10-Q 1 f10q-mcap1q01.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2001 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. MICROCAP LIQUIDATING TRUST (SUCCESSOR TO THE MICROCAP FUND, INC.) INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Statements of Net Assets in Liquidation as of March 31, 2001 (Unaudited) and December 31, 2000 Schedule of Portfolio Investments as of March 31, 2001 (Unaudited) Statements of Operations for the Three Months ended March 31, 2001 and 2000 (Unaudited) Statements of Changes in Net Assets for the Three Months ended March 31, 2001 and 2000 (Unaudited) Statements of Cash Flows for the Three Months ended March 31, 2001 and 2000 (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. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) STATEMENTS OF ASSETS AND LIABILITIES March 31, 2001 December 31, (Unaudited) 2000 Assets Portfolio investment at fair value (cost $1,937,500 as of March 31, 2001 and December 31, 2000) $ 250,000 $ 250,000 Cash and cash equivalents 423,627 454,277 Accrued interest receivable 1,910 2,502 Total assets 675,537 706,779 Liabilities Accounts payable and accrued expenses 38,110 27,000 Total liabilities 38,110 27,000 Net Assets in Liquidation $ 637,427 $ 679,779 Net assets in liquidation per Unit of beneficial interest $ 0.26 $ 0.28 Number of Units of beneficial interest outstanding 2,427,281 2,427,281

See notes to financial statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) SCHEDULE OF PORTFOLIO INVESTMENT (Unaudited) As of March 31, 2001 Fair Value Fair % of Issuer / Position Cost Value Net Assets(1) Privately-Held Securities: First Colony Coffee and Tea Company 106,562 shares of Series A1 Preferred Stock $ 594,174 $ 76,831 240,179 shares of Series B1 Preferred Stock 1,343,326 173,169 Total Portfolio Investment $ 1,937,500 $ 250,000 39.22%

(1) Represents fair value as a percentage of the Trust's total net assets. See notes to financial statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended March 31, Ended March 31, 2001 2000 Investment Income and Expenses Income: Interest income $ 5,961 $ 10,602 Total income 5,961 10,602 Expenses: Administrative expenses 19,571 20,836 Accounting fees 10,400 10,175 Trustee fees 12,750 22,459 Transfer agent and custodian fees 4,892 3,727 Other operating expenses 700 735 Total expenses 48,313 57,932 Net Investment Loss (42,352) (47,330) Net realized gain from portfolio investments - 899,958 Change in net unrealized depreciation of investments - 195,000 Net realized and unrealized gain from portfolio investments - 1,094,958 Net (Decrease) Increase in Net Assets in Liquidation $ (42,352) $ 1,047,628

See notes to financial statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) Three Months Three Months Ended March 31, Ended March 31, 2001 2000 Changes in net assets resulting from operations: Net investment loss $ (42,352) $ (47,330) Net realized gain from portfolio investments - 899,958 Change in net unrealized depreciation of investments - 195,000 Net (decrease) increase in net assets resulting from operations (42,352) 1,047,628 (Decrease) increase in net assets in liquidation (42,352) 1,047,628 Net assets in liquidation at beginning of period 679,779 958,763 Net Assets in Liquidation at End of Period $ 637,427 $ 2,006,391 Net assets per unit of beneficial interest $ 0.26 $ 0.83 Number of units of beneficial interest 2,427,281 2,427,281

See notes to financial statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) STATEMENTS OF CASH FLOWS (Unaudited) Three Months Three Months Ended March 31, Ended March 31, 2001 2000 Cash Flows Used For Operating Activities Net (decrease) increase in net assets in liquidation $ (42,352) $ 1,047,628 Adjustments to reconcile net investment loss to cash used for operating activities: Net realized gain from portfolio investments - (899,958) Change in net unrealized depreciation of investments - (195,000) Increase (decrease) in liabilities 11,110 (5,402) Decrease in accrued interest 592 3,296 Cash flows used for operating activities (30,650) (49,436) Cash Flows Used For Investing Activities Cost to exercise warrants - (653,125) Net proceeds from the sale of portfolio investments - 1,357,630 Cash flows from investing activities - 704,505 Cash Flows Used For Financing Activities Cash distributions paid - (970,912) Cash flows used for financing activities - (970,912) Decrease in cash and cash equivalents (30,650) (315,843) Cash and cash equivalents at beginning of period 454,277 1,468,193 Cash and Cash Equivalents at End of Period $ 423,627 $ 1,152,350

