,343,326 335,831
Warrant to purchase 7,560 shares of Common Stock
at $5.00, expiring 1/24/00 0 0
------------- --------------
1,937,500 484,375 25.69%
------------- -------------- --------
Total Portfolio Investments (A) $ 1,937,500 $ 484,375 25.69%
============= ============== ========
</TABLE>
(1) Represents fair value as a percentage of the Trust's total net assets.
(A) All portfolio securities held as of June 30, 1999 are non-income producing.
As of June 30, 1999, all of the Trust's portfolio companies were located in
the eastern United States. The investments, using fair value as a
percentage of net assets, represented biotechnology, 25.69%, consumer
products, 0%, preferred stock, 25.69%, and common stock, 0%.
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended June 30,
<TABLE>
1999 1998
--------------- -----------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from U.S. Treasury Bills and repurchase agreements $ 17,024 $ 70,257
Other income - 186,298
--------------- ----------------
Total investment income 17,024 256,555
--------------- ----------------
Expenses:
Trustee fees 25,500 25,500
Administrative fees 20,010 18,779
Legal fees 55 (16,729)
Accounting fees 4,500 12,639
Transfer agent and custodian fees 5,168 4,986
Mailing and printing expenses 39 (438)
Other operating expenses 105 102
--------------- ----------------
Total expenses 55,377 44,839
--------------- ----------------
NET INVESTMENT (LOSS) INCOME (38,353) 211,716
Change in net unrealized depreciation of investments - (282,032)
--------------- ----------------
NET DECREASE IN NET ASSETS IN LIQUIDATION $ (38,353) $ (70,316)
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
For the six months ended June 30,
<TABLE>
1999 1998
--------------- -----------------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from U.S. Treasury Bills and repurchase agreements $ 57,958 $ 144,013
Other income - 186,298
Miscellaneous - 11,815
--------------- ---------------
Total investment income 57,958 342,126
--------------- ---------------
Expenses:
Trustee fees 69,205 51,000
Administrative fees 39,639 36,837
Legal fees 7,314 56,982
Accounting fees 15,500 23,889
Transfer agent and custodian fees 10,584 10,414
Litigation expense 3,225 -
Mailing and printing expenses 39 (438)
Other operating expenses 381 758
--------------- ---------------
Total expenses 145,887 179,442
--------------- ---------------
NET INVESTMENT (LOSS) INCOME (87,929) 162,684
Change in net unrealized depreciation of investments - (311,719)
--------------- ---------------
NET DECREASE IN NET ASSETS IN LIQUIDATION $ (87,929) $ (149,035)
=============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
For the six months ended June 30,
<TABLE>
1999 1998
----------------- ----------------
Changes in net assets resulting from operations:
<S> <C> <C>
Net investment (loss) income $ (87,929) $ 162,684
Change in net unrealized depreciation of investments - (311,719)
--------------- ----------------
Net decrease in net assets resulting from operations (87,929) (149,035)
--------------- ----------------
Cash distributions paid (1,820,461) -
--------------- ----------------
Decrease in net assets in liquidation (1,908,390) (149,035)
Net assets in liquidation at beginning of period 3,793,538 6,931,370
--------------- ----------------
Net Assets in Liquidation at End of Period $ 1,885,148 $ 6,782,335
=============== ================
Net assets per unit of beneficial interest $ 0.78 $ 2.79
=========== ============
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)
For the six months ended June 30,
<TABLE>
1999 1998
--------------- ---------------
CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES
<S> <C> <C>
Net investment (loss) income $ (87,929) $ 162,684
Adjustments to reconcile net investment (loss) income to cash
(used for) provided from operating activities:
Decrease in liabilities (343,389) (87,340)
Decrease (increase) in other assets 59,328 (46,488)
--------------- ---------------
Cash flows (used for) provided from operating activities (371,990) 28,856
--------------- ---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distributions paid (1,820,461) -
--------------- ---------------
Cash flows used for financing activities (1,820,461) -
--------------- ---------------
(Decrease) increase in cash and cash equivalents (2,192,451) 28,856
Cash and cash equivalents at beginning of period 3,604,050 5,442,020
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,411,599 $ 5,470,876
=============== ===============
</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 entity 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 - continued (Unaudited)
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 $370,000, comprised of
$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, 4% in 1998, and will be paid 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 maintained 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, was 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 maintained that such relationship
had an impact on the decision to pay these amounts. Additionally, Holdings
maintained 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 was therefore a voidable preference
without regard to whether Mustafa was an insider. Alternatively, Maritime
asserted that the foregoing payments were made from its funds, without
reasonably equivalent consideration, and were therefore avoidable as fraudulent
conveyances. The Fund served an answer denying the allegations of the amended
complaint and contested Regency's claims. Pursuant to an order filed with the
Bankruptcy Court, the Trust had set aside approximately $2.4 million in an
interest-bearing cash account pending resolution by the Bankruptcy Court of the
adversary proceeding. Substantial discovery had 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. A mediator was appointed
to attempt to facilitate a mutually beneficial settlement of the remaining
fraudulent conveyance claims, and a mediation session occurred on October 5,
1998. During that session, the parties reached a tentative consensual resolution
of the fraudulent conveyance claim. The proposed settlement was finalized in
March 1999 and the defendants agreed to pay a total of $535,000, of which the
Trust's share was $281,425, exclusive of legal and other fees and expenses.
