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, 1997

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 October 31, 1997 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, 1997 (Unaudited) 
and February 24, 1997

Schedule of Portfolio Investments as of September 30, 1997 (Unaudited)

Statements  of  Operations  for the three  months  ended  September  30, 1997 
and for the three  months  ended  November 30, 1996 (Unaudited)

Statements of Operations  for the period from February 25, 1997 to September 30,
1997 and for the nine months ended  November 30, 1996 (Unaudited)

Statements  of Changes in Net Assets for the period from  February 25, 1997 to  
September  30, 1997 and for the nine months ended November 30, 1996 (Unaudited)

Statements  of Cash Flows for period from  February  25, 1997 to September  30,
 1997 and for the nine months  ended  November 30, 1996 (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,     February 24,
                                                                                           1997                  1997
                                                                                    (Unaudited)              (Predecessor)
ASSETS

Portfolio investments at fair value (cost $2,224,750 at
<S>          <C> <C>               <C> <C>                                          <C>                   <C>            
   September 30, 1997 and February 24, 1997)                                        $     2,433,996       $     2,696,593
Cash and cash equivalents - unrestricted                                                  1,969,556             4,781,028
Cash and cash equivalents - restricted                                                    2,790,218             2,790,218
Accrued interest receivable                                                                  39,633                25,959
Receivable from settlement agreement                                                        300,000               650,000
Other assets                                                                                 10,962                24,846
                                                                                    ---------------       ---------------
   Total assets                                                                           7,544,365            10,968,644
                                                                                    ---------------       ---------------

LIABILITIES

Accounts payable - legal                                                                     87,239             1,076,982
Accounts payable - other                                                                     78,006               108,351
                                                                                    ---------------       ---------------
   Total liabilities                                                                        165,245             1,185,333
                                                                                    ---------------       ---------------

NET ASSETS IN LIQUIDATION                                                           $     7,379,120       $     9,783,311
                                                                                    ===============       ===============
</TABLE>


See notes to financial statements.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
As of September 30, 1997
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                                                         % of
Issuer / Position                                                                   Cost              Fair Value       Net Assets(1)

Publicly-Held Securities:
Bennett Environmental Inc.
<C>                                                                              <C>                <C>                  <C>  
112,500 shares of Common Stock                                                   $     47,250       $      247,433       3.35%
                                                                                -------------       --------------    --------

Unigene Laboratories, Inc. (B)
Warrant to purchase 475,000 shares of Common Stock
   at $1.375, expiring 7/7/00                                                               0            1,157,813      15.69%
                                                                                -------------       --------------    --------

YES! Entertainment Corporation
Warrant to purchase 11,437 shares of Common Stock
   at $15.30 per share, expiring 7/16/98                                                    0                    0           0%
                                                                                -------------       --------------   ----------

Privately-Held Securities:
First Colony Acquisition Corp. (C)
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      13.13%
                                                                                -------------       --------------    --------
Oh-La-La! Inc.
9% Convertible Senior Note                                                            140,000               34,800
9% Convertible Senior Note                                                            100,000               25,200
                                                                                -------------       --------------
                                                                                      240,000               60,000     .81%
                                                                                -------------       -----------------------

Total Portfolio Investments(D)                                                  $   2,224,750       $    2,433,996      32.98%
                                                                                =============       ==============    ========
</TABLE>


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

(A)  In November 1997, the Trust sold its remaining investment in Bennett  
     Environmental,  Inc. for net proceeds of $382,500,  or $3.40 per share.

(B)  In June 1997,  the Trust sold a covered call option for  $37,500,  allowing
     for  the  purchase  of up to  307,500  common  stock  warrants  of  Unigene
     Laboratories,  Inc. at a purchase  price of $2.875 per warrant.  The option
     expired on July 30,  1997,  with  140,000  warrants  called in July 1997 at
     $2.875 per warrant, or $402,500.  The Trust realized a net gain of $440,000
     as a result of these transactions.

(C)  On July 31,  1997,  due to a financial  restructuring  of the First  Colony
     Acquisition Corp., the Trust's convertible 6% promissory note was converted
     into 240,179 shares of the company's series B1 preferred stock.

