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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Check one
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the quarterly period ended June 30, 2006 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number 000-50160
 HECHINGER LIQUIDATION TRUST
  Delaware
    
    52-7230151(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)405 East Gude Drive, Suite 206, Rockville, Maryland
    
    20850(Address of principal executive offices)
    
    (Zip Code)
   Yes þ
    
    No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  Yes o
    
    No þ
  Yes þ
    
    No o




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HECHINGER LIQUIDATION TRUST
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
 Description
    
    PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsUnaudited Statements of Net Assets in Liquidation
    
    
    3Unaudited Statements of Changes in Net Assets in Liquidation
    
    
    4Unaudited Statements of Cash Receipts and Disbursements
    
    
    5Notes to Unaudited Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23INDEX TO EXHIBITS
    
    
    24
 2




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PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements
 Hechinger Liquidation Trust
Unaudited Statements of Net Assets in Liquidation
 As of
    
    
    As of($ in thousands)
    
    June 30, 2006
    
    
    September 30, 2005AssetsCash and cash equivalentsCash designated as available for distribution
to holders of impaired claims
    
    $
    3,254
    
    
    $
    3,054Reserved cash
    
    
    21,298
    
    
    
    22,206Other cash
    
    
    2,491
    
    
    
    1,389Total cash and cash equivalents
    
    
    27,043
    
    
    
    26,649Committee action settlement receivable
    
    
    
    
    
    
    7,000Preference receivables (net of costs of
recovery of $133 and $152,
respectively)
    
    
    880
    
    
    
    869Other assets
    
    
    3
    
    
    
    3Total assets
    
    
    27,926
    
    
    
    34,521LiabilitiesUnimpaired and convenience claims payable
    
    
    1,337
    
    
    
    1,337Uncashed claims checks
    
    
    440
    
    
    
    361Distributions payable
    
    
    491
    
    
    
    292Estimated costs of liquidationWind-down reserve
    
    
    790
    
    
    
    1,436Litigation reserve
    
    
    371
    
    
    
    730Fleet settlement accrual
    
    
    8,250
    
    
    
    3,500Total liabilities
    
    
    11,679
    
    
    
    7,656Net Assets in Liquidation
    
    $
    16,247
    
    
    $
    26,865
  3




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Hechinger Liquidation Trust
Unaudited Statements of Changes in Net Assets in Liquidation
 For the three
    
    
    For the threemonths ended
    
    
    months ended($ in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Increase/(decrease) in Net Assets in LiquidationFleet settlement accrual
    
    $
    (4,750
    )
    
    $
    (3,500
    )(Decrease)/increase in estimated fair value
of preference receivables, net
    
    
    (4
    )
    
    
    396Increase in estimated costs of liquidation:Wind-down reserve
    
    
    
    
    
    
    (124
    )Interest income
    
    
    282
    
    
    
    187Other increases
    
    
    2
    
    
    
    104Net decrease in Net Assets in Liquidation
before distributions authorized
    
    
    (4,470
    )
    
    
    (2,937
    )Distributions authorized
    
    
    
    
    
    
    ( 7,055
    )Net decrease in Net Assets in Liquidation
after distributions authorized
    
    
    (4,470
    )
    
    
    (9,992
    )Net Assets in Liquidation at beginning of period
    
    
    20,717
    
    
    
    29,447Net Assets in Liquidation at end of period
    
    $
    16,247
    
    
    $
    19,455
 For the nine
    
    
    For the ninemonths ended
    
    
    months endedJune 30, 2006
    
    
    June 30, 2005Increase/(decrease) in Net Assets in LiquidationFleet settlement accrual
    
    $
    (4,750
    )
    
    $
    (3,500
    )Increase in estimated fair value
of preference receivables, net
    
    
    31
    
    
    
    329Decrease in estimated fair value of unimpaired
and convenience claims payable
    
    
    
    
    
    
    23Increase in estimated costs of liquidation:Wind-down reserve
    
    
    
    
    
    
    (124
    )Interest income
    
    
    768
    
    
    
    447Other increases
    
    
    12
    
    
    
    1,115Net decrease in Net Assets in Liquidation
before distributions authorized
    
    
    (3,939
    )
    
    
    (1,710
    )Distributions authorized
    
    
    (6,679
    )
    
    
    (7,277
    )Net decrease in Net Assets in
Liquidation after distributions authorized
    
    
    (10,618
    )
    
