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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(****MarkOne)**

** **
| **x**                                             | **QUARTERLY REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------|----------------------------------------------------------------------------------------------|
| ** **                                        | ** **                                                                                   |
| **For the quarterly period ended June  30, 2008** |

** **

**or**

** **
| o | **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: 000-53209**

 

**Adelphia Recovery Trust**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                    | ** ** | **11-6615508**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |

 

| **919  North Market Street, 17****th**** Floor, PO Box 705  Wilmington, Delaware** |
|-----------------------------------------------------------------------------------------|
| (Address  of principal executive offices) (Zip Code)                                    |

 

| **302-652-4100  Attn: Dean Ziehl**                         |
|------------------------------------------------------------|
| (Registrant’s  telephone number, including area code) |

 

 

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.                                                                        x Yes  No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer o                                                                                        | Accelerated filer o         |
|-------------------------------------------------------------------------------------------------------------------|-----------------------------|
| Non-accelerated  filer   x      (Do not check  if a smaller reporting company) | Smaller reporting company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

o  Yes  No  x

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.

o  Yes  No  o

 

 

 

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ADELPHIA RESOLUTION TRUST

FORM 10-Q

INDEX

 
| PART I – FINANCIAL INFORMATION                                                      |                                                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                          |                                                                                                                                                                                                                                  |   |
| ITEM  1. FINANCIAL STATEMENTS (unaudited)                                                     |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |   |
|                                                                                          | Condensed Balance Sheets as of June 30, 2008 and  December 31, 2007                                                                                                                                                         |   |
|                                                                                          |                                                                                                                                                                                                                                  |   |
|                                                                                          | Condensed Statements of Operations for the three months ended  June 30, 2008 and 2007 and for the periods from February 13, 2007  (date established) to June 30, 2007 and for the six months ended  June 30, 2008 |   |
|                                                                                          |                                                                                                                                                                                                                                  |   |
|                                                                                          | Condensed Statements of Cash Flows for the six months ended  June 30, 2008 and for the period from February 13, 2007 (date  established) to June 30, 2007                                                              |   |
|                                                                                          |                                                                                                                                                                                                                                  |   |
|                                                                                          | Notes to Condensed Financial Statements                                                                                                                                                                                               |   |
|                                                                                          |                                                                                                                                                                                                                                  |   |
| ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| ITEM  4. CONTROLS AND PROCEDURES                                                              |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| PART II                                                                                  |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| ITEM 1. LEGAL PROCEEDINGS                                                                     |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| ITEM 1A. RISK FACTORS                                                                         |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| ITEM 6. EXHIBITS                                                                              |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |
| SIGNATURES                                                                                    |                                                                                                                                                                                                                                  |
|                                                                                          |                                                                                                                                                                                                                                  |   |
| CERTIFICATIONS                                                                                |                                                                                                                                                                                                                                  |
|                                                                                               |                                                                                                                                                                                                                                       |  |  |  |

 

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**PART 1-  FINANCIAL INFORMATION**

 

Item 1   Financial Statements

 

**Adelphia Recovery Trust**

**Unaudited CondensedBalance Sheets**

 
| ** **                           | ** ** | **June 30, 2008** | ** **  | **December 31, 2007** | ** ** |
|--------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                           | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| **Assets**                           |       |                        |        |                            |       |
| Cash and cash equivalents            |       | $                           | 171,979,288 |                            | $          | 189,684,573 |   |
| Prepaid insurance                    |       | 680,497                     |        | 124,670                         |       |
| Note and accrued interest receivable |       | 5,193,768                   |        | 4,998,757                       |       |
| Total assets                         |       | $                           | 177,853,553 |                            | $          | 194,808,000 |   |
|                                 |       |                        |        |                            |       |
| **Liabilities and net assets**       |       |                        |        |                            |       |
| Accrued expenses                     |       | $                           | 1,065,489   |                            | $          | 6,819,802 |   |
| Total liabilities                    |       | 1,065,489                   |        | 6,819,802                       |       |
|                                 |       |                        |        |                            |       |
| Net assets                           |       | 176,788,064                 |        | 187,988,198                     |       |
|                                 |       |                        |        |                            |       |
| **Total liabilities and net assets** |       | $                           | 177,853,553 |                            | $          | 194,808,000 |   |

 

See accompanying notes to the condensedfinancial statements.