See notes to financial statements. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) NOTES TO FINANCIAL STATEMENTS 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. Because of the inherent uncertainty of valuation, estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. 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. MICROCAP LIQUIDATING TRUST (Successor to The MicroCap Fund, Inc.) NOTES TO FINANCIAL STATEMENTS, 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. Reclassifications - Certain reclassifications were made to the prior period financial statements in order to conform to the current period presentation. 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). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources 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. The Trust's only remaining portfolio investment is First Colony Coffee and Tea Company, a privately held company engaged in the production of private label coffees for specialty shops and department stores. The Trust has a $1,937,500 investment in First Colony that was valued at $250,000 as of March 31, 2001. The Trustee is continuing to pursue liquidation opportunities for this final investment. The Trust expects to complete its liquidation and make the final cash distribution to unit holders subsequent to the sale of this final investment and after review of all remaining obligations and legal and other matters. As of March 31, 2001, the Trust held cash and cash equivalents totaling $423,627. 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 March 31, 2001, totaled $5,961. Interest earned from such cash balances in future periods is subject to fluctuations in short-term interest rates and changes in the cash reserve balance held by the Trust. Results of Operations Realized and Unrealized Gains and Losses from Portfolio Investments - The Trust had no realized or unrealized gains or losses from portfolio investments for the three months ended March 31, 2001. For the three months ended March 31, 2000, the Trust had a $1,094,958 net realized and unrealized gain from its portfolio investments, comprised of an $899,958 realized gain and a $195,000 increase to unrealized appreciation of investments. During the quarter ended March 31, 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. During the quarter, the Trust sold 345,000 of these shares for net proceeds of $1,374,333, realizing a gain of $899,958. Additionally, for the period, the Trust had a $195,000 unrealized gain reflecting the increased public market price of the remaining 130,000 shares of Unigene held as of March 31, 2000. Investment Income and Expenses - For the three months ended March 31, 2001 and 2000, the Trust had a net investment loss of $42,352 and $47,330, respectively. The favorable change in net investment loss for the three months ended March 31, 2001 as compared to the same period in 2000 resulted from a $9,619 decrease in operating expenses partially offset by a $4,641 decrease in investment income for the 2000 period. The decrease in operating expenses for the three months ended March 31, 2001, as compared to the same period in 2000, primarily was due to a decrease in Trustee fees of $9,709. Trustee fees for the period ended March 31, 2000 include a $9,709 payment relating to the cash distribution paid to unit holders in January 2000. The decrease in investment income resulted from a decline in interest income from short-term investments primarily due to a reduction in funds available for investment in such securities during the three months ended March 31, 2001 compared to the same period in 2000. Net Assets in Liquidation As of March 31, 2001, net assets in liquidation totaled $637,427, reflecting a decrease of $42,352 from net assets in liquidation of $679,779 as of December 31, 2000. This decrease is the result of the $42,352 net investment loss for the three months ended March 31, 2001. As of March 31, 2001, the net asset value per Unit of beneficial interest was $0.26, compared to $0.28 as of December 31, 2000. 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 remaining portfolio investment had an aggregate fair value of $250,000 as of March 31, 2001. 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 $25,000. 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 March 31, 2001 is considered to be immaterial. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. 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. None. Item 6. Exhibits and Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROCAP LIQUIDATING TRUST /s/ Raymond S. Troubh Raymond S. Troubh Trustee Date: May 14, 2001

MICROCAP LIQUIDATING TRUST 10-Q