(D) All  portfolio  securities  held  at  September  30,  1997  were  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                 November 30,
                                                                                       September 30,          1996
                                                                                           1997                  (Predecessor)
INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                 <C>                       <C>              
   Interest from U.S. Treasury Bills and repurchase agreements                      $       70,378            $          94,868
   Interest and dividends from portfolio investments                                             -                      (47,463)
   Other interest income                                                                     4,301                            -
                                                                                    --------------            -----------------
   Total investment income                                                                  74,679                       47,405
                                                                                    --------------            -----------------

Expenses:
   Administrative expense                                                                   20,045                       17,289
   Legal fees                                                                               32,862                      890,897
   Accounting fees                                                                          14,600                       40,372
   Trustee fees                                                                             71,772                            -
   Transfer agent and custodian fees                                                         5,835                        6,094
   Mailing and printing                                                                         14                        5,255
   Other operating expenses                                                                  1,758                       12,702
   Amortization of deferred organizational costs                                                 -                        9,843
   Directors' fees and expenses                                                                  -                        3,191
   Consulting fees                                                                               -                       25,500
   Insurance expense                                                                             -                        7,634
                                                                                    --------------            -----------------
   Total expenses                                                                          146,886                    1,018,777
                                                                                    --------------            -----------------

Net investment loss                                                                        (72,207)                    (971,372)
                                                                                    --------------            -----------------

NET REALIZED AND UNREALIZED LOSS
   FROM PORTFOLIO INVESTMENTS

Net realized gain from portfolio investments                                               440,000                            -
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                  (614,384)                    (269,778)
                                                                                    --------------            -----------------
Net realized and unrealized loss from portfolio investments                               (174,384)                    (269,778)
                                                                                    --------------            -----------------

NET DECREASE IN NET ASSETS FROM OPERATIONS                                          $     (246,591)           $      (1,241,150)
                                                                                    ==============            ================= 
</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            November 30,
                                                                                          September 30,       1996
                                                                                              1997              (Predecessor)

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                      <C>                   <C>            
   Interest from U.S. Treasury Bills and repurchase agreements                           $      202,532        $       365,398
   Interest and dividends from portfolio investments                                                  -                 36,578
   Other interest income                                                                         13,166                      -
   Other income                                                                                   1,196                      -
                                                                                         --------------        ---------------
   Total investment income                                                                      216,894                401,976
                                                                                         --------------        ---------------

Expenses:
   Administrative expense                                                                        46,023                 99,286
   Legal fees                                                                                   156,949              1,660,502
   Accounting fees                                                                               46,025                 72,505
   Trustee fees                                                                                 105,772                      -
   Transfer agent and custodian fees                                                             12,573                 15,373
   Mailing and printing                                                                           1,477                 49,615
   Other operating expenses                                                                       2,388                 78,861
   Salary expense                                                                                     -                178,919
   Amortization of deferred organizational costs                                                      -                 29,529
   Directors' fees and expenses                                                                       -                 47,879
   Consulting fees                                                                                    -                110,594
   Insurance expense                                                                                  -                 27,680
                                                                                         --------------        ---------------
   Total expenses                                                                               371,207              2,370,743
                                                                                         --------------        ---------------

Net investment loss                                                                            (154,313)            (1,968,767)
                                                                                         --------------        ---------------

NET REALIZED AND UNREALIZED GAIN
   FROM PORTFOLIO INVESTMENTS

Net realized gain from portfolio investments                                                    440,000              2,659,872
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                       (262,597)            (1,438,302)
                                                                                         --------------        ---------------
Net realized and unrealized gain from portfolio investments                                     177,403              1,221,570
                                                                                         --------------        ---------------

NET INCREASE (DECREASE) IN NET ASSETS
   FROM OPERATIONS                                                                       $       23,090        $      (747,197)
                                                                                         ==============        =============== 
</TABLE>


See notes to financial statements. 