 

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**Adelphia Recovery Trust**

**Unaudited Condensed Statement of Operations**

 
| ** **                              | ** ** | **For the quarter   ended June 30,   2008** | ** ** | **For the quarter   ended June 30,   2007** | ** ** | **For the six months   ended June 30,  2008** | ** ** | **For the Period from  February 13, 2007   (date established) to  June 30, 2007** | ** **  |
|-----------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                    |       |                                                                      |       |                                                                      |       |                                                                        |       |                                                                                                                                |        |
| **Revenues**                            |       |                                                                      |       |                                                                      |       |                                                                        |       |                                                                                                                                |        |
| Litigation - court approved settlements |       | $                                                                         | —     |                                                                      | $          | —                                                                      |       | $                                                                                                                                   | 200,206     |   | $ | — |   |
| Litigation - other settlements          |       | 850,194                                                                   |       | —                                                                    |       | 910,194                                                                     |       | —                                                                                                                              |        |
| Interest income                         |       | 1,101,159                                                                 |       | 309,304                                                                   |       | 2,790,978                                                                   |       | 474,901                                                                                                                             |        |
| Total revenues                          |       | 1,951,353                                                                 |       | 309,304                                                                   |       | 3,901,378                                                                   |       | 474,901                                                                                                                             |        |
|                                    |       |                                                                      |       |                                                                      |       |                                                                        |       |                                                                                                                                |        |
| **Operating expenses**                  |       |                                                                      |       |                                                                      |       |                                                                        |       |                                                                                                                                |        |
| General and administrative expenses     |       | 933,470                                                                   |       | 477,634                                                                   |       | 1,448,480                                                                   |       | 811,239                                                                                                                             |        |
| Professional expenses - litigation      |       | 5,507,525                                                                 |       | 8,397,410                                                                 |       | 11,988,265                                                                  |       | 13,621,780                                                                                                                          |        |
| Professional expenses - administrative  |       | 940,322                                                                   |       | 614,312                                                                   |       | 1,664,766                                                                   |       | 1,390,587                                                                                                                           |        |
| Total operating expenses                |       | 7,381,317                                                                 |       | 9,489,356                                                                 |       | 15,101,511                                                                  |       | 15,823,606                                                                                                                          |        |
|                                    |       |                                                                      |       |                                                                      |       |                                                                        |       |                                                                                                                                |        |
| **Net loss**                            |       | $                                                                         | (5,429,964 | )                                                                         | $          | (9,180,052                                                                  | )          | $                                                                                                                                   | (11,200,133 | ) | $ | (15,348,705 | ) |

 

See accompanying notes to the condensedfinancial statements.

 