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS - continued (Unaudited)
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. Cash Distribution
On March 2, 1999, the Trust announced that an additional liquidation
distribution would be paid to unit holders of record on March 16, 1999. This
distribution totaled $1,820,461 or $.75 per Unit, and was paid on March 31,
1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
As of June 30, 1999, the Trust held cash and cash equivalents totaling
$1,411,599, of which $370,000 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, 1999, totaled $17,024 and $57,958,
respectively. Interest earned from such cash balances in future periods is
subject to fluctuations in short-term interest rates and changes in cash
equivalent balances held by the Trust.
The restricted cash and cash equivalents balance of $370,000, is comprised of
$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 Note
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, or provision for, 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 and six months ended June 30, 1999, the Trust had no realized or
unrealized gains or losses from portfolio investments.
The Trust had no realized gains or losses from portfolio investments during the
three and six months ended June 30, 1998. For the three and six months ended
June 30, 1998, the Trust had unrealized losses from its portfolio investments of
$282,032 and $311,719, respectively.
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.
Investment Income and Expenses
For the three months ended June 30, 1999 and 1998, the Trust had a net
investment loss (interest and other income less operating expenses) of $38,353
and net investment income of $211,716, respectively. For the six months ended
June 30, 1999 and 1998, the Trust had a net investment loss of $87,929 and net
investment income of $162,684, respectively.
The net investment loss of $38,353 for the three months ended June 30, 1999 as
compared to the net investment income of $211,716 for the same period in 1998,
resulted from a $239,531 decrease in investment income and a $10,538 increase in
operating expenses for the 1999 period. The decrease in investment income for
the 1999 period compared to the same period in 1998 included a one time payment
of $186,298 received by the Trust during the 1998 period, as a result of the
settlement of certain legal claims made by the Trust. The reduced investment
income also included a $53,233 decrease in interest income from short-term
investments, which primarily was due to a reduction of funds available for
investment in such securities during the three months ended June 30, 1999
compared to the same period in 1998.
The Trust had a slight increase in operating expenses for the three months ended
June 30, 1999, as compared to the same period in 1998. This increase primarily
was due to the reversal of $16,674 of accrued legal expenses during the three
months ended June 30, 1998.
The net investment loss of $87,929 for the six months ended June 30, 1999 as
compared to the net investment income of $162,684 for the same period in 1998,
resulted from a $284,168 decrease in investment income partially offset by a
$33,555 decrease in operating expenses for the 1999 period. The decrease in
investment income primarily was due to the $186,298 one time litigation
settlement payment received by the Trust during 1998, as discussed above, and an
$86,055 decrease in interest income from short-term investments for the 1999
period as compared to the same period in 1998. The decrease in interest income
from short-term investments primarily was due to a reduction of funds available
for investment in such securities during the six months ended June 30, 1999
compared to the same period in 1998. The Trust also had $11,815 of non-recurring
income for the six months ended June 30, 1998.
The decrease in operating expenses for the six months ended June 30, 1999, as
compared to the same period in 1998, primarily was due to a $49,668 decline in
legal fees, reflecting the Trust's declining litigation activity, partially
offset by a $16,113 increase in other expenses. The increase in other expenses
primarily was due to an $18,205 increase in Trustee fees, due to the additional
fee paid in connection with the cash distribution paid to beneficial holders on
March 31, 1999. See Notes 3 and 6 of Notes to Financial Statements.
Net Assets in Liquidation
As of June 30, 1999, net assets in liquidation totaled $1,885,148, a decrease of
$1,908,390 from net assets in liquidation of $3,793,538 as of December 31, 1998.
This decrease is the result of the $1,820,461 cash distribution paid in March
1999 and the $87,929 net investment loss for the six months ended June 30, 1999.
As of June 30, 1999, the net asset value per Unit of beneficial interest was
$0.78, compared to $1.56 as of December 31, 1998.