MICROCAP LIQUIDATING TRUST (Successor to the
MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (UNAUDITED)


<TABLE>
                                                                                          Period From          Nine Months
                                                                                         February 25,          Ended
                                                                                            1997 to              November 30,
                                                                                         September 30,         1996
                                                                                             1997                (Predecessor)

Change in net assets resulting from operations:

<S>                                                                                   <C>                      <C>              
Net investment loss                                                                   $      (154,313)         $     (1,968,767)
Net realized gain from portfolio investments                                                  440,000                 2,659,872
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                     (262,597)               (1,438,302)
                                                                                      ----------------         ----------------
     Net increase (decrease) in net assets resulting from operations                           23,090                  (747,197)
                                                                                      ---------------          ----------------

Change in net assets from distributions:

Distributions paid                                                                         (2,427,281)               (8,495,486)
                                                                                      ---------------          ----------------

Net decrease in net assets for the period                                                  (2,404,191)               (9,242,683)

Net assets in liquidation at beginning of period                                            9,783,311                17,235,158
                                                                                      ---------------          ----------------

NET ASSETS IN LIQUIDATION AT END OF PERIOD                                            $     7,379,120          $      7,992,475
                                                                                      ===============          ================

Net assets per unit                                                                         $   3.04                  $   3.29
                                                                                            ========                  ========

Number of units of beneficial interest or
common equivalent shares                                                                    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            November 30,
                                                                                          September 30,      1996
                                                                                              1997              (Predecessor)

CASH FLOWS USED FOR OPERATING ACTIVITIES

<S>                                                                                    <C>                    <C>              
Net investment loss                                                                    $       (154,313)      $     (1,968,767)
Adjustments to reconcile net investment loss to cash
   used for operating activities:
Decrease in receivables and other assets                                                        347,038                345,475
(Decrease) increase in payables                                                              (1,020,088)               688,656
Depreciation expense                                                                              3,172                      -
Consulting payment made in-kind                                                                       -                105,000
Amortization of deferred organizational costs                                                         -                 29,529
                                                                                       ----------------       ----------------
Cash flows used for operating activities                                                       (824,191)              (800,107)
                                                                                       ----------------       ----------------

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES

Net proceeds from the sale of portfolio investments                                             440,000              2,876,564
Purchase of portfolio investments                                                                     -                (51,411)
Deposits placed in escrow                                                                             -               (250,197)
Repayment of notes                                                                                    -              2,000,000
                                                                                       ----------------       ----------------
Cash flows provided from investing activities                                                   440,000              4,574,956
                                                                                       ----------------       ----------------

CASH FLOWS USED FOR FINANCING ACTIVITIES

Cash distributions paid                                                                      (2,427,281)            (8,495,486)
                                                                                       ----------------       ----------------
Cash flows used for financing activities                                                     (2,427,281)            (8,495,486)
                                                                                       ----------------       ----------------

Decrease in cash and cash equivalents                                                        (2,811,472)            (4,720,637)
Cash and cash equivalents at beginning of period                                              7,571,246              9,878,280
                                                                                       ----------------       ----------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                             $      4,759,774       $      5,157,643
                                                                                       ================       ================
</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.

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 the Trust's publicly-held
portfolio  securities is adjusted to the closing public market price on the last
day of the  fiscal  quarter  discounted  by a  factor  of 0% to  20%  for  sales
restrictions. 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.


<PAGE>


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



The  transfer  of net assets  from the Fund to the Trust is  considered  to be a
liquidating distribution of the Fund for federal income tax purposes. Therefore,
each holder of the common or preferred  stock of the Fund must recognize gain or
loss  equal to the  difference  between  the net fair  value of the  liquidating
distribution, of $4.03 per common equivalent share deemed received in respect of
such shares,  and the holder's  adjusted tax basis in such shares.  Such gain or
loss is a capital gain or loss if such shares were held as a capital asset,  and
such  capital  gain or loss is  long-term if such shares were held for more than
one year as of February  24, 1997,  the date the  liquidating  distribution  was
deemed to have been made.

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.

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 will  continue 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, at the time any
proceeds  of sale or other  revenues  are  received  by the Fund or the Trust in
excess of the investment in the particular  asset, Mr. Troubh will receive 5% of
such excess for amounts  received in 1996 or 1997, 4% of such excess for amounts
received in 1998, 2% in 1999 and 0% thereafter;  provided,  however,  that in no
event shall the total compensation paid to Mr. Troubh be less than $250,000.