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**Adelphia Recovery Trust**

**Unaudited CondensedStatement of Cash Flows**

 
| ** **                                                                  | ** ** | **For the six  months ended   June 30, 2008** | ** **  | **For the Period   from February   13, 2007 (date   established) to   June 30, 2007** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | ** **                                                                  | ** **  | ** **                                                                                                                                        | ** ** |
| **Operating activities**                                                    |       |                                                                        |        |                                                                                                                                              |       |
| Net loss                                                                    |       | $                                                                           | (11,200,133 | )                                                                                                                                                 | $          | (15,348,705 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities |       |                                                                        |        |                                                                                                                                              |       |
| Insurance funded by Debtor                                                  |       | —                                                                      |        | 1,043,750                                                                                                                                         |       |
| Changes in operating assets and  liabilities:                               |       |                                                                        |        |                                                                                                                                              |       |
| Prepaid insurance                                                           |       | (555,827                                                                    | )           | (658,142                                                                                                                                          | )          |
| Note and accrued interest receivable                                        |       | (195,011                                                                    | )           | —                                                                                                                                            |       |
| Accrued expenses                                                            |       | (5,754,314                                                                  | )           | 12,192,881                                                                                                                                        |       |
| Net cash used by operating activities                                       |       | (17,705,285                                                                 | )           | (2,770,216                                                                                                                                        | )          |
|                                                                        |       |                                                                        |        |                                                                                                                                              |       |
| **Financing activities**                                                    |       |                                                                        |        |                                                                                                                                              |       |
| Contribution from Debtor - cash                                             |       | —                                                                      |        | 25,000,000                                                                                                                                        |       |
| Net cash provided by financing activities                                   |       | —                                                                      |        | 25,000,000                                                                                                                                        |       |
|                                                                        |       |                                                                        |        |                                                                                                                                              |       |
| **Net change in cash and cash equivalents**                                 |       | (17,705,285                                                                 | )           | 22,229,784                                                                                                                                        |       |
| **Cash and cash equivalents, beginning of  period**                         |       | 189,684,573                                                                 |        | —                                                                                                                                            |       |
| **Cash and cash equivalents, end of period**                                |       | $                                                                           | 171,979,288 |                                                                                                                                              | $          | 22,229,784 |   |

 

See accompanying notes to the condensedfinancial statements.

 

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ADELPHIA RECOVERY TRUST

 

Notes to theCondensed Financial Statements – June 30, 2008 (Unaudited)

 

1                                         Background

 

The Adelphia Recovery Trust (the “ART”) was formed as a Delawarestatutory trust pursuant to that certain First Modified Fifth Amended JointChapter 11 Plan of Reorganization (the “Plan”) of AdelphiaCommunications Corporation (“Adelphia”) and certain of its subsidiaries.The purpose of the ART is to prosecute the various causes of action transferredto the ART pursuant to the Plan (the “Causes of Action”) and distributeto the owners (the “Holders”) of the interests in the ART (“Interests”)the net proceeds of such Causes of Action (“Distributions”), according to therelative priorities established pursuant to the Plan, subject to the retentionof various amounts to fund the prosecution of those Causes of Action andoperations of the ART. Pursuant to the Plan, in addition to the Causes ofAction, Adelphia transferred $25 million in cash to the ART in order to fundthe initial expenses of operation.

 

As set forth in the Plan, the ART is administered by five trustees (the“Trustees”) who are responsible for carrying out the purposes of theART. Quest Turnaround Advisors, L.L.C. (“Quest”) is the planadministrator (in such capacity, the “Plan Administrator”) of Adelphia.Quest and Adelphia together have agreed to provide certain administrativeservices to the ART. In order to facilitate the provision of such administrativeservices, the ART has appointed Quest as the trust administrator of the ART (insuch capacity, the “Trust Administrator”).

 

2                                         Basisof Presentation

 

Theaccompanying interim unaudited condensed financial statements of the ART havebeen prepared in accordance with generally accepted accounting principles inthe United States of America (“US GAAP”) and with the instructions to Form 10-Q.  As such, they do not include all of theinformation and footnotes required by US GAAP for complete financial statements.  In the opinion of the Trustees, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation of the interim unaudited condensed financial statementshave been included.  These condensedfinancial statements should be read in conjunction with the ART’s auditedfinancial statements as of December 31, 2007 and for the period from February 13,2007 to December 31, 2007 included in its Form 10 as filed on April 30,2008 and as amended on July 2, 2008.

 

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3                                         RelatedParty Transactions

 

The Trust Administrator and Adelphia continue to provide administrativesupport to the ART including maintaining electronic data and paper documentsused in prosecuting the Causes of Action, support for Distributions when theymight occur (including maintenance of data related to the implementation ofPlan provisions) and financial reporting. These services have and will continue to be provided at no cost to theART under the terms of various agreements between the Trust Administrator andAdelphia. The ART financial statements do not reflect any amounts for theseservices.

