<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OR 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
or
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-24412
MACC PRIVATE EQUITIES INC.
(Exact Name of Registrant as specified in Charter)
Delaware 42-1421406
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.
101 Second Street, S.E., Ste. 800 52401
Cedar Rapids, Iowa (Zip Code)
Registrant's Telephone Number
Including Area Code: (319) 363-8249
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ----------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The agrregate market value of the registrant's common stock held by
non-affiliates of the registrant as of November 30, 1995, was approximately
$6,841,840 based upon the average bid and asked price for the registrant's
common stock on that date. As of November 30, 1995 there were 996,539 shares
of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the year ended
September 30, 1995 are incorporated by reference into Parts II and IV of this
Report. Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on February 27, 1996, are incorporated by
reference into Part III of this Report.
- --------------------------------------------------------------------------------
Page 1 of . Exhibit Index appears on pages 13.
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<PAGE> 2
Part I
Item 1. Business.
General
MACC Private Equities Inc. (the "Company") was formed as a
Delaware corporation on March 3, 1994. It is qualified as a
business development company ("BDC") under the Investment
Company Act of 1940, as amended (the "1940 Act").
The Company has two direct wholly-owned subsidiaries,
MorAmerica Capital Corporation ("MorAmerica Capital") and
MorAmerica Realty Services, Inc. ("MorAmerica Realty"), and one
indirect wholly-owned subsidiary, Motel Services, Inc. ("Motel
Services"), which is a wholly-owned subsidiary of MorAmerica
Realty. As of September 30, 1995, MorAmerica Capital and
MorAmerica Realty comprised approximately 82% and 0% of the
Company's assets respectively. MorAmerica Capital is an Iowa
corporation incorporated in 1959 and which has been licensed as
a small business investment corporation since that year. It
has also elected treatment as a BDC under the 1940 Act.
MorAmerica Realty, an Iowa corporation incorporated in 1972,
previously owned a motel which had been held for liquidation.
Following the sale of the motel during fiscal year 1994, the
activities of MorAmerica Realty and Motel Services have been
limited to an orderly wind-up of affairs.
The Company is the successor in interest to MorAmerica
Financial Corporation ("MorAmerica Financial"). On
February 19, 1993, MorAmerica Financial and its principal
subsidiary, Morris Plan Liquidation Company ("Morris Plan"),
filed for protection under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Iowa, Cedar Rapids Division (the
"Bankruptcy Court") (Case Nos. 93-10268LC and 93-10269LC,
jointly administered). On December 28, 1993, the Bankruptcy
Court confirmed the MorAmerica Financial and Morris Plan
Amended Debtors' Joint Plan of Reorganization (the "Plan").
Pursuant to the terms of the Plan, MorAmerica Financial was
merged with and into the Company on February 15, 1995. The
effective date of the Plan was set by the Company's Board of
Directors as February 15, 1995, the date upon which all issued
and outstanding shares of the Company's common stock were
issued to creditors of the predecessor companies. The
Company's common stock began trading on the NASDAQ SmallCap
Market thereafter on March 2, 1995.
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<PAGE> 3
The Company's Operation as a BDC
As noted above, both the Company and its wholly-owned
subsidiary, MorAmerica Capital, have elected treatment as BDCs
under the 1940 Act. Under the 1940 Act, a BDC may not acquire
any asset other than Qualifying Assets as defined under the
1940 Act, unless, at the time the acquisition is made,
Qualifying Assets represent at least 70 percent of the value of
the BDC's total assets. The principal categories of Qualifying
Assets relevant to the business of the Company are the
following:
(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which
issuer is an eligible portfolio company. An eligible
portfolio company is defined in the 1940 Act as any issuer
that:
(a) is organized under the laws of, and has its
principal place of business in, the United
States;
(b) is not an investment company; and
(c) does not have any class of securities with
respect to which a broker may extend margin
credit.
The Company's investment in all of the issued and
outstanding common stock of MorAmerica Capital is also a
Qualifying Asset under the 1940 Act.
(2) Cash, cash items, government securities, or high
quality debt securities maturing in one year or less from
the time of investment.
In addition, a BDC must have been organized (and have its
principal place of business) in the United States for the
purpose of making investments in the types of securities
described in (1) above and, in order to count the securities as
Qualifying Assets for the purpose of the 70 percent test, the
BDC must make available to the issuers of the securities
significant managerial assistance. Making available
significant managerial assistance means, among other things,
any arrangement whereby the BDC, through its directors,
officers or employees offers to provide, and, if accepted, does
so provide, significant guidance and counsel concerning the
management, operations or business objectives and policies of a
portfolio company.