4.     Litigation
On April 19, 1996, the Fund filed a complaint against Commonwealth Associates, a
registered  broker-dealer  and the  underwriter  of the  Fund's  initial  public
offering,   Michael  S.  Falk,  the  chief  executive  officer  of  Commonwealth
Associates,  a minority  shareholder  and  director of the Fund,  and Stephen J.
Warner,  a former  executive  officer of Commonwealth  Associates and the former
president of the Fund. The civil action, which was filed in federal court in the
Southern  District of New York,  alleged fraud,  breach of fiduciary  duties and
violations of the Investment Company Act of 1940. On December 24, 1996, the Fund
and the defendants agreed to a settlement of the complaint, whereby Commonwealth
Associates  will make  settlement  payments  to the Fund and the Trust  totaling
$1,150,000.  In connection  therewith,  the Fund  received  $500,000 in December
1996.  The  remaining  balance  of the  settlement  payments  is  being  paid in
installments  through December 15, 1997 and will earn interest at an annual rate
of 4.50%.  Through November 1, 1997, the Trust had received  additional payments
totaling $400,000. Commonwealth Associates has delivered securities to the Trust
as collateral for the remaining  payments.  Such  securities,  which are held in
escrow by the Trust,  had a fair  value that  exceeded  the  remaining  $250,000
balance due from the settlement agreement as of November 1, 1997.  Additionally,
as part of the settlement,  the Fund and the defendants  agreed to pursue claims
against

<PAGE>


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

former  counsel to the Fund.  The Trust  would be entitled to receive 50% of any
recovery from such claims after the reimbursement to Commonwealth  Associates of
all costs and expenses associated with pursuing the claims.

The Trust is a creditor of PSSS, Inc. f/k/a Oh-La-La!  Inc.  ("PSSS"),  which is
the subject of proceedings under chapter 11 of the United States Bankruptcy Code
pending in San Francisco, California (the "Bankruptcy Case"). In connection with
the Bankruptcy Case, Oh-La-La!  International,  S.A.  ("International"),  one of
PSSS's  largest  shareholders,  has filed a  precautionary  proof of claim  (the
"Precautionary  Proof of Claim"), on behalf of International and other similarly
situated  shareholders of PSSS, against,  among others, the Trust, certain other
creditors of PSSS, and parties  involved in the intended  underwriting  for, and
conduct of, an initial  public  offering which PSSS had  anticipated  would have
occurred in or about 1994. The Precautionary  Proof of Claim alleges a claim for
damages as a result of, among other things,  (a) the failure to  effectuate  the
intended initial public offering, and (b) the Bankruptcy  Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders.  PSSS and
International  have taken no other action regarding this claim. The Trust denied
liability for the claims set forth in the Precautionary Proof of Claim. A global
settlement has been reached between and among PSSS, International, the Trust and
several  other  parties,  pursuant to which the Trust will have no liability for
the claims set forth in the Precautionary Proof of Claim (the "Settlement"). The
Settlement  has been  preliminarily  approved  by the  Bankruptcy  Court  and is
subject to final approval upon  confirmation of a plan of liquidation.  Recovery
on account of the  Trust's  claims as a creditor  of PSSS is  contingent  upon a
number of factors beyond the Trust's control.

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  maintains 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,  is 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 maintains that such relationship
had an  impact on the  decision  to pay these  amounts.  Additionally,  Holdings
maintains 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 is therefore a voidable preference without
regard to whether Mustafa was an insider.  The Fund has served an answer denying
the allegations of the amended complaint and is vigorously  contesting 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,  in part based upon  written
submissions,  has been scheduled to address the validity of Regency's preference
claims.

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

<PAGE>


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

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.

6.     Cash Distribution
On July 15 1997, the Trust paid an interim liquidating  distribution  totaling 
$2,427,281,  or $1.00 per Unit, to unit holders of record on June 30, 1997.

7.     Subsequent Event
In November 1997, the Trust sold its remaining investment in Bennett  
Environmental,  Inc. for net proceeds of $382,500, or $3.40 per share.