 

4                                         Causesof Action and Contingencies

 

Except as setforth below, there have been no material developments in the legal proceedingsdescribed in the ART’s Form 10 as filed April 30, 2008 and as amendedJuly 2, 2008.

 

Bank Litigation

 

On June 18, 2008, the District Court dismissed certain fraudulenttransfer claims, voidable preference claims, and equitable subordination anddisallowance claims.  Motions to dismissother claims remain pending. Certain defendants have moved for entry of a finaljudgment as to the claims dismissed against them.   Those motions are pending.   Under the current scheduling order, thetrial on the remaining claims will commence no earlier than March 2009.

 

At this time,the ART cannot predict the outcome of these proceedings or estimate the possiblefinancial effect of these proceedings on the ART’s financial statements.

 

5                                         SubsequentEvents

 

Subsequent to June 30 and to August 11, 2008, there have beenno events that would be material to the financial statements of the ARTincluding Cause of Action settlements or judgment or Distributions or decisionsconcerning future Distributions.

 

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Item 2               ManagementDiscussion and Analysis

 

Overview

 

The Adelphia Recovery Trust was formed as a Delaware statutory trustpursuant to that certain First Modified Fifth Amended Joint Chapter 11 Plan ofReorganization of Adelphia and certain of its subsidiaries. The purpose of theART is to prosecute the various causes of action transferred to the ARTpursuant to the Plan and distribute to the owners of the interests in the ARTthe net proceeds of such Causes of Action, according to the relative prioritiesestablished pursuant to the Plan, subject to the retention of various amountsto fund the prosecution of those Causes of Action and operations of the ART.Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred$25 million in cash to the ART in order to fund the initial expenses ofoperation.

 

Adelphia and certain of its subsidiaries filed for Chapter 11bankruptcy protection in June 2002. During the bankruptcy, on July 31,2006 the assets of Adelphia were sold for a combination of cash and stock inTime Warner Cable, Inc. (“TWC”). In late 2006, representatives ofvarious groups of creditors reached agreement on the allocation anddistribution of the cash, TWC stock, other proceeds from the sale of estateassets and relative priorities to any Distributions arising from the Causes ofAction contributed to the ART. This agreement was embodied in the Plan, whichwas confirmed in January 2007 and became effective on February 13,2007 (the “Effective Date”). Under the Plan, the creditors and equityholders of Adelphia and certain of its subsidiaries received one or more of thefollowing: cash, TWC stock, rights to future Distributions up to payment infull and the Interests.

 

The ART will dissolve upon the earlier of the resolution of all Causesof Action and the distribution of all of its assets to the Holders or the fifthanniversary of its creation. However, the Bankruptcy Court may approve anextension of the term if deemed necessary for the purposes of resolving theCauses of Action and distributing the net proceeds to Holders.

 

As set forth in the Plan and the Declaration of Trust for the ART, asamended (the “Declaration”), the ART is administered by five Trustees.These Trustees are authorized to carry out the purposes of the ART. Inparticular, the Trustees are responsible for protecting, maintaining,liquidating to cash and maximizing the value of the Causes of Actioncontributed to the ART, whether by litigation, settlement or otherwise.

 

Distributions

 

Pursuant to the Plan and the Declaration, Distributions to Holders arenet of any costs and expenses incurred by the ART in connection withadministering, litigating or otherwise resolving the various Causes of Action.Such amounts withheld before Distribution may also include fees and expenses ofthe Trustees, premiums for directors and officers insurance, and otherinsurance and fees and expenses of attorneys and consultants. Distributionswill be made only from assets of the ART and only to the extent that the ARThas sufficient assets (over amounts retained for contingent liabilities 

 

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and futurecosts and expenses, among other things) to make such payments in accordancewith the Plan and the Declaration. No Distribution is required to be made toany Holder unless such Holder is to receive in such Distribution at least$25.00 per ART certificate held or unless such Distribution is the finalDistribution to such Holder pursuant to the Plan and the Declaration.