    
    (8,987
    )Net Assets in Liquidation at beginning of period
    
    
    26,865
    
    
    
    28,442Net Assets in Liquidation at end of period
    
    $
    16,247
    
    
    $
    19,455
  4




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Hechinger Liquidation Trust
 Unaudited Statements of Cash Receipts and Disbursements
 For the nine
    
    
    For the ninemonths ended
    
    
    months ended($ in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Cash receiptsCollection of committee action settlement
    
    $
    7,000
    
    
    $
    Preference collections, before
costs of recovery
    
    
    199
    
    
    
    3,742Interest income
    
    
    768
    
    
    
    447Other receipts
    
    
    12
    
    
    
    691Total cash receipts
    
    
    7,979
    
    
    
    4,880Cash disbursementsCosts of liquidationOperating expenses
    
    
    438
    
    
    
    1,497Legal and professional feesLitigation
    
    
    359
    
    
    
    1,203Preference recoveries
    
    
    179
    
    
    
    1,156Liquidation Trust operations
    
    
    208
    
    
    
    546Unimpaired and convenience claims
    
    
    
    
    
    
    11Voided claims checks, net of reissues
    
    
    (79
    )
    
    
    (153
    )Total cash disbursements
    
    
    1,105
    
    
    
    4,260Increase in cash and cash equivalents
before distributions paid
    
    
    6,874
    
    
    
    620Distributions paid
    
    
    (6,480
    )
    
    
    (7,242
    )Increase/(decrease) in cash and cash equivalents
    
    
    394
    
    
    
    (6,622
    )Cash and cash equivalents
at beginning of period
    
    
    26,649
    
    
    
    34,375Cash and cash equivalents
at end of period
    
    $
    27,043
    
    
    $
    27,753
  5




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Hechinger Liquidation Trust
Notes to Unaudited Financial Statements
 1. Background and Basis of Presentation
 Background
       Basis of Presentation
  6




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2. Significant Accounting Policies
 Use of Estimates
  Cash and Cash Equivalents
  Taxes
    7




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3. Cash and Cash Equivalents
  Cash Designated as Available for Distribution to Holders of Impaired Claims
  As of
    
    
    As of($ in thousands)
    
    June 30, 2006
    
    
    September 30, 2005Distributions payable
    
    $
    491
    
    
    $
    292Reserve for remaining disputed impaired
claims at 10.2911% and 9.1%, respectively
    
    
    2,763
    
    
    
    2,762Total available cash
    
    $
    3,254
    
    
    $
    3,054
 Reserved Cash
 Other Cash
 4. Committee Action Settlement Receivable
   5. Preference Receivables
  8




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6. Unimpaired and Convenience Claims Payable
   As of
    
    
    As of($ in thousands)
    
    June 30, 2006
    
    
    September 30, 2005Allowed unimpaired claims
    
    $
    1,335
    
    
    $
    1,335Estimated fair value of disputed unimpaired claims
    
    
    
    
    
    
    Convenience claims
    
    
    2
    
    
    
    2Total
    
    $
    1,337
    
    
    $
    1,337Number of disputed unimpaired claims
    
    
    3
    
    
    
    3
    7. Uncashed Claims Checks
  9




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8. Distributions Payable
  9. Estimated Costs of Liquidation
     10. Fleet Settlement Accrual
   10




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11.
    
    Bankruptcy Reserves RequiredThe reserves for which Reserved Cash is maintained consist of the following:
 As of
    
    
    As of($ in thousands)
    
    June 30, 2006
    
    
    September 30, 2005Liability reservesFleet settlement accrual
    
    $
    8,250
    
    
    $
    3,500Wind-down
    
    
    790
    
    
    
    1,436Litigation
    
    
    371
    
    
    
    730Unimpaired and convenience claims
    
    
    1,337
    
    
    
    1,337Uncashed claims checks
    
    
    440
    
    
    
    361Total liability reserves
    
    
    11,188
    
    
    
    7,364Contingency reservesFleet reserve
    
    
    2,750
    
    
    
    7,500Litigation appeals provision
    
    
    4,000
    
    
    
    4,000Excess disputed unimpaired claims
    
    
    300
    
    
    
    300Preference settlement claims
    
    
    60
    
    
    
    42Minimum reserve
    
    
    3,000
    
    
    
    3,000Total contingency reserves
    
    
    10,110
    
    
    
    14,842Total reserves
    
    $
    21,298
    
    
    $
    22,206
    11




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12.
    