8.     Classification of Portfolio Investments

The Trust's investments were categorized as follows as of September 30, 1997:

<TABLE>
                                                                                                          Percentage of
Type of Investments                                        Cost                   Fair Value                  Net Assets*
-------------------                                   ---------------           ---------------               -----------
<S>                                                  <C>                         <C>                          <C>   
Preferred Stock                                      $      1,937,500            $      968,750               13.13%
Common Stock                                                   47,250                 1,405,246               19.04%
Debt Securities                                               240,000                    60,000              .81%
                                                     ----------------            --------------            ------

Total                                                $      2,224,750            $    2,433,996               32.98%
                                                     ================            ==============               ======

Country/Geographic Region
Western U.S.                                         $        240,000            $       60,000                 .81%
Eastern U.S.                                                1,937,500                 2,126,563               28.82%
Canada                                                         47,250                   247,433                3.35%
                                                     ----------------            --------------              -------

Total                                                $      2,224,750            $    2,433,996               32.98%
                                                     ================            ==============               ======

Industry
Biotechnology                                        $              0            $    1,157,813               15.69%
Consumer Products                                           1,937,500                   968,750               13.13%
Environmental Services                                         47,250                   247,433                3.35%
Food Services                                                 240,000                    60,000              .81%
                                                     ----------------            --------------           -------

Total                                                $      2,224,750            $    2,433,996               32.98%
                                                     ================            ==============               ======
</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, 1997, the MicroCap Liquidating Trust (the "Trust") had cash and
cash equivalents totaling $4,759,774,  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 months ended September 30,
1997 and for the period from  February 25, 1997 to September  30, 1997,  totaled
$70,378 and $202,532,  respectively . Interest earned from such cash balances in
future  periods is subject to  fluctuations  in  short-term  interest  rates and
changes in the Trust's cash balances.

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 for additional information.

On July 15, 1997, the Trust paid an interim  liquidating  distribution  totaling
$2,427,281,  or $1.00 per Unit, to unit holders of record on June 30, 1997.  The
Trust expects to make  additional cash  distributions  to  beneficiaries  as its
remaining  assets are liquidated  and after an adequate  reserve for all current
and contingent liabilities.

As of September 30, 1997, the Trust had current  liabilities  totaling $165,245,
primarily consisting of legal and accounting fees.

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  existing  cash balances  after  payment of 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.

For the three months ended  September 30, 1997,  the Trust had a decrease in net
assets in liquidation of $246,591, comprised of a net investment loss of $72,207
and a net realized and unrealized  loss from portfolio  investments of $174,384.
For the period from February 25, 1997 to September 30, 1997 (the "1997 Period"),
the Trust had an increase in net assets in liquidation of $23,090,  comprised of
a net investment  loss of $154,313 and a net realized and  unrealized  gain from
portfolio investments of $177,403.  For the three months ended November 30, 1996
(the  equivalent  prior year  period),  the Fund had a decrease in net assets of
$1,241,150,  comprised of a net  investment  loss of $971,372 and a net realized
and unrealized loss from portfolio investments of $269,778.  For the nine months
ended  November  30,  1996,  the Fund had a decrease in net assets of  $747,197,
comprised  of a net  investment  loss  of  $1,968,767  and a  net  realized  and
unrealized gain from portfolio investments of $1,221,570.

Realized and Unrealized Gains and Losses from Portfolio Investments
For the three months ended  September 30, 1997, the Trust had a net realized and
unrealized loss from its remaining portfolio investments of $174,384,  comprised
of a  $440,000  net  realized  gain from  portfolio  investments  and a $614,384
decrease in net unrealized  appreciation of investments for the quarter. For the
1997 Period, the Trust had a net realized and unrealized gain from its portfolio
investments  of  $177,403,  comprised  of a  $440,000  net  realized  gain  from
portfolio investments and a $262,597 decrease in net unrealized  appreciation of
investments for the period.

The $440,000 net realized gain results from the June 1997 sale of a covered call
option on certain warrants of Unigene  Laboratories,  Inc. held by the Trust for
$37,500 and the July 1997 sale of 140,000  Unigene  warrants for  $402,500.  The
change in  unrealized  appreciation  of  investments  for the three months ended
September  30, 1997 and for the 1997 Period  included a $211,884 net  unrealized
loss and a $139,903 net unrealized gain, respectively,  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 sale of certain Unigene warrants during the quarter, as discussed above.