 

Distributions will be made at the sole discretion of the Trustees inaccordance with the provisions of the Plan and the Declaration. As of the datehereof, the Trustees have determined the present best course of action is toretain the existing cash in reserve to administer the ART and fund theprosecution of the Causes of Action. Consequently, there have been noDistributions through the filing date of this Form 10-Q and none have beenplanned .

 

On the Effective Date, the ART was formed. As of June 30, 2008,the number of Interests outstanding in each series eligible to receive aDistribution is as follows:

 
| Series of  Interest:   |   |          |   |
|-----------------------------|--------|---------------|--------|
| Series RF              |   | 115,000,000   |   |
| Series Arahova         |   | 722,639,681   |   |
| Series FrontierVision  |   | 86,600,001    |   |
| Series FPL             |   | 25,575,129    |   |
| Series Olympus         |   | 17,000,001    |   |
| Series ACC-1           |   | 4,839,988,165 |   |
| Series ACC-2(2)        |   | 325,971,544   |   |
| Series ACC-3(2)(3)     |   | 161,782,486   |   |
| Series ESL(1)          |   | 17            |   |
| Series ACC-4           |   | 1,790,968,272 |   |
| Series ACC-5 (1)       |   | 458           |   |
| Series ACC-6B          |   | 150,000,000   |   |
| Series ACC-6B1(1)      |   | 3             |   |
| Series ACC-6D          |   | 575,000,000   |   |
| Series ACC-6D1(1)(3)   |   | 4             |   |
| Series ACC-6E/F        |   | 935,812,456   |   |
| Series ACC-6E/F1(1)(3) |   | 5             |   |
| Series ACC-7(3)        |   | 219,134,945   |   |
| Series ACC-7A (1)(3)   |   | 1,519,293,603 |   |

 

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(1)                  For each of these categories (which includedisputed claims) of Interests, each holder of a disputed claim was awarded oneInterest. It is possible the number of Interests could change based on theresolution of disputed claims.

(2)                  For each of these categories ofInterests (which include disputed claims), the number of Interests outstandingcould change based on the resolution of disputed claims.

(3)                  Thesecategories of Interests have not been adjusted for certain court orderedresolutions that occurred prior to July 1, 2008 as instruction letters to issueand cancel certain Interests are pending. If Interests were adjusted to reflectall pending instructions for court ordered resolutions that occurred by June30, 2008, ACC-3 Interests would be reduced by 42,352,184, ACC-6D1 Interestswould be increased by 229,000, ACC-6E/FI Interests would be increased by227,205, ACC-7 Interests would be reduced by 2,112,305 and ACC-7A Interestswould be increased by 18,743,149.

 

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**Results of Operations**

 

The ART operates pursuant to the Plan and the Declaration. The ART wasformed as a Delaware statutory trust to prosecute various claims originallyowned by Adelphia and, if any of the prosecutions are successful or are settledin a manner which provides economic benefit to the ART, to distribute excessproceeds to the Holders. It is not possible to determine at this time if therewill be any excess proceeds available for a Distribution.

 

*Second Quarter 2008 vs Second Quarter 2007*

 

There were no court approved litigation settlements in the three monthsended June 30, 2008 and one litigation settlement reached in the threemonths ended June 30, 2008 for $850,194 related to claims against aprevious Adelphia vendor. There were no settlements in the same period for theprior year. Both quarters ended June 30, 2008 and June 30, 2007reflect interest income from invested cash balances of the ART. The significantincrease in interest income for the quarter ended June 30, 2008 versus thesame quarter in the prior year is due to significantly higher invested cashbalances provided by the settlement with Deloitte and Touche LLP (the “DeloitteLitigation”) in August of 2007. Operating expenses of the ART for thequarter ended June 30, 2008 are down slightly from the same period in 2007due to reduced expenses for litigation professionals. The higher litigationcosts in 2007 were driven primarily by professionals that supported the DeloitteLitigation that was settled during the quarter ended September 30, 2007and thus did not recur for the quarter ended June 30, 2008. As a result ofthe increase in interest income, higher settlement revenues coupled withreduced operating expenses, the net loss of approximately $5.4 million for thequarter ended June 30, 2008 was approximately $3.8 million lower than theloss for the quarter ended June 30, 2007.

