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, 2000
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) 821-0905
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, 2000 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, 2000 (Unaudited) and
December 31, 1999
Schedule of Portfolio Investments as of June 30, 2000 (Unaudited)
Statements of Operations for the Three and Six Months ended June 30, 2000 and
1999 (Unaudited)
Statements of Changes in Net Assets for the Six Months ended June 30, 2000 and
1999 (Unaudited)
Statements of Cash Flows for the Six Months ended June 30, 2000 and 1999
(Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
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 ASSETS AND LIABILITIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30,
2000 December 31,
(Unaudited) 1999
-------------- ----------------
Assets
Portfolio investments at fair value (cost $1,937,500 as of
June 30, 2000 and December 31, 1999) $ 457,500 $ 484,375
Cash and cash equivalents - unrestricted 1,488,549 1,348,193
Cash and cash equivalents - restricted - 120,000
Accrued interest receivable 7,393 6,225
--------------- ----------------
Total assets 1,953,442 1,958,793
--------------- ----------------
Liabilities
Accrued distribution payable - 970,912
Accounts payable and accrued expenses 25,642 29,118
--------------- ----------------
Total liabilities 25,642 1,000,030
--------------- ----------------
Net Assets in Liquidation $ 1,927,800 $ 958,763
=============== ================
Net assets in liquidation per Unit of beneficial interest $ 0.79 $ 0.39
======== ========
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, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Fair Value
Fair as a % of
Issuer / Position Cost Value Net Assets(1)
----------------------------------------------------------------------------------------------------------------------------------
Privately-Held Securities:
First Colony Coffee and Tea Company (A)
106,562 shares of Series A1 Preferred Stock $ 594,174 $ 140,600
240,179 shares of Series B1 Preferred Stock 1,343,326 316,900
--------------- -------------
1,937,500 457,500 23.73 %
--------------- ------------- --------
Total Portfolio Investments (B) $ 1,937,500 $ 457,500 23.73 %
=============== ============= ========
</TABLE>
(1) Represents fair value as a percentage of the Trust's total net assets.
(A) On April 14, 2000, the Trust entered into an option agreement whereby the
optionee has the right to purchase the Trust's holdings of First Colony
Coffee and Tea Company for $457,500. The Trust received $25,000 from the
sale of such option, which expires on January 8, 2001.
(B) During the quarter, the Trust liquidated its remaining 130,000 common
shares of Unigene Laboratories, Inc. for net proceeds of $325,398,
realizing a gain of $146,648.
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Three Months
Ended June 30, Ended June 30,
2000 1999
------------------- ------------------
Investment Income and Expenses
Income:
Interest from U.S. Treasury Bills and repurchase agreements $ 20,410 $ 17,024
Income from sale of option 25,000 -
------------ ------------
Total investment income 45,410 17,024
------------ ------------
Expenses:
Trustee fees 12,750 25,500
Administrative fees 19,664 20,010
Legal fees 1,500 55
Accounting fees 9,875 4,500
Transfer agent and custodian fees 3,912 5,168
Mailing and printing expenses 504 39
Other operating expenses 569 105
------------ ------------
Total expenses 48,774 55,377
------------ ------------
Net Investment Loss (3,364) (38,353)
------------ ------------
Net realized gain from portfolio investments 146,648 -
Change in net unrealized depreciation of investments (221,875) -
------------ ------------
Net realized and unrealized gain from portfolio investments (75,227) -
------------ ------------
Net Decrease in Net Assets in Liquidation $ (78,591) $ (38,353)
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended June 30, Ended June 30,
2000 1999
------------------- ------------------
Investment Income and Expenses
Income:
Interest from U.S. Treasury Bills and repurchase agreements $ 31,012 $ 57,958
Income from sale of option 25,000 -
------------- ------------
Total investment income 56,012 57,958
------------- ------------
Expenses:
Trustee fees 35,209 69,205
Administrative fees 40,500 39,639
Legal fees 1,500 7,314
Accounting fees 20,050 15,500
Transfer agent and custodian fees 7,639 10,584
Litigation expense - 3,225
Mailing and printing expenses 1,204 39
Other operating expenses 604 381
------------- ------------
Total expenses 106,706 145,887
------------- ------------
Net Investment Loss (50,694) (87,929)
------------- ------------
Net realized gain from portfolio investments 1,046,606 -
Change in net unrealized depreciation of investments (26,875) -
------------- ------------
Net realized and unrealized gain from portfolio investments 1,019,731 -
------------- ------------
Net Increase (Decrease) in Net Assets in Liquidation $ 969,037 $ (87,929)
============= ============
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended June 30, Ended June 30,
2000 1999
------------------- -------------------
