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 September 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.)
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(Exact Name of Registrant as Specified in its Charter)
New York 13-7110611
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(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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 821-0905
Not applicable
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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 November 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 September 30, 2000 (Unaudited) and
December 31, 1999
Schedule of Portfolio Investments as of September 30, 2000 (Unaudited)
Statements of Operations for the Three and Nine Months ended September 30, 2000
and 1999 (Unaudited)
Statements of Changes in Net Assets in Liquidation for the Nine Months ended
September 30, 2000 and 1999 (Unaudited)
Statements of Cash Flows for the Nine Months ended September 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 NET ASSETS IN LIQUIDATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
September 30,
2000 December 31,
(Unaudited) 1999
Assets
Portfolio investments at fair value (cost $1,937,500 as of
September 30, 2000 and December 31, 1999) $ 457,500 $ 484,375
Cash and cash equivalents - unrestricted 485,151 1,348,193
Cash and cash equivalents - restricted - 120,000
Accrued interest receivable 2,626 6,225
--------------- ----------------
Total assets 945,277 1,958,793
--------------- ----------------
Liabilities
Accrued distribution payable - 970,912
Accounts payable and accrued expenses 26,556 29,118
--------------- ----------------
Total liabilities 26,556 1,000,030
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Net Assets in Liquidation $ 918,721 $ 958,763
=============== ================
Net assets in liquidation per Unit of beneficial interest $ 0.38 $ 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 September 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 49.80%
--------------- ------------- -------
Total Portfolio Investments $ 1,937,500 $ 457,500 49.80%
=============== ============= =======
</TABLE>
(1) Represents fair value as a percentage of the Trust's total net assets.
(A) The Trust has entered into an option agreement whereby the holder 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.
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 Ended
September 30, September 30,
2000 1999
------------------- --------------------
Investment Income and Expenses
Income:
Interest from U.S. Treasury Bills and repurchase agreements $ 15,824 $ 17,842
Other interest income - 139
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Total investment income 15,824 17,981
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Expenses:
Trustee fees 22,459 25,500
Administrative fees 21,032 19,436
Accounting fees 5,000 6,875
Transfer agent and custodian fees 3,464 4,918
Legal fees 1,250 -
Other operating expenses 786 208
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Total expenses 53,991 56,937
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Net Decrease in Net Assets in Liquidation $ (38,167) $ (38,956)
=============== ================
</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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------------- --------------------
Investment Income and Expenses
Income:
Interest from U.S. Treasury Bills and repurchase agreements $ 46,836 $ 75,800
Income from sale of option 25,000 -
Other interest income - 139
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Total investment income 71,836 75,939
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Expenses:
Trustee fees 57,668 94,705
Administrative fees 61,532 59,075
Accounting fees 25,050 22,375
Transfer agent and custodian fees 11,103 15,502
Legal fees 2,750 7,314
Litigation settlement - 3,225
Other operating expenses 2,594 628
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Total expenses 160,697 202,824
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Net Investment Loss (88,861) (126,885)
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Net Realized and Unrealized Loss from Portfolio Investments
Net realized gain from portfolio investments 1,046,606 -
Change in net unrealized depreciation of investments (26,875) -
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Net realized and unrealized gain from portfolio investments 1,019,731 -
------------------ -----------------
Net Increase (Decrease) in Net Assets in Liquidation $ 930,870 $ (126,885)
================== =================
</TABLE>
See notes to financial statements.
<PAGE>
MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
--------------- -----------------
Changes in net assets resulting from operations:
Net investment loss $ (88,861) $ (126,885)
Net realized gain from portfolio investments 1,046,606 -
Change in net unrealized depreciation of portfolio investments (26,875) -
--------------- ----------------
Net increase (decrease) in net assets resulting from operations 930,870 (126,885)
--------------- ----------------
Change in net assets from distributions:
Cash distributions (970,912) (1,820,461)
--------------- ----------------
Decrease in net assets in liquidation (40,042) (1,947,346)
Net assets in liquidation at beginning of period 958,763 3,793,538
--------------- ----------------
Net Assets in Liquidation at End of Period $ 918,721 $ 1,846,192
=============== ================
Net assets per unit of beneficial interest $ 0.38 $ 0.76
======== ========
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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
--------------- ----------------
Cash Flows Used For Operating Activities
Net investment loss $ (88,861) $ (126,885)
Adjustments to reconcile net investment loss to cash
used for operating activities:
Decrease in liabilities (2,562) (337,639)
Decrease in accrued interest 3,599 -
Decrease in other assets - 58,737
--------------- ---------------
Cash flows used for operating activities (87,824) (405,787)
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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 -
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Cash Flows Used For Financing Activities
Cash distributions paid (1,941,824) (1,820,461)
--------------- ---------------
Decrease in cash and cash equivalents (983,042) (2,226,248)
Cash and cash equivalents at beginning of period 1,468,193 3,604,050
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 485,151 $ 1,377,802
=============== ===============
</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
accounting principles generally accepted 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 August 15, 2000, the Trust paid a $0.40 per share cash distribution totaling
$970,912 to unit holders of record on July 31, 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
Liquidity and Capital Resources
During the nine months ended September 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 period, the Trust sold these shares for net
proceeds of $1,699,731, or $3.58 per share. On a net basis, the Trust realized a
return of $1,046,606 from the exercise of the warrants and subsequent sale of
the shares.