 

*Six months ended June 30, 2008 versusthe period from February 13, 2007 (date established) to June 30, 2007*

 

Litigation settlements in 2008 are up from the previous year due to theaforementioned vendor claim of $850,194 in the second quarter of 2008, TowSettlement proceeds of $200,206 in the first quarter of 2008 and othersettlements of $60,000 in the first quarter of 2008. There were no settlementsin 2007 through June 30. Interest income for the six months ended June 30,2008 increased from 2007 due primarily to higher invested cash balancesprovided by the Deloitte Litigation settlement in the third quarter of 2007.Operating expenses for the six months ended June 30, 2008 are slightlydown compared to February 13, 2007 through June 30, 2007 due toreduced litigation professional expenses. Litigation professional expenses arehigher in 2007 due to expenses incurred for the Deloitte Litigation which wassettled in the third quarter of 2007. As a result of the increase in interestincome, higher settlement revenues coupled with reduced operating expenses, thenet loss of approximately $11.2 million for the six months ended June 30,2008 was approximately $4.1 million lower than the loss from February 13,2007 through June 30, 2007.

 

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**Financial Condition and Cash Flows**

 

The ART’s sources of liquidity result from (a) the $25 milliontransferred to the ART by Adelphia pursuant to the Plan on the Effective Date, (b) thesuccessful resolution of Causes of Action and (c) earnings on investedcash balances. Receipts from these sources are used to pay professional andoperating expenses of the ART and as Distributions to the Holders after reservingcash reserves required to pay future professional and operating expenses of theART. After careful evaluation of future needs it has been determined that aDistribution at this time is inappropriate. No Distributions have been madethrough June 30, 2008 and none have been planned.

 

Given current cash balances totaling approximately $172.0 million andexpected expenses and other potential disbursements and Distributions, the ARTdoes not expect a deficiency in liquidity in the next twelve months. Due to theuncertain nature of future revenues and expenses beyond twelve months, it isnot possible to be certain that current liquidity will be adequate to cover allthe future financial needs of the ART. Incurring debt, creating contingentobligation agreements and or seeking methods to reduce legal professional andadministrative costs are all strategies that could be undertaken to addressliquidity issues should they arise. These strategies could impact the ART’sability to maximize recoveries from settlements.

 

The nature of the ART’s operation does not give rise to capital expendituresand there are no current or expected commitments for capital expenditures inthe next twelve months. Should a need for capital expenditures arise, the ARTwould fund the requirement from existing assets. Additionally, the ARTcurrently has no long-term contracts or other long-term obligations.

 

Cash balances at June 30, 2008 of approximately $172.0 million areapproximately $17.7 million lower than December 31, 2007 due to a net lossover the six months ended June 30, 2008 of approximately $11.2 million and an additional use of cash by operatingactivities of approximately $6.5 million, primarily related to reducing accruedexpenses. Other uses of cash from operating activities include the purchase ofprepaid insurance and the accrual of interest on a settlement receivable.

 

**Debt and Other Long-term Obligations**

 

The ART has no debt, capital or operating lease or other long-termobligations and has no current plans to incur such obligations.

