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, 1998

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 November 1, 1998 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, 1998 (Unaudited) and
 December 31, 1997

Schedule of Portfolio Investments as of  September 30, 1998 (Unaudited)

Statements of Operations for the three months ended September 30, 1998 and 1997 
(Unaudited)

Statements  of  Operations  for the nine months ended  September  30, 1998 and 
for the period from February 25, 1997 to September 30, 1997 (Unaudited)

Statements  of Changes in Net Assets for the nine months ended  September  30, 
1998 and for the period from February 25, 1997 to September 30, 1997 (Unaudited)

Statements  of Cash Flows for the nine months  ended  September  30, 1998 and 
for the period from  February 25, 1997 to September 30, 1997 (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>

                                                                                            September 30,
                                                                                                1998          December 31,
                                                                                             (Unaudited)             1997       
ASSETS

Portfolio investments at fair value (cost $1,937,500 at September 30,
<S>         <C>                    <C> <C>                                                  <C>                <C>             
   1998 and $2,177,500 at December 31, 1997)                                                $       998,438    $      1,622,500
Cash and cash equivalents - unrestricted                                                            831,470           2,651,802
Cash and cash equivalents - restricted                                                            2,790,218           2,790,218
Accrued interest receivable                                                                          16,469              18,644
Other receivables                                                                                    50,923                 883
                                                                                            ---------------    ----------------
   Total assets                                                                                   4,687,518           7,084,047
                                                                                            ---------------    ----------------

LIABILITIES

Accounts payable and accrued expenses                                                                73,983             152,677
Litigation settlement reserve                                                                       278,200                   -
                                                                                            ---------------    ----------------
   Total liabilities                                                                                352,183             152,677
                                                                                            ---------------    ----------------

NET ASSETS IN LIQUIDATION                                                                   $     4,335,335    $      6,931,370
                                                                                            ===============    ================


Net assets per unit of beneficial interest                                                    $       1.79          $     2.86
                                                                                              ============          ==========

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.)
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
September 30, 1998
<TABLE>

                                                                                                                         % of
Issuer / Position                                                                   Cost              Fair Value       Net Assets(1)

Publicly-Held Securities:

Unigene Laboratories, Inc.
Warrant to purchase 475,000 shares of Common Stock
<S>   <C>              <C> <C>                                                  <C>                 <C>                  <C>  
   at $1.375, expiring 7/7/00                                                   $           0       $       29,688       0.68%
                                                                                -------------       --------------     -------

Privately-Held Securities:

First Colony Acquisition Corp.
106,562 shares of Series A1 Preferred Stock                                           594,174              297,087
240,179 shares of Series B1 Preferred Stock                                         1,343,326              671,663
Warrant to purchase 7,560 shares of Common Stock
   at $5.00, expiring 1/24/00                                                               0                    0
                                                                                -------------       --------------
                                                                                    1,937,500              968,750      22.35%
                                                                                -------------       --------------    --------

Total Portfolio Investments(A)(B)                                               $   1,937,500       $      998,438      23.03%
                                                                                =============       ==============    ========
</TABLE>


(1) Represents fair value as a percentage of net assets.

(A)  The Trust's warrant to purchase 11,437 common shares of Yes!  Entertainment
     Corporation  expired  unexercised  on  July  16,  1998.  Additionally,   in
     September 1998, the Trust wrote-off the remaining cost of its investment in
     Oh-La-La! Inc., realizing a loss of $240,000.

(B)  All  portfolio  securities  held  at  September  30,  1998  are  non-income
producing.

     See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)


<TABLE>

                                                                                         Three Months           Three Months
                                                                                            Ended                   Ended
                                                                                        September 30,           September 30,
                                                                                             1998                   1997        
                                                                                     -------------------    --------------------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                  <C>                       <C>             
   Interest from short-term investments                                              $        65,810           $         70,378
   Other interest income                                                                           -                      4,301
                                                                                     ---------------           ----------------
   Total                                                                                      65,810                     74,679
                                                                                     ---------------           ----------------