Changes in net assets resulting from operations:
Net investment loss $ (50,694) $ (87,929)
Net realized gain from portfolio investments 1,046,606 -
Change in net unrealized depreciation of investments (26,875) -
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 969,037 (87,929)
--------------- ---------------
Change in net assets from distributions:
Cash distributions - (1,820,461)
--------------- ---------------
Increase (decrease) in net assets in liquidation 969,037 (1,908,390)
Net assets in liquidation at beginning of period 958,763 3,793,538
--------------- ---------------
N et Assets in Liquidation at End of Period $ 1,927,800 $ 1,885,148
=============== ===============
Net assets per unit of beneficial interest $ 0.79 $ 0.78
========== =========
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>
<S> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended June 30, Ended June 30,
2000 1999
------------------- ------------------
Cash Flows Used For Operating Activities
Net investment loss $ (50,694) $ (87,929)
Adjustments to reconcile net investment loss to cash
used for operating activities:
Decrease in liabilities (3,476) (343,389)
(Decrease) increase in accrued interest (1,168) 59,328
--------------- ---------------
Cash flows used for operating activities (55,338) (371,990)
--------------- ---------------
Cash Flows Used For Investing Activities
Cost to exercise warrants (653,125) -
Net proceeds from the sale of portfolio investments 1,699,731 -
--------------- ---------------
Cash flows from investing activities 1,046,606 -
--------------- ---------------
Cash Flows Used For Financing Activities
Cash distributions paid (970,912) (1,820,461)
--------------- ---------------
Cash flows used for financing activities (970,912) (1,820,461)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 20,356 (2,192,451)
Cash and cash equivalents at beginning of period 1,468,193 3,604,050
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 1,488,549 $ 1,411,599
=============== ===============
</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 in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
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.
3. Trustee Fees
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. Mr. Troubh has continued to provide such services to
the Trust during its liquidation. For services rendered under the agreement, Mr.
Troubh received $8,500 per month through December 1999. Commencing January 1,
2000, Mr. Troubh voluntarily reduced his compensation for management services by
50% to $4,250 per month. Additionally, Mr. Troubh is paid 1% of the amount of
each distribution (other than the initial distribution paid by the Fund on
August 30, 1996).
4. Sale of Option to Purchase Portfolio Investment
On April 14, 2000, the Trust entered into an option agreement whereby the
optionee has the right to purchase the Trust's holdings of First Colony Coffee
and Tea Company for $457,500. The Trust received $25,000 from the sale of such
option, which expires on January 8, 2001.
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, among other things, that the Trust
would reimburse the 13D Group for its reasonable out of pocket expenses up to
$120,000, subject to approval by the Securities and Exchange Commission (the
"SEC"). An application relating to such reimbursement by the Trust to the 13D
Group was filed with the SEC on September 27, 1996. In February 2000, the 13D
Group agreed to release the Trust from any and all claims for such expense
reimbursement.
6. Cash Distribution
On January 28, 2000, the Trust paid a $0.40 per share cash distribution totaling
$970,912 to unit holders of record on January 14, 2000. Such distribution was
declared and accrued for in December 1999.
7. Subsequent Event - Cash Distribution
In July 2000, the Trust announced the declaration of a liquidating distribution
of $970,912, or $0.40 per share, to unit holders of record on July 31, 2000.
Such distribution will be paid on August 15, 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
Liquidity and Capital Resources
During the six months ended June 30, 2000, the Trust exercised its warrant to
purchase 475,000 common shares of Unigene Laboratories, Inc. at $1.375 per
share, or $653,125. During the six-month period, the Trust sold these shares for
net proceeds of $1,699,731, or $3.58 per share.
On April 14, 2000, the Trust entered into an option agreement whereby the holder
has the right to purchase the Trust's investment in First Colony Coffee and Tea
Company for $457,500. The Trust received $25,000 from the sale of such option,
which expires on January 8, 2001.
As of June 30, 2000, the Trust held cash and cash equivalents totaling
$1,488,549. Such 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 months
ended June 30, 2000 and 1999, totaled $20,410 and $17,024, 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 Trust had no restricted cash balances as of June
30, 2000.
In July 2000, the Trust announced the declaration of a liquidating distribution
of $970,912, or $0.40 per share, to unit holders of record on July 31, 2000.
Such distribution will be paid on August 15, 2000.
