SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q/A


  [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.)
                             Amendment to Form 10-Q
                    For the quarter ended September 30, 1998

  Item 2 of Part I,  Management's  Discussion and Analysis of Financial 
  Condition and  Results  of  Operations,  on  pages 13 to 15 of Form  10-Q of
  the  MicroCapLiquidating  Trust for the quarterly period ended September 30,
  1998, filed with the Securities and Exchange Commission on November 13, 1998
  is amended by adding the following:

  Year 2000 Issues
  The Year 2000 ("Y2K") concern arose because many existing  computer programs 
  use only the last two digits to refer to a year. Therefore,  these computer
  programs do not properly  recognize a year that begins with "20" instead of 
  "19".  If not corrected,  many computer  applications  could fail or create
  erroneous results. The impact of the Y2K concern on the operations of the 
  Trust is currently  being assessed.

  Palmeri  Fund  Administrators,   Inc.  (the  "Administrator")  provides
  certain administrative and accounting services for the Trust,  including
  maintenance of the books and  records of the  Trust,  preparation  and 
  issuance  of  financial reports and tax information to beneficial  holders of
  the Trust and other day to day administrative and accounting functions.

  The  Administrator  is currently  assessing  its computer  hardware and
  software systems,  specifically as they relate to the operations of the Trust.
  As part of its  investigation of possible Y2K problems,  the  Administrator
  has contracted with an outside computer service provider to examine all of
     the Administrator's computer hardware and software applications,  to 
     identify any
  Y2K concerns. This review and evaluation is in process and is expected to be
  completed by May 1999. If Y2K problems are identified,  the  Administrator 
  will purchase,  install and test the necessary software patches and new
  computer hardware to ensure that all of its computer systems are Y2K
  compliant. 
  This correction  phase, if required,is expected to be completed by September
  1999.

  Additionally, the Administrator has contacted all outside service providers
          used to  assist  the  Administrator  with  the  administration  of the
          Trust's  operations to ascertain whether these entities are addressing
          the Y2K issue  within their own  operation.  There can be no guarantee
          that the  Administrator's  systems or that systems of other  companies
          providing  services to the Trust will be corrected in a timely manner.
          Costs to be incurred by the Trust  relating  to the  investigation  or
          correction of potential Y2K problems  affecting the Trust are expected
          to be nominal.  The Y2K issue is a global  concern that may affect all
          business   entities,   including  the  Trust's   remaining   portfolio
          companies.  The  Trustee  is  continuing  to assess  the impact of Y2K
          concerns affecting these portfolio  companies.  However, the extent to
          which any potential Y2K problems  could affect the valuations of these
          companies  is  presently  unknown.  At the time such Y2K  problems are
          identified,   if  any,   the  Trustee   will  take  such  issues  into
          consideration  in  adjusting  the fair value of the Trust's  remaining
          portfolio investments.


<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>                <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>    <C>    <C>    <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>    <C>    <C>    <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. Year 2000 Issues The Year 2000 ("Y2K") concern arose because
          many existing  computer programs use only the last two digits to refer
          to  a  year.  Therefore,  these  computer  programs  do  not  properly
          recognize  a year  that  begins  with  "20"  instead  of "19".  If not
          corrected,  many computer  applications could fail or create erroneous
          results.  The impact of the Y2K concern on the operations of the Trust
          is currently being assessed.  Palmeri Fund  Administrators,  Inc. (the
          "Administrator")   provides  certain   administrative  and  accounting
          services for the Trust, including maintenance of the books and records
          of the Trust,  preparation  and issuance of financial  reports and tax
          information  to  beneficial  holders of the Trust and other day to day
          administrative   and  accounting   functions.   The  Administrator  is
          currently  assessing  its  computer  hardware  and  software  systems,
          specifically as they relate to the operations of the Trust. As part of
          its  investigation  of possible Y2K problems,  the  Administrator  has
          contracted with an outside computer service provider to examine all of
          the Administrator's  computer hardware and software  applications,  to
          identify any Y2K  concerns.  This review and  evaluation is in process
          and is expected  to be  completed  by May 1999.  If Y2K  problems  are
          identified,  the  Administrator  will  purchase,  install and test the
          necessary  software  patches and new computer  hardware to ensure that
          all of its computer systems are Y2K compliant.  This correction phase,
          if  required,   is  expected  to  be  completed  by  September   1999.
          Additionally,  the  Administrator  has contacted  all outside  service
          providers used to assist the Administrator  with the administration of
          the  Trust's  operations  to  ascertain  whether  these  entities  are
          addressing the Y2K issue within their own  operation.  There can be no
          guarantee  that the  Administrator's  systems or that systems of other
          companies  providing  services  to the Trust  will be  corrected  in a
          timely  manner.  Costs to be  incurred  by the Trust  relating  to the
          investigation  or correction  of potential Y2K problems  affecting the
          Trust are  expected to be nominal.  The Y2K issue is a global  concern
          that may affect all business entities, including the Trust's remaining
          portfolio companies. The Trustee is continuing to assess the impact of
          Y2K concerns affecting these portfolio companies.  However, the extent
          to which any  potential  Y2K problems  could affect the  valuations of
          these  companies is presently  unknown.  At the time such Y2K problems
          are  identified,  if any,  the  Trustee  will  take such  issues  into
          consideration  in  adjusting  the fair value of the Trust's  remaining
          portfolio investments.
     <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: January 26, 1999
     <PAGE>