Expenses:
   Litigation settlement                                                                     278,200                          -
   Administrative fees                                                                        20,648                     20,045
   Legal fees                                                                                 33,076                     32,862
   Accounting fees                                                                            (1,250)                    14,600
   Trustee fees                                                                               43,705                     71,772
   Transfer agent and custodian fees                                                           5,473                      5,835
   Other operating expenses                                                                      154                      1,772
                                                                                     ---------------           ----------------
   Total expenses                                                                            380,006                    146,886
                                                                                     ---------------           ----------------

NET INVESTMENT LOSS                                                                         (314,196)                   (72,207)
                                                                                     ---------------           ----------------

NET REALIZED AND UNREALIZED LOSS
   FROM PORTFOLIO INVESTMENTS

Net realized (loss) gain from portfolio investments                                         (240,000)                   440,000
Change in net unrealized depreciation of investments                                         (72,343)                  (614,384)
                                                                                     ---------------           ----------------
Net realized and unrealized loss from portfolio investments                                 (312,343)                  (174,384)
                                                                                     ---------------           ----------------

NET DECREASE IN NET ASSETS IN LIQUIDATION                                            $      (626,539)          $       (246,591)
                                                                                     ===============           ================ 
</TABLE>

See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)


<TABLE>
                                                                                                           Period From
                                                                                        Nine Months           February 25,
                                                                                           Ended                 1997 to
                                                                                       September 30,          September 30,
                                                                                            1998                   1997      
                                                                                    -----------------      ------------------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                  <C>                    <C>            
   Interest from short-term investments                                              $       209,823        $       202,532
   Other interest income                                                                           -                 13,166
   Other income                                                                              198,113                  1,196
                                                                                     ---------------        ---------------
   Total investment income                                                                   407,936                216,894
                                                                                     ---------------        ---------------

Expenses:
   Litigation settlement                                                                     278,200                      -
   Administrative fees                                                                        57,485                 46,023
   Legal fees                                                                                 90,058                156,949
   Accounting fees                                                                            22,639                 46,025
   Trustee fees                                                                               94,705                105,772
Transfer agent and custodian fees                                                             15,887                 12,573
   Other operating expenses                                                                      474                  3,865
                                                                                     ---------------        ---------------
   Total expenses                                                                            559,448                371,207
                                                                                     ---------------        ---------------

NET INVESTMENT LOSS                                                                         (151,512)              (154,313)
                                                                                     ---------------        ---------------

NET REALIZED AND UNREALIZED LOSS
   FROM PORTFOLIO INVESTMENTS

Net realized (loss) gain from portfolio investments                                         (240,000)               440,000
Change in net unrealized depreciation of investments                                        (384,062)              (262,597)
                                                                                     ---------------        ---------------
Net realized and unrealized (loss) gain from portfolio investments                          (624,062)               177,403
                                                                                     ---------------        ---------------

NET (DECREASE) INCREASE IN NET
   ASSETS IN LIQUIDATION                                                             $      (775,574)       $        23,090
                                                                                     ===============        ===============
</TABLE>


See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)


<TABLE>
                                                                                                           Period From
                                                                                        Nine Months           February 25,
                                                                                           Ended                 1997 to
                                                                                       September 30,          September 30,
                                                                                            1998                   1997      
                                                                                    -----------------      ------------------

<S>                                                                                   <C>                    <C>              
Net investment loss                                                                   $      (151,512)       $       (154,313)
Net realized (loss) gain from portfolio investments                                          (240,000)                440,000
Change in net unrealized depreciation of portfolio investments                               (384,062)               (262,597)
                                                                                      ---------------        ----------------
(Decrease) increase in net assets resulting from operations                                  (775,574)                 23,090

Cash distributions paid                                                                    (1,820,461)             (2,427,281)
                                                                                      ---------------        ----------------

Decrease in net assets for the period                                                      (2,596,035)             (2,404,191)

Net assets in liquidation at beginning of period                                            6,931,370               9,783,311
                                                                                      ---------------        ----------------

NET ASSETS IN LIQUIDATION AT END OF PERIOD                                            $     4,335,335        $      7,379,120
                                                                                      ===============        ================

Net assets per unit of beneficial interest at end of period                             $       1.79           $       3.04
                                                                                        ============           ============