    Impaired ClaimsThe Liquidation Trusts estimate of Impaired Claims consists of:
 As of
    
    
    As of($ in thousands)
    
    June 30, 2006
    
    
    September 30, 2005Allowed impaired claims
    
    $
    706,043
    
    
    $
    706,043Estimated fair value of disputed impaired claims
    
    
    13,784
    
    
    
    13,775Total estimated impaired claims
    
    $
    719,827
    
    
    $
    719,818Asserted value of disputed impaired claims
    
    $
    52,028
    
    
    $
    55,179Number of disputed impaired claims
    
    
    15
    
    
    
    16
    13.
    
    Contingencies
 The Bondholder Action
  The Committee Action
  12




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13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   I. Accounting Policies and Estimates
   II. Changes in Net Assets in Liquidation
   14




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For the three months ended($ in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Fleet settlement accrual
    
    $
    (4,750
    )
    
    $
    (3,500
    )Distributions authorized
    
    
    
    
    
    
    (7,055
    )(Decrease)/increase in estimated fair value
of preference receivables, net
    
    
    (4
    )
    
    
    396Increase in estimated costs of liquidation:Wind-down reserve
    
    
    
    
    
    
    (124
    )Interest income and net other increases
    
    
    284
    
    
    
    291Net decrease in net assets in liquidation
    
    $
    (4,470
    )
    
    $
    (9,992
    )
 For the nine months ended($ in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Fleet settlement accrual
    
    $
    (4,750
    )
    
    $
    (3,500
    )Distributions authorized
    
    
    (6,679
    )
    
    
    (7,277
    )Increase in estimated fair value
of preference receivables, net
    
    
    31
    
    
    
    329Increase in estimated costs of liquidation:Wind-down reserve
    
    
    
    
    
    
    (124
    )Interest income and net other increases
    
    
    780
    
    
    
    1,585Net decrease in net assets in liquidation
    
    $
    (10,618
    )
    
    $
    (8,987
    )
 A. Fleet settlement accrual
     15




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B. Distributions authorized
    C. Changes in estimated fair value of preference receivables, net
   D. Changes in estimates  estimated costs of liquidation
  16




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E. Interest income and net other increases
  III. Cash Receipts and Disbursements
  For the nine months ended($ in thousands)
    
    June 30, 2006
    
    
    June 30, 2005Cash receiptsCollection of
committee action settlement
    
    $
    7,000
    
    
    $
    Preference collections, before
costs of recovery
    
    
    199
    
    
    
    3,742Other receipts
    
    
    780
    
    
    
    1,138Total cash receipts
    
    
    7,979
    
    
    
    4,880Cash disbursementsOperating expenses
    
    
    438
    
    
    
    1,497Legal and professional feesLitigation
    
    
    359
    
    
    
    1,203Preference recoveries
    
    
    179
    
    
    
    1,156Liquidation Trust operations
    
    
    208
    
    
    
    546Claims payments
    
    
    
    
    
    
    11Voided claims checks, net of reissues
    
    
    (79
    )
    
    
    (153
    )Total cash disbursements
    
    
    1,105
    
    
    
    4,260Distributions paid
    
    
    (6,480
    )
    
    
    (7,242
    )Increase/(decrease) in cash and cash equivalents
    
    $
    394
    
    
    $
    (6,622
    )
 A. Cash receipts
   17




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B. Operating expenses
  C. Legal and professional fees
     18




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D. Distributions paid
   IV. Net Assets in Liquidation
 A. Assets
    19




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B. Liabilities and Reserves
    V. Contingencies
  VI. Forward-Looking Statements
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  20




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Item 4. Controls and Procedures
     PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Bankruptcy Court Case
  Federal Court Cases
 The Bondholder Action
  21




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The Committee Action
     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 ExhibitNumber
    
    Document31.1
    
    Certification by Liquidation Trustee32.1
    
    Liquidation Trustees Certification Pursuant to 18 U.S.C. Section 1350
 22




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SIGNATURES
  HECHINGER LIQUIDATION TRUSTDate: August 14, 2006
    
    By:
    
    /s/ Conrad F. HockingName: Conrad F. HockingTitle: Liquidation Trustee
 23




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INDEX TO EXHIBITS
FORM 10-Q
 Exhibit No.
 31.1
    
    Certification by Liquidation Trustee32.1
    
    Liquidation Trustees Certification Pursuant to 18 u.s.c. Section 1350
 24