Year 2000 Issue - The Year 2000 ("Y2K") concern arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of "19". If not corrected, many computer applications could fail or
create erroneous results. The impact of the Y2K concern on the operations of the
Trust is currently being assessed.
Palmeri Fund Administrators, Inc. (the "Administrator") provides certain
administrative and accounting services for the Trust, including maintenance of
the books and records of the Trust, preparation and issuance of financial
reports and tax information to beneficial holders of the Trust and other day to
day administrative and accounting functions.
The Administrator has assessed its computer hardware and software systems,
specifically as they relate to the operations of the Trust. As part of its
investigation of possible Y2K concerns, the Administrator contracted with an
outside computer service provider to examine all of the Administrator's computer
hardware and software applications, to identify any Y2K concerns. This review
and evaluation has been completed and certain Y2K concerns were identified. The
Administrator has completed the purchase and installation of the necessary
software upgrades and patches and new computer hardware required for its
computer systems to be Y2K compliant.
Additionally, the Administrator has contacted all outside service providers used
to assist the Administrator with the administration of the Trust's operations to
ascertain whether these entities are addressing the Y2K issue within their own
operation. There can be no guarantee that the Administrator's systems or that
systems of other companies providing services to the Trust will be corrected in
a timely manner.
Costs to be incurred by the Trust relating to the investigation or correction of
potential Y2K problems affecting the Trust are expected to be immaterial.
The Y2K issue is a global concern that may affect all business entities,
including the Trust's remaining portfolio companies. The Trustee is continuing
to assess the impact of Y2K concerns affecting these portfolio companies.
However, the extent to which any potential Y2K concerns could affect the
valuations of these companies is presently unknown. At the time such Y2K
concerns are identified, if any, the Trustee will take such issues into
consideration in adjusting the fair value of the Trust's remaining portfolio
investments.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Trust is subject to market risk arising from changes in the value of its
portfolio investments, investments in U.S. Treasury Bills and interest-bearing
cash equivalents, which may result from fluctuations in interest rates and
equity prices. The Trust has calculated its market risk related to its holdings
of these investments based on changes in interest rates and equity prices
utilizing a sensitivity analysis. The sensitivity analysis estimates the
hypothetical change in fair values, cash flows and earnings based on an assumed
10% change (increase or decrease) in interest rates and equity prices. To
perform the sensitivity analysis, the assumed 10% change is applied to market
rates and prices on investments held by the Trust as of the end of the
accounting period.
The Trust's portfolio investments had an aggregate fair value of $484,375 as of
June 30, 1999. An assumed 10% decline from this fair value would result in a
reduction to the fair value of such investments and an unrealized loss of
$48,438.
Market risk relating to the Trust's interest-bearing cash equivalents,
investments in U.S. Treasury Bills and overnight repurchase agreements
collateralized by securities issued by the U.S. Government or its agencies held
as of June 30, 1999 is considered to be immaterial.
<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 maintained 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, was 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 maintained that such relationship
had an impact on the decision to pay these amounts. Additionally, Holdings
maintained 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 was therefore a voidable preference
without regard to whether Mustafa was an insider. Alternatively, Maritime
asserted that the foregoing payments were made from its funds, without
reasonably equivalent consideration, and were therefore avoidable as fraudulent
conveyances. The Fund served an answer denying the allegations of the amended
complaint and contested Regency's claims. Pursuant to an order filed with the
Bankruptcy Court, the Trust had set aside approximately $2.4 million in an
interest-bearing cash account pending resolution by the Bankruptcy Court of the
adversary proceeding. Substantial discovery had 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. A mediator was appointed
to attempt to facilitate a mutually beneficial settlement of the remaining
fraudulent conveyance claims, and a mediation session occurred on October 5,
1998. During that session, the parties reached a tentative consensual resolution
of the fraudulent conveyance claim. The proposed settlement was finalized in
March 1999 and the defendants agreed to pay a total of $535,000, of which the
Trust's share was $281,425, exclusive of legal and other fees and expenses.
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/s Raymond S. Troubh
Raymond S. Troubh
Trustee
Date: August 13, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 1,937,500
<INVESTMENTS-AT-VALUE> 484,375
<RECEIVABLES> 5,498
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,411,599
<TOTAL-ASSETS> 1,901,472
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,324
<TOTAL-LIABILITIES> 16,324
<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> (1,453,125)
<NET-ASSETS> 1,885,148
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 57,958
<OTHER-INCOME> 0
<EXPENSES-NET> 145,887
<NET-INVESTMENT-INCOME> (87,929)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (87,929)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,820,461
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,908,390)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,839,343
<PER-SHARE-NAV-BEGIN> 1.563
<PER-SHARE-NII> (.036)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.750)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> .777
<EXPENSE-RATIO> 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