Number of units of beneficial interest at end of period                                     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>
                                                                                                           Period From
                                                                                        Nine Months           February 25,
                                                                                           Ended                 1997 to
                                                                                       September 30,          September 30,
                                                                                            1998                   1997      
                                                                                    -----------------      ------------------

CASH FLOWS PROVIDED FROM (USED FOR)
   OPERATING ACTIVITIES

<S>                                                                                 <C>                     <C>             
Net investment loss                                                                 $      (151,512)        $      (154,313)
Adjustments to reconcile net investment loss to cash
   provided from (used for) operating activities:
Depreciation expense                                                                              -                   3,172
Increase (decrease) in payables and other liabilities                                       199,506              (1,020,088)
(Increase) decrease in receivables and other assets                                         (47,865)                347,038
                                                                                    ---------------         ---------------
Cash flows provided from (used for) operating activities                                        129                (824,191)
                                                                                    ---------------         ---------------

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES

Net proceeds from the sale of portfolio investments                                               -                 440,000
                                                                                    ---------------         ---------------
Cash flows provided from investing activities                                                     -                 440,000
                                                                                    ---------------         ---------------

CASH FLOWS USED FOR FINANCING ACTIVITIES

Cash distributions paid                                                                  (1,820,461)             (2,427,281)
                                                                                    ---------------         ---------------
Cash flows used for financing activities                                                 (1,820,461)             (2,427,281)
                                                                                    ---------------         ---------------

Decrease in cash and cash equivalents                                                    (1,820,332)             (2,811,472)
Cash and cash equivalents at beginning of period                                          5,442,020               7,571,246
                                                                                    ---------------         ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $     3,621,688         $     4,759,774
                                                                                    ===============         ===============
</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 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.

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.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

The  cash  and  cash  equivalents  of  the  Trust  include  restricted  cash  of
approximately  $2.8 million,  comprised of $2.4 million  relating to the Regency
Holdings (Cayman) Inc. litigation,  $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 and will be paid 4% in 1998, 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 has
asserted  that  the  foregoing  payments  were  made  from  its  funds,  without
reasonably equivalent  consideration,  and are therefore avoidable as fraudulent
conveyances.  The Fund served an answer  denying the  allegations of the amended
complaint and has contested  Regency's  claims.  Pursuant to an order filed with
the Bankruptcy Court, the Trust has set aside  approximately  $2.4 million in an
interest-bearing  cash account pending resolution by the Bankruptcy Court of the
adversary proceeding. Substantial discovery has 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 has been
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.  Pursuant  to  the  proposed
settlement,  the defendants  will pay a total of $535,000,  of which the Trust's
share would be  approximately  $278,200,  exclusive  of legal and other fees and
expenses. The settlement is expected to be finalized prior to the end of 1998.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

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.

The  Trust is a  creditor  of PSSS,  Inc.,  formerly  known  as  Oh-La-La!  Inc.
("PSSS").  PSSS confirmed its reorganization  plan on May 15, 1998.  Pursuant to
the  confirmed  plan,  the Trust may  receive a payment  on account of its claim
against  PSSS if funds  become  available  for  distribution.  Currently,  it is
uncertain  whether there will ever be any funds to distribute,  or the timing of
any  distribution  if funds  ever  become  available.  As a  result,  the  Trust
wrote-off the remaining  $240,000 of cost of its  investment in Oh-La-La  during
the quarter ended September 30, 1998.

6.     Other income

This includes  income  received as a result of the  settlement of certain claims
against former counsel by the Fund,  Commonwealth  Associates,  Falk and Warner.
The terms of the  settlement  agreement  provide  that  there  will be a further
payment on January 15, 1999.

7.     Cash Distribution

On August 4,  1998,  the Trust  declared  an  interim  liquidating  distribution
totaling $1,820,461,  or $.75 per Unit. Such distribution was paid on August 28,
1998 to unit holders of record on August 14, 1998.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

8.     Classification of Portfolio Investments

The Trust's investments were categorized as follows as of September 30, 1998:

<TABLE>
                                                                                                                 % of
Type of Investments                                        Cost                   Fair Value                  Net Assets*
-------------------                                   ---------------           ---------------               -----------
<S>                                                  <C>                         <C>                          <C>   
Preferred Stock                                      $      1,937,500            $      968,750               22.35%
Common Stock                                                        0                    29,688                0.68%
                                                     ----------------            --------------              -------
Total                                                $      1,937,500            $      998,438               23.03%
                                                     ================            ==============               ======