For the three  months  ended  November  30,  1996,  the Fund had a $269,778  net
unrealized loss from its portfolio  investments  resulting from the net downward
revaluation of certain  portfolio  investments  for the three month period.  The
Fund had no realized  gains or losses  from its  portfolio  investments  for the
three months ended  November  30, 1996.  For the nine months ended  November 30,
1996,  the  Fund had a net  realized  and  unrealized  gain  from its  portfolio
investments  of  $1,221,570,  comprised of a $2,659,872  net realized  gain from
portfolio  investments and a $1,438,302 decrease in net unrealized  appreciation
of investments.

The  $2,659,872  net realized gain for the nine months ended  November 30, 1996,
included  the  July  1996  sale  of the  Fund's  investment  in  Shells  Seafood
Restaurants,  Inc.  for  $2,700,000,  which  resulted  in  a  realized  gain  of
$2,110,000.  Also  during the nine  month  period,  the Fund sold its  remaining
60,000 common stock warrants of Accumed  International,  Inc.  (formerly  Alamar
Biosciences,  Inc.) for  $154,647,  realizing a gain of $149,630.  Additionally,
during the period,  the Fund  completed  the transfer of 60,000  Unigene  common
stock warrants to certain  individuals,  representing  the payment of consulting
fees  incurred  in  connection  with  the  Fund's  investment  in  Unigene.  The
transaction  resulted in the recognition of a $105,000  realized gain, which was
equally offset by $105,000 of consulting  fee expense  recorded by the Fund over
several  previous  fiscal  quarters.  The Fund also had a net  realized  gain of
$295,242  during the period,  resulting from the sale of 190,000  Accumed common
stock warrants and 12,500 shares of Accumed common stock.

The $1,438,302 decrease in net unrealized appreciation for the nine months ended
November 30, 1996 was comprised of a $1,111,483 net  unrealized  gain due to the
upward  revaluation of certain portfolio  investments for the period,  primarily
Shell's  Seafood  Restaurants,  Inc.,  offset by a  $2,549,785  reduction in net
unrealized  appreciation  due to the transfer from  unrealized  gain to realized
gain relating to the portfolio sales completed  during the period,  as discussed
above.

Investment Income and Expenses
For the three months ended  September 30, 1997 and November 30, 1996,  the Trust
had a net investment  loss of $72,207 and $971,372,  respectively.  For the 1997
Period and for the nine months ended November 30, 1996 (the "1996 Period"),  the
Trust had a net investment loss of $154,313 and $1,968,767, respectively.

The significantly  reduced net investment loss of $1,968,767 for the 1996 Period
as compared to $154,313 for the 1997 Period  primarily  reflects the termination
of the ongoing  operations of the Fund,  the adoption of its Plan of Liquidation
and transfer of its remaining assets to the Trust, as discussed above.

Total investment income for the 1997 Period was $216,894 as compared to $401,976
for the 1996 Period.  The decrease in investment income primarily  resulted from
reduced interest income,  reflecting the shorter 1997 Period, which consisted of
219 days,  or less than 80% of the full nine month period for 1996,  and reduced
cash  balances  held during the 1997 Period as compared to the 1996 Period.  The
Trust had no interest or dividend income from portfolio investments for the 1997
Period,  due to the  reduction of interest  earning  portfolio  securities  held
during the 1997  Period.  Interest  income is expected to continue to decline as
the Trust continues with the liquidation of its remaining assets.

The  operating  expenses of the Trust for the three months ended  September  30,
1997 and for the 1997 Period were  $146,886  and  $371,207,  respectively.  Such
expenses  consisted  primarily  of legal  and  accounting  fees,  Trustee  fees,
custodial fees and general and administrative expenses.  During the 1997 Period,
such  expenses  were  incurred in  connection  with ongoing  litigation  and the
continued liquidation of the Trust's remaining assets.  Expenses incurred during
the three and nine months ended November 30, 1996 totaling $1.0 million and $2.4
million, respectively, included certain ongoing expenses of the Fund, which will
not be incurred by the Trust,  including salary expense,  amortization  expense,
directors fees, insurance and other expenses.

Net Assets in Liquidation
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.