 

**Cautionary Statement Regarding Risks andUncertainties That May Affect Future Results**

 

This report on Form 10-Q contains forward-looking statements aboutthe business, financial condition and prospects of the ART. The actual resultsof the ART could differ materially from those indicated by the forward-lookingstatements because of various risks and uncertainties, including, withoutlimitation, the number and amounts of litigations and/or settlements which aresuccessful, delays in obtaining proceeds, the

 

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amount offunding required for the litigations and other operating expenses, economicconditions, changes in tax and other governmental rules and regulationsapplicable to the ART, and other risks identified and described in the Form 10filed with the SEC on April 30, 2008 and amended on July 2, 2008.These risks and uncertainties are beyond the ability of the ART to control, andin many cases, the ART cannot predict the risks and uncertainties that couldcause its actual results to differ materially from those indicated by theforward-looking statements. When used in this report the words “believes,” “estimates,”“plans,” “expects,” and “anticipates” and similar expressions as they relate tothe ART or its management are intended to identify forward-looking statements

 

Item 4                                        Controlsand Procedures

 

*Evaluation of Disclosure Controls andProcedures*

 

The ART maintains disclosure controls and procedures that are designedto ensure that information required to be disclosed in our reports filed underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms. Disclosure controlsand procedures include controls and procedures designed to ensure that suchinformation is accumulated and communicated to ART Trustees and the TrustAdministrator as appropriate, to allow timely decisions regarding requiredfinancial disclosure.

 

The Trusteesand the Trust Administrator have completed an evaluation of the effectivenessof the design and operation of our disclosure controls and procedures as of thequarter ended June 30, 2008. Based on their evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures, the Trustees and the Trust Administrator concluded that as of June 30,2008, our disclosure controls and procedures were effective.

 

*Limitations on the Effectiveness of Controls*

 

The Trustees and the TrustAdministrator do not expect that our disclosure controls will prevent or detectall errors and all fraud. A control system, no matter how well designed andoperated, can provide only reasonable, not absolute, assurance that the controlsystem’s objectives will be met. Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Trust have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Controls can also be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of the controls. The design of any system of controls isbased in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions. Over time, controls maybecome inadequate because of changes in conditions or deterioration in thedegree of compliance 

 

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with associated policies or procedures.Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

*Changes inInternal Control over Financial Reporting*

 

During the quarter ended June 30, 2008, there were no changes inour internal control over financial reporting identified in connection with theevaluation of our disclosure controls and procedures for the quarter then endedthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

**PART II**

 

Item 1                                        LegalProceedings

 

Except as set forth below, there have been no material developments inthe legal proceedings described in the ART’s Form 10 as filed April 30,2008 and as amended July 2, 2008.

 

On June 18, 2008, the District Court dismissed certain fraudulenttransfer claims, voidable preference claims, and equitable subordination anddisallowance claims.  Motions to dismissother claims remain pending.  Certaindefendants have moved for entry of a final judgment as to the claims dismissedagainst them.   Those motions arepending.   Under the current schedulingorder, the trial on the remaining claims will commence no earlier than March 2009.

 

At this time, the ART cannot predict the outcome of these proceedingsor estimate the possible financial effect of these proceedings on the ART.

 

Item 1A.                           Risk Factors

 

As of the dateof this filing there have been no material changes from the risk factorspreviously disclosed in our “Risk Factors” in the Form 10 as filed April 30,2008 and as amended July 2, 2008.

 

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Item 6                                        Exhibits

 
| 31.1 |   | Section 302 Certification of Trustee                                                                                                                   |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Section 302 Certification of Trust Administrator                                                                                                       |
| 32.1 |   | Certification of Trustee pursuant to 18 U.S.C. 1350  Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002          |
| 32.2 |   | Certification Trust Administrator pursuant to 18 U.S.C. 1350  Section 1350, as adopted pursuant to Section 906 of the Sarbanes  Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.

 

 

Date: August11, 2008

 
| By:  Quest  Turnaround Advisors, LLC         |
|--------------------------------------------------------|
| as Trust  Administrator of the Adelphia Recovery Trust |
| /s/ Jeffrey  A. Brodsky                                |   |
| Jeffrey A.  Brodsky                                    |
| Member                                                 |

 

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