Country/Geographic Region
Eastern U.S.                                         $      1,937,500            $      998,438               23.03%
                                                      ---------------             -------------               ------
Total                                                $      1,937,500            $      998,438               23.03%
                                                     ================            ==============               ======

Industry
Biotechnology                                        $              0            $       29,688                0.68%
Consumer Products                                           1,937,500                   968,750               22.35%
                                                     ----------------            --------------               ------
Total                                                $      1,937,500            $      998,438               23.03%
                                                     ================            ==============               ======
</TABLE>

* Represents fair value as a percentage of net assets



<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and 
               Results of Operations.

Liquidity and Capital Resources

On  September  30,  1998,  the  Trust  had cash and  cash  equivalents  totaling
$3,621,688, of which $2,790,218 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 nine months ended  September 30, 1998,  totaled  $65,810 and $209,823,
respectively.  Interest  earned  from such cash  balances  in future  periods is
subject to  fluctuations  in  short-term  interest  rates and changes in amounts
available for investment in such securities.

The restricted cash and cash equivalents  balance of approximately  $2.8 million
is comprised  of $2.4 million  relating to the Regency  Holdings  (Cayman)  Inc.
litigation,  $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 of the Notes to
Financial Statements.

On August 4,  1998,  the Trust  declared  an  interim  liquidating  distribution
totaling $1,820,461,  or $.75 per Unit. Such distribution was paid on August 28,
1998 to unit  holders of record on August 14,  1998.  The Trust  expects to make
additional cash  distributions  to  beneficiaries  of the Trust as the remaining
assets are  liquidated  and after the payment of and reserve for all current and
contingent liabilities.

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  with the  approval of its Plan of
Liquidation in July 1996.

Realized and Unrealized Gains and Losses from Portfolio Investments
For the three and nine months ended September 30, 1998, the Trust had a realized
loss from its portfolio investments of $240,000. Additionally, for the three and
nine months ended September 30, 1998, the Trust had an unfavorable change in the
net unrealized  depreciation of its remaining  portfolio  investments of $72,343
and $384,062, respectively.

The $240,000  realized loss resulted  from the September  1998  write-off of the
remaining cost of the Trust's investment in Oh-La-La! Inc. The change in the net
unrealized  depreciation  for the three and nine months ended September 30, 1998
included a net downward revaluation of $252,343 and $564,062,  respectively,  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  respective
periods.  This downward revaluation was offset in each of the respective periods
due to the transfer of $180,000 from  unrealized loss to realized loss resulting
from the write-off of the  remaining  cost of Oh-La-La!  during the quarter,  as
discussed  above. As a result of these portfolio  transactions,  the Trust's net
assets  declined by $312,343 and  $624,062,  for the three and nine months ended
September 30, 1998, respectively.

For the three months ended  September 30, 1997, and for the period from February
25, 1997 to September 30, 1997 (the "1997  period") the Trust had a net realized
gain from portfolio investments of $440,000.  Additionally, for the three months
ended  September 30, 1997,  and for the 1997 period the Trust had an unfavorable
change in the net unrealized appreciation of its remaining portfolio investments
$614,384 and $262,597, respectively.

The  $440,000 net realized  gain  resulted  from the June 1997 sale of a covered
call option on certain  warrants of Unigene  Laboratories,  Inc. for $37,500 and
the July 1997 sale of  140,000  Unigene  warrants  for  $402,500.  The change in
unrealized  appreciation  for the three months ended  September 30, 1997 and for
the 1997 Period  included a $211,884 net  decrease and a $139,903 net  increase,
respectively,  in unrealized  appreciation of investments,  primarily due to the
net revaluation of the remaining Unigene warrants held by the Trust.  Unrealized
appreciation of investments  was further reduced for the respective  periods due
to the transfer of $402,500 from unrealized gain to realized gain resulting from
the Unigene sales during the period, as discussed above.

Investment Income and Expenses
For the three  months  ended  September  30, 1998 and 1997,  the Trust had a net
investment loss of $314,196 and $72,207, respectively. For the nine months ended
September 30, 1998 and for the 1997 Period,  the Trust had a net investment loss
of $151,512 and $154,313, respectively.