Under the 1940 Act, once a company has elected to be
regulated as a BDC, it may not change the nature of its
business so as to cease to be, or withdraw its election as, a
BDC unless authorized by vote of a majority, as defined in the
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<PAGE> 4
1940 Act, of the Company's shares. In order to maintain their
status as BDCs, the Company and MorAmerica Capital each must
have at least 50% of their total assets invested in the types
of portfolio companies described by Sections 55(a)(1) though
55(a)(3) of the 1940 Act. Accordingly, the Company and
MorAmerica Capital may not withdraw their BDC elections or
otherwise change their business so as to cease to qualify as
BDCs without shareholder approval.
Investments and Divestitures
For the twelve months ended September 30, 1995, the
Corporation made total investments of $4,082,089 in eight new
portfolio companies and in follow-on investments in three
existing portfolio companies. The Corporation's investment-
level objectives on a consolidated basis call for new and
follow-on investments of approximately $7,000,000 during fiscal
year 1996.
During the seven and one-half month period ended
September 30, 1995, the Corporation received publicly traded
common stock of Physicians Sales and Service, Inc. (NYSE: PSSI)
in a pooling of interests with Taylor Medical, Inc. Also during
the period, the Corporation received publicly traded common stock
of the Arcadian Corporation (NYSE: ACA). The Arcadian Corporation
stock is restricted through January, 1996. The Corporation
recorded net gains of $4,048,500 from the sale of NorthWord Press,
Inc. in December, 1994, and $2,644,958 from the sale of Diversified
CPC International, Inc. in the first half of February, 1995.
Item 2. Properties.
The Company does not own or lease any properties or other
tangible assets. Its business premises and equipment are
furnished by InvestAmerica Investment Advisors, Inc. (the
"Investment Advisor"), the investment advisor to the Company.
Item 3. Legal Proceedings.
The Company's wholly-owned subsidiary, Realty Services, is
the defendant in a lawsuit filed in the Circuit Court of
Tippecanoe County, Indiana, Seabolt v. MorAmerica Realty
Services, Inc. d/b/a/ University Inn and University Inn. Until
its sale in May, 1994, Realty Services owned and operated
University Inn, a motel in West Lafayette, Indiana. This
property had been acquired through a deed in lieu of
foreclosure of a loan originally made by Morris Plan. The
lawsuit alleges that a third party was served alcoholic
beverages at a private reception at University Inn and was not
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<PAGE> 5
refused service even though in an intoxicated state. The third
party injured the plaintiff while driving in an alleged
intoxicated condition. The plaintiff's petition does not
contain a dollar amount of damages being sought.
From inception until July 5, 1995, the lawsuit was defended
on behalf of Realty Services by its Insurer, Beverage Retailers
Insurance Company (the "Insurer"), under a Liquor Liability
Insurance Policy. The policy provides a limit of liability of
$1,000,000 for any one incident. On July 5, 1995, the Superior
Court of Washington County, Vermont, entered an Order of
Liquidation of the Insurer. Pursuant to this Order, the
Insurer's liquidator is discontinuing defense of claims against
policyholders. Any claim payable under the policy, including
defense costs of Realty Services, will be a claim against the
Insurer's liquidation estate.
Realty Services has retained the counsel previously
retained by the Insurer to continue representation of Realty
Services in the litigation. Realty Services has also filed
proofs of claim with the Insurer's liquidation estate for
expenses of ongoing litigation and to cover a judgment or
settlement, if any, in the litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There are no items to report.
Executive Officers of the Registrant.
The following table sets forth the names, ages and
positions of the Company's Executive Officers as of
December 15, 1995, as well certain other information with
respect to such persons:
<TABLE>
<CAPTION>
Positions Principal
Currently Held Occupations During
Name Age With the Company Past 5 Years
<S> <C> <C> <C>
David R. Schroder 52 President President
Director Secretary and a
Secretary Director of the
Investment
Advisor;
MorAmerica
Capital;
InvestAmerica
Venture Group,
Inc.;
InvestAmerica
N.D. Management,
Inc.; and
InvestAmerica
N.D., L.L.C.
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Robert A. Comey 49 Executive Vice Director,
President Executive
Director Vice President,
Treasurer and
Assistant
Secretary of the
Investment
Advisor;
InvestAmerica
Venture Group,
Inc.;
InvestAmerica
N.D. Management,
Inc.; and
InvestAmerica
N.D., L.L.C.
Mr. Comey is also
a Director,
Executive Vice
President and
Treasurer of
MorAmerica
Capital.