On August 15, 2000, the Trust made an interim liquidating cash distribution
totaling $970,912, or $0.40 per share, to unit holders of record on July 31,
2000.
As of September 30, 2000, the Trust held cash and cash equivalents totaling
$485,151. 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 and nine
months ended September 30, 2000, totaled $15,824 and $46,836, respectively.
Interest earned from such cash balances in future periods is subject to
fluctuations in short-term interest rates and changes in cash balances held in
such investments by the Trust. The Trust had no restricted cash balances as of
September 30, 2000.
The Trust has entered into an option agreement whereby the holder has the right
to purchase the Trust's final portfolio investment, First Colony Coffee and Tea
Company, for $457,500. In April 2000, the Trust received $25,000 from the sale
of such option, which expires on January 8, 2001.
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
The Trust had a no realized gains or losses from its portfolio investments for
the three months ended September 30, 2000. For the nine months ended September
30, 2000, the Trust had a net realized gain from its portfolio investments of
$1,046,606. As discussed above, during the period, 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. All of the 475,000 common shares of
Unigene were sold during the nine months ended September 30, 2000 for net
proceeds of $1,699,731 compared to a cost of $653,125.
The Trust had no realized gains or losses from portfolio investments during the
three and nine months ended September 30, 1999.
Unrealized Gains and Losses from Portfolio Investments
For the nine months ended September 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 September 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 September 30, 2000 and 1999, the Trust had a net
investment loss (interest and other income less operating expenses) of $38,167
and $38,956, respectively. The reduction in net investment loss for the three
months ended September 30, 2000 compared to the same period in 1999, resulted
from a $2,946 decrease in operating expenses, partially offset by a $2,157
decrease in investment income. The decrease in investment income for the 2000
period compared to the same period in 1999 primarily was due to a decrease in
interest income from short-term investments, resulting from an decrease in funds
available for investment in such securities during the three months ended
September 30, 2000 compared to the same period in 1999. The $2,946 decrease in
operating expenses for the three months ended September 30, 2000 compared to the
same period in 1999, primarily resulted from a decrease in fees paid to the
Trustee. Commencing January 1, 2000, the Trustee, Mr. Raymond S. Troubh,
voluntarily reduced his annual fee for management services by 50% to $4,250 per
month. As a result, the regular annual fee paid to the Trustee declined $12,750
for the three months ended September 30, 2000 compared to the same period in
1999. This reduction was partially offset by the 1% distribution fee of $9,709
paid to the Trustee during the three months ended September 30, 2000 in
connection with the August 15, 2000 distribution to beneficial holders.
For the nine months ended September 30, 2000 and 1999, the Trust had a net
investment loss of $88,861 and $126,885, respectively. The favorable change in
net investment loss for the nine months ended September 30, 2000 resulted from
$42,127 decrease in operating expenses slightly offset by a $4,103 decrease in
investment income. The decrease in investment income includes a $28,964
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 nine months ended September 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 holdings of
First Colony, as discussed above. The decrease in operating expenses for the
nine months ended September 30, 2000, as compared to the same period in 1999,
primarily was due to a $37,037 decline in Trustee fees. As discussed above, the
regular annual fee paid to the Trustee was reduced by 50% beginning on January
1, 2000.
Net Assets in Liquidation
For the nine months ended September 30, 2000, the Trust had an increase in net
assets in liquidation totaling $930,870, comprised of the $1,046,606 realized
gain from portfolio investments, partially offset by the $88,861 net investment
loss and the $26,875 unfavorable change in unrealized depreciation of
investments for the nine month period. As a result, net assets in liquidation as
of September 30, 2000, totaled $918,721, reflecting a decrease of $40,042 from
net assets in liquidation of $958,763 as of December 31, 1999. This decrease is
the result of the $970,912 cash distribution paid to beneficial holders in
August 2000 exceeding the $930,870 net increase in net assets for the nine
months ended September 30, 2000. As of September 30, 2000, the net asset value
per Unit of beneficial interest was $0.38, 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
September 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 September 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
Trustee
Date: November 14, 2000