The increase in net  investment  loss for the three months ended  September  30,
1998, as compared to the same period in 1997, resulted from a $8,869 decrease in
investment income and a $233,120 increase in operating expenses. The decrease in
investment  income for the three months ended September 30, 1998, as compared to
the same period in 1997, primarily was due to a decrease in interest income from
short-term  investments  primarily  due to a  decrease  in funds  available  for
investment in such securities  during the three months ended September 30, 1998.
The increase in operating  expenses  for the three  months ended  September  30,
1998,  as compared to the same period in 1997,  primarily  was due to a $278,200
litigation  settlement  reserve relating to the Regency Holdings,  (Cayman) Inc.
litigation as discussed in Note 4 of Notes to Financial Statements.

The decrease in net investment loss for the nine months ended September 30, 1998
as compared to the 1997 Period,  resulted from a $191,042 increase in investment
income  partially  offset by a $188,241  increase  in  operating  expenses.  The
increase in  investment  income  primarily  was due to $186,298 of other  income
recorded  during the nine  months  ended  September  30,  1998  relating  to the
litigation  settlements as discussed in Note 6 of Notes to Financial Statements.
Interest income from short-term  investments also increased  $7,291,  reflecting
the longer full nine month  period for 1998  compared to the shorter 1997 Period
of slightly over seven months.

The increase in operating  expenses for the nine months ended September 30, 1998
compared  to the  1997  Period  was due to the  $278,200  litigation  settlement
reserve,  as discussed  above,  partially offset by an $89,959 decrease in other
operating expenses. The decrease in other expenses primarily was the result of a
$90,277  decrease in legal and accounting  fees,  reflecting the declining legal
work relating to activities of the Trust during 1998 as compared to 1997 and the
reversal of certain expenses that had been accrued for in prior periods.

Net Assets in Liquidation
For the nine months ended  September  30, 1998,  the Trust had a net decrease in
net assets in liquidation of $775,574,  resulting from the $624,062 net realized
and unrealized  loss from portfolio  investments and the $151,512 net investment
loss for the nine  month  period.  As of  September  30,  1998,  net  assets  in
liquidation  totaled  $4,335,335,  a decrease of  $2,596,035  from net assets in
liquidation  of $6,931,370 at December 31, 1997.  This decrease is the result of
the $1,820,461 cash  distribution paid in August 1998 combined with the $775,574
net decrease net assets in liquidation  for the nine months ended  September 30,
1998. As of September 30, 1998, the net asset value per Unit was $1.79, compared
to $2.86 per Unit as of December 31, 1997.



For the 1997 Period,  the Trust had a net increase in net assets in  liquidation
of $23,090,  resulting from the $177,403 net realized and  unrealized  gain from
portfolio  investments  partially offset by the $154,313 net investment loss for
the nine month  period.  As of  September  30, 1997,  net assets in  liquidation
totaled  $7,379,120,  a decrease of $2,404,191 from net assets in liquidation of
$9,783,311 at February 24, 1997.  This decrease is the result of the  $2,427,281
cash distribution paid in July 1997 exceeding the $23,090 increase in net assets
in liquidation  for the 1997 Period.  At September 30, 1997, the net asset value
per unit of  beneficial  interest  was $3.04,  compared to $4.03 at February 24,
1997.



<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 has
asserted  that  the  foregoing  payments  were  made  from  its  funds,  without
reasonably equivalent  consideration,  and are therefore avoidable as fraudulent
conveyances.  The Fund served an answer  denying the  allegations of the amended
complaint and has contested  Regency's  claims.  Pursuant to an order filed with
the Bankruptcy Court, the Trust has set aside  approximately  $2.4 million in an
interest-bearing  cash account pending resolution by the Bankruptcy Court of the
adversary proceeding. Substantial discovery has 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 has been
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.  Pursuant  to  the  proposed
settlement,  the defendants  will pay a total of $535,000,  of which the Trust's
share would be  approximately  $278,200,  exclusive  of legal and other fees and
expenses. The settlement is expected to be finalized prior to the end of 1998.

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:         November 13, 1998


<PAGE>