Kevin F. Mullane 40 Vice President Vice President
and Director of
the Investment
Advisor; InvestAmerica
N.D. Management,
Inc. and InvestAmerica
N.D., L.L.C. Mr.
Mullane is also Vice
President of MorAmerica
Capital.
Steven J. Massey 36 Vice President Vice President
and Director of
the Investment
Advisor;
InvestAmerica
N.D. Management,
Inc.; and
InvestAmerica
N.D., L.L.C.
Mr. Massey is
also Vice
President of
MorAmerica
Capital.
</TABLE>
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<PAGE> 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Information in response to this Item is incorporated by
reference to the "Shareholder Information" section of the
Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1995 (the "1995 Annual Report").
Item 6. Selected Financial Data.
Information in response to this Item is incorporated by
reference to the "Selected Financial Data" section of the 1995
Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Information in response to this Item is incorporated by
reference to the "Management's Discussion and Analysis" section
of the 1995 Annual Report.
Item 8. Financial Statements and Supplementary Data.
Information in response to this Item is incorporated by
reference to the Consolidated Financial Statements, notes
thereto and report thereon contained in the 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There are no items to report.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information in response to this Item is incorporated by
reference to the identification of directors and nominees
contained in the "Election of Directors" section and the
subsection captioned "Section 16(a) Reporting Compliance" of
the Company's definitive proxy statement in connection with its
1996 Annual Meeting of Stockholders, scheduled to be held on
February 27, 1996 (the "1996 Proxy Statement"). Information in
response to this Item also is included under the caption
"Executive Officers of the Registrant" of this Report.
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<PAGE> 8
Item 11. Executive Compensation.
Information in response to this Item is incorporated by
reference to the subsection captioned "Compensation of
Directors and Executive Officers" of the 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information in response to this Item is incorporated by
reference to the subsection captioned "Stock Ownership of
Certain Beneficial Owners" of the 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The Company and MorAmerica Capital each have executed an
Investment Advisory Agreement with the Investment Advisor.
With respect to the Company, the Investment Advisory Agreement
provides for a management fee payable to the Investment Advisor
equal to 2.5% of assets under management. With respect to
MorAmerica Capital, the management fee is equal to 2.5% of
capital under management, not to exceed 2.5% of assets under
management, plus $6,000 per month through January 31, 1995,
which then decreases to $5,000 per month through September 30,
1998. In addition, the Investment Advisor is entitled to an
incentive fee under both of the Investment Advisory Agreements
equal to 13.4% of the net capital gains, before taxes, on
portfolio investments and from the disposition of other assets
or property managed by the Investment Advisor.
Management fees under the Investment Advisory Agreements on
a consolidated basis amounted to $380,982 for the seven and
one-half months ended September 30, 1995, and $217,844 for the
four and one-half months ended February 15, 1995. Incentive
fees under the Investment Advisory Agreements on a consolidated
basis amounted to zero for the seven and one-half months ended
September 30, 1995, and $1,032,800 for the four and one-half
months ended February 15, 1995. Total fees under the
Investment Advisory Agreements on a consolidated basis for the
seven and one-half month and four and one-half month periods
amounted to $1,631,626.
The Investment Advisor is owned by its four principal
officers and directors, all of whom are also officers and/or
directors of the Company. These individuals and their
positions held with the Investment Advisor are:
Name Offices
---- -------
David R. Schroder Director, President and
Assistant Secretary
Robert A. Comey Director, Executive Vice
President, and Treasurer
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<PAGE> 9
Kevin F. Mullane Director, Vice President
and Assistant Secretary
Steven J. Massey Director, Vice President
and Assistant Treasurer
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a) Documents filed as part of this Report:
1. A. The following financial statements are
incorporated by reference to the 1995 Annual
Report.
Consolidated Balance Sheet at September 30, 1995
Consolidated Statements of Operations for the seven
and one-half months ended September 30, 1995, and
the four and one-half months ended February 15, 1995
Consolidated Statements of Changes in Net Assets
(Deficit) for the seven and one-half months ended
September 30, 1995, the four and one-half months
ended February 15, 1995, and the year ended
September 30, 1994
Consolidated Statements of Cash Flows for the seven
and one-half months ended September 30, 1995, and
the four and one-half months ended February 15, 1995
Notes to Consolidated Financial Statements
Consolidated Schedule of Investments as of
September 30, 1995
Notes to the Consolidated Schedule of Investments
B. The Report of Independent Accountants with
respect to the financial statements listed in A.
above is incorporated by reference to the 1995
Annual Report.
2. No financial statement schedules of the Company are
filed herewith because (i) such schedules are not
required or (ii) the information required has been
presented in the aforementioned financial statements
and schedule of investments.