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 Gains and Losses from Portfolio Investments
For the three and six months ended June 30, 2000, the Trust had a net realized
gain from its portfolio investments of $146,648 and $1,046,606, respectively. As
discussed above, during the six months ended June 30, 2000, the Trust acquired
475,000 common shares of Unigene Laboratories, Inc. through the exercise of its
warrant to purchase such shares at $1.375 per share. The Trust sold its
remaining 130,000 shares of Unigene during the three months ended June 30, 2000
for net proceeds of $325,398 compared to a cost of $178,750, realizing a gain of
$146,648. All of the 475,000 common shares of Unigene were sold during the six
months ended June 30, 2000 for net proceeds of $1,699,731 compared to a cost of
$653,125, realizing a gain of $1,046,606.
The Trust had no realized gains or losses from portfolio investments during the
three and six months ended June 30, 1999.
Unrealized Gains and Losses from Portfolio Investments
For the six months ended June 30, 2000, the Trust had a $26,875 unfavorable
change in net unrealized depreciation of investments resulting from the downward
revaluation of its investment in First Colony Coffee and Tea Company. As noted
above, in April 2000, the Trust entered into an option agreement whereby the
holder has the right to purchase the Trust's investment in First Colony Coffee
and Tea Company for $457,500. As of June 30, 2000, the Trust had valued its
investment in First Colony at the $457,500 option price.
Investment Income and Expenses
For the three months ended June 30, 2000 and 1999, the Trust had a net
investment loss (interest and other income less operating expenses) of $3,364
and $38,353, respectively. For the six months ended June 30, 2000 and 1999, the
Trust had a net investment loss of $50,694 and $87,929, respectively.
The net investment loss of $3,364 for the three months ended June 30, 2000
compared to the net investment loss of $38,353 for the same period in 1999,
resulted from a $28,386 increase in investment income and a $6,603 decrease in
operating expenses. The increase in investment income for the 2000 period
compared to the same period in 1999 included a one-time payment of $25,000
received by the Trust in April 2000, in connection with the sale of an option to
purchase its investment in First Colony, as discussed above. The increase in
investment income also included a $3,386 increase in interest income from
short-term investments, resulting from an increase in funds invested in such
securities during the three months ended June 30, 2000 compared to the same
period in 1999. The $6,603 decrease in operating expenses for the three months
ended June 30, 2000 compared to the same period in 1999, includes a $12,750
reduction in fees paid to the Trustee. For services rendered under, the Trustee,
Mr. Raymond S. Troubh, received $8,500 per month through December 1999.
Commencing January 1, 2000, Mr. Troubh voluntarily reduced his compensation for
management services by 50% to $4,250 per month. As a result, the regular Trustee
fees declined $12,750 for the three months ended June 30, 2000 compared to the
same period in 1999. The reduced Trustee fees were offset by a net increase in
the other operating expenses, primarily due an increase in outside accounting
fees.
The net investment loss of $50,694 for the six months ended June 30, 2000 as
compared to the net investment loss of $87,929 for the same period in 1999,
resulted from $39,181 decrease in operating expenses slightly offset by a $1,946
decrease in investment income. The decrease in investment income includes a
$26,946 reduction in interest income from short-term investments for the 2000
period as compared to the same period in 1999, resulting from a reduction of
funds invested in such securities during the six months ended June 30, 2000
compared to the same period in 1999. This decrease in interest income was
partially offset by the one-time payment of $25,000 received by the Trust in
April 2000, in connection with the sale of an option to purchase its investment
in First Colony, as discussed above. The decrease in operating expenses for the
six months ended June 30, 2000, as compared to the same period in 1999,
primarily was due to a $33,996 decline in Trustee fees. As discussed above, the
regular monthly fee paid to the Trustee was reduced by 50% beginning on January
1, 2000, accounting for $25,500 of this decrease. Additionally, Mr. Troubh is
paid 1% of the amount of each distribution paid to beneficial holders. For cash
distributions paid during the three months ended March 31, 2000 and 1999, Mr.
Troubh was paid $9,709 and $18,205, respectively. On a net basis, the Trust's
other operating expenses declined $5,185 for the six months ended June 30, 2000
compared to the same period in 1999.
Net Assets in Liquidation
As of June 30, 2000, net assets in liquidation totaled $1,927,800, an increase
of $969,037 from net assets in liquidation of $958,763 as of December 31, 1999.
This increase is the result of the $1,046,616 realized gain from the sale of the
Trust's investment in Unigene Laboratories, offset by the $26,875 unfavorable
change in unrealized depreciation of investments and the $50,694 net investment
loss for the six months ended June 30, 2000. As of June 30, 2000, the net asset
value per Unit of beneficial interest was $0.79, compared to $0.39 as of
December 31, 1999.
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 $457,500 as of
June 30, 2000. 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
$45,750.
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, 2000 is considered to be immaterial.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Not applicable.
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 14, 2000