On April 19, 1996, the Fund filed a complaint against Commonwealth Associates, a
registered  broker-dealer  and the  underwriter  of the  Fund's  initial  public
offering,   Michael  S.  Falk,  the  chief  executive  officer  of  Commonwealth
Associates,  a minority  shareholder  and  director of the Fund,  and Stephen J.
Warner,  a former  executive  officer of Commonwealth  Associates and the former
president of the Fund. The civil action, which was filed in federal court in the
Southern  District of New York,  alleged fraud,  breach of fiduciary  duties and
violations of the Investment Company Act of 1940. On December 24, 1996, the Fund
and the defendants agreed to a settlement of the complaint, whereby Commonwealth
Associates  will make  settlement  payments  to the Fund and the Trust  totaling
$1,150,000.  In connection  therewith,  the Fund  received  $500,000 in December
1996.  The  remaining  balance  of the  settlement  payments  is  being  paid in
installments  through December 15, 1997 and will earn interest at an annual rate
of 4.50%.  Through November 1, 1997, the Trust had received  additional payments
totaling $400,000. Commonwealth Associates has delivered securities to the Trust
as collateral for the remaining  payments.  Such  securities,  which are held in
escrow by the Trust,  had a fair  value that  exceeded  the  remaining  $250,000
balance due from the settlement agreement as of November 1, 1997.  Additionally,
as part of the settlement,  the Fund and the defendants  agreed to pursue claims
against  former  counsel to the Fund. The Trust would be entitled to receive 50%
of any  recovery  from such  claims  after  the  reimbursement  to  Commonwealth
Associates of all costs and expenses associated with pursuing the claims.

The Fund is a creditor of PSSS, Inc. f/k/a Oh-La-La! Inc. ("PSSS"), which is the
subject of  proceedings  under chapter 11 of the United States  Bankruptcy  Code
pending in San Francisco, California (the "Bankruptcy Case"). In connection with
the Bankruptcy Case, Oh-La-La!  International,  S.A.  ("International"),  one of
PSSS's  largest  shareholders,  has filed a  precautionary  proof of claim  (the
"Precautionary  Proof of Claim"), on behalf of International and other similarly
situated  shareholders of PSSS, against,  among others, the Trust, certain other
creditors of PSSS, and parties  involved in the intended  underwriting  for, and
conduct of, an initial  public  offering which PSSS had  anticipated  would have
occurred in or about 1994. The Precautionary  Proof of Claim alleges a claim for
damages as a result of, among other things,  (a) the failure to  effectuate  the
intended initial public offering, and (b) the Bankruptcy  Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders.  PSSS and
International  have taken no other action regarding this claim. The Trust denied
liability for the claims set forth in the Precautionary Proof of Claim. A global
settlement has been reached between and among PSSS, International, the Trust and
several  other  parties,  pursuant to which the Trust will have no liability for
the claims set forth in the Precautionary Proof of Claim (the "Settlement"). The
Settlement  has been  preliminarily  approved  by the  Bankruptcy  Court  and is
subject to final approval upon  confirmation of a plan of liquidation.  Recovery
on account of the  Trust's  claims as a creditor  of PSSS is  contingent  upon a
number of factors beyond the Trust's control.

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  maintains 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,  is 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 maintains that such relationship
had an  impact on the  decision  to pay these  amounts.  Additionally,  Holdings
maintains 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 is therefore a voidable preference without
regard to whether Mustafa was an insider.  The Fund has served an answer denying
the allegations of the amended complaint and is vigorously  contesting 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,  in part based upon  written
submissions,  has been scheduled to address the validity of Regency's preference
claims.

Item 2.       Changes in Securities.

Not applicable.

Item 3.       Defaults Upon Senior Securities.

Not applicable.

Item 4.       Submission of Matters to a Vote of Security Holders.

No matter was brought to a vote of security holders during the period covered by
this report.

Item 5.       Other Information.

Not applicable.

Item 6.       Exhibits and Reports on Form 8-K.

              (a)  Exhibits

                    (27)   Financial Data Schedule

              (b)  Reports on Form 8-K

                   None.


<PAGE>


                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



              MICROCAP LIQUIDATING TRUST


              /s/    Raymond S. Troubh
              Raymond S. Troubh
              Trustee



Date:         November 14, 1997