3. The following exhibits are filed herewith or
incorporated by reference as set forth below:
3.1* Certificate of Incorporation of the Company.
3.2** By-Laws of the Company.
4 See Exhibits 3.1 and 3.2.
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<PAGE> 10
10.1** Investment Advisory Agreement between the
Company and InvestAmerica Investment
Advisors, Inc., dated October 1, 1994.
10.2** Investment Advisory Agreement between
MorAmerica Capital Corporation and
InvestAmerica Investment Advisors, Inc.,
dated October 1, 1994.
13 1995 Annual Report to Stockholders.
21 Subsidiaries of the Company and jurisdiction
of incorporation.
27 Financial Data Schedule
*Incorporated by reference to the Company's Registration
Statement on Form N-2, filed with the Commission on May 24,
1994 (File No. 33-79276).
**Incorporated by reference to Amendment No. 3 to the
Company's Registration Statement on Form N-2, filed with the
Commission on January 24, 1995 (File No. 33-79276).
(b) Reports on Form 8-K.
1. On August 28, 1995, the Company filed a Report on Form
8-K with regard to its Management Letter, dated June
30, 1995, and mailed to shareholders on or about
August 30, 1995. The Management Letter summarizes the
Company's operations and financial position for the
three months ended June 30, 1995.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on December 18, 1995.
/s/ David R. Schroder
-------------------------------
David R. Schroder
President and Secretary
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<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the Registrant in the capacities and on
the dates indicated.
Signature Date
/s/ Paul M. Bass, Jr. December 18, 1995
----------------------------------
Paul M. Bass, Jr.
Chairman of the Board of Directors
/s/ David R. Schroder December 18, 1995
----------------------------------
David R. Schroder
Director, President and Secretary
/s/ Robert A. Comey December 18, 1995
----------------------------------
Robert A. Comey
Director, Executive Vice President
and Treasurer
/s/ Henry T. Madden December 18, 1995
----------------------------------
Henry T. Madden
Director
/s/ John D. Wolfe December 18, 1995
----------------------------------
John D. Wolfe
Director
/s/ Michael W. Dunn December 18, 1995
----------------------------------
Michael W. Dunn
Director
/s/ James L. Miller December 18, 1995
----------------------------------
James L. Miller
Director
5395A
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<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Description Sequential Page
3.1* Articles of Incorporation
of the Company
3.2** By-Laws of the Company
4 See Exhibits 3.1 and 3.2
10.1** Investment Advisory Agreement
between the Company and
InvestAmerica Investment Advisors,
Inc., dated October 1, 1994
10.2** Investment Advisory Agreement
Between MorAmerica Capital
Corporation and InvestAmerica
Investment Advisors, Inc.,
dated October 1, 1994
13 1995 Annual Report to Stockholders
21 Subsidiaries of the Company and
jurisdiction of incorporation
27 Financial Data Schedule
*Incorporated by reference to the Company's Registration
Statement on Form N-2, filed with the Commission on May 24,
1994 (File No. 33-79276).
**Incorporated by reference to Amendment No. 3 to the
Company's Registration Statement on Form N-2, filed with the
Commission on January 24, 1995 (File No. 33-79276).
5395A
<PAGE> 1
EXHIBIT 13
1995 Annual Report to Stockholders
<PAGE> 2
-------
M A C C
=======
PRIVATE EQUITIES INC.
ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE> 3
TABLE OF CONTENTS
Page
----
Letter to our Shareholders. . . . . . . . . . . 1
Selected Financial Data . . . . . . . . . . . . 4
Management's Discussion and
Analysis. . . . . . . . . . . . . . . . . . . 5
Financial Statements. . . . . . . . . . . . . . 11
Notes to Consolidated Financial Statements. . . 15
Schedule of Investments . . . . . . . . . . . . 22
Notes to Schedule of Investments. . . . . . . . 28
Report of Independent Accountants . . . . . . . 30
Shareholder Information . . . . . . . . . . . . 31
Directors and Officers. . . . . . . . . . . . . 32
<PAGE> 4
TO OUR SHAREHOLDERS
The purpose of this letter to shareholders is to provide a
summary of items and events that are important to understanding
the business, financial condition and results of operations of
MACC Private Equities Inc. (the "Corporation") and its wholly
owned subsidiary, MorAmerica Capital Corporation ("MorAmerica
Capital"), as of September 30, 1995.
Progress Toward Corporate Goals
We are pleased to report that from the effective date of
the Corporation's registration statement, February 15, 1995,
through its fiscal year end, September 30, 1995, the
Corporation substantially achieved its primary corporate goals
for fiscal year 1995. These goals included realizing growth in
shareholder value, providing liquidity to support future
investment activities, and achieving stability as it
transitioned to operating as a public company.
Since February 15, 1995, shareholders of the Corporation
have achieved significant growth in the value of their
investments, both in terms of net asset value per share and
market price. As indicated in the following financial
statements and illustrated in the chart below, the
Corporation's net asset value per share increased from $14.75
on February 15, 1995, to $17.24 on September 30, 1995, for an
increase of approximately 16.9% during this seven and one-half
month period. The chart also illustrates the growth in the
closing market bid price for the common stock from $5 at March
31, 1995, to $7 3/8 at September 30, 1995, an increase of
approximately 48% during this six-month period.
As described in detail in the "Management's Discussion and
Analysis" section of this Annual Report, the Corporation and
its predecessors relied in the past on MorAmerica Capital's
access to the Small Business Investment Company capital program
to provide liquidity for investment activities. The
Corporation effectively compensated for the possible reduction
in federal funding for this program by maintaining a
significant portion of its assets in U.S. treasury bills, cash
and cash equivalents during fiscal year 1995. These liquid
assets were valued at $11,855,627 on September 30, 1995.
Financial Performance
Based upon a number of measures, the Corporation and
MorAmerica Capital achieved a number of financial results
worthy of mention during the past seven and one-half months and
fiscal year, respectively. As noted above, the Corporation
achieved a net asset value of $17,182,121 as of September 30,
1995, outpacing by approximately 184% the projected net asset
value at that date anticipated in the Plan of Reorganization of
the Corporation's predecessor entities.
<PAGE> 5
MorAmerica Capital achieved noteworthy results as well.
For its fiscal year ended September 30, 1995, MorAmerica
Capital achieved its highest number of new investments since
1984. Additionally, MorAmerica Capital earned its fifth best
pretax net income level of the past fifteen years. Based on
this and other developments, the Board of Directors increased
MorAmerica Capital's paid-in-capital from $7,270,000 to
$8,500,000. This change increases MorAmerica Capital's maximum
single investment size to $1,700,000 and thus permits larger
investments as called for by the Corporation's growth plans.
Operations - Investment and Divestiture Activity
For the twelve months ended September 30, 1995, the
Corporation made total investments of $4,082,089 in eight new
portfolio companies and in follow-on investments in three
existing portfolio companies. The Corporation's
investment-level objectives on a consolidated basis call for
new and follow-on investments of approximately $7,000,000
during fiscal year 1996.
Divestitures and portfolio company liquidity events for
both the Corporation's seven and one-half month period and for
the Corporation's fiscal 1995 were significant. During the
seven and one-half month period, the Corporation received
publicly traded common stock of Physicians Sales and Service,
Inc. (NYSE: PSSI) in a pooling of interests with Taylor
Medical, Inc. Also during the period, the Corporation received
publicly traded common stock of the Arcadian Corporation (NYSE:
ACA). The Arcadian Corporation stock is restricted through
January, 1996. In the four and one-half month period ended on
February 15, 1995, the Corporation recorded net gains of
$4,048,500 from the sale of NorthWord Press, Inc. in December,
1994, and $2,644,958 from the sale of Diversified CPC
International, Inc. in the first half of February, 1995. The
Corporation continues to review a number of promising
investment prospects and will pursue profitable divestiture
opportunities whenever possible.
In conclusion, fiscal year 1995 was an eventful and
profitable year for the Corporation and for its shareholders.
We appreciate the trust placed in us by shareholders, and we
will strive to continue to reward that trust through returns on
your investment.
Paul M. Bass, Jr., Chairman David R. Schroder, President
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<PAGE> 6
PER SHARE DATA CHART
QUARTER
ENDED MARCH 31, 1995 JUNE 30, 1995 SPETEMBER 30, 1995
<TABLE>
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE $14.47 14.66 17.24
MARKET BID PRICE PER SHARE $ 5.00 6.50 7.375
</TABLE>
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<PAGE> 7
Selected Financial Data
MACC Private Equities Inc. (1)
As discussed in detail in the Notes to Consolidated
Financial Statements and in Management's Discussion and
Analysis of Financial Condition and Results of Operations,
February 15, 1995 was the effective date of a Plan of
Reorganization resulting from bankruptcy proceedings of the
Corporation's predecessor companies. Because the Corporation
adopted fresh-start accounting, the Financial Statements on a
fresh-start basis are not comparable to those of the
predecessor companies. Accordingly, the Financial Statements
and information in the following Selected Financial Data table
are presented on a predecessor-successor company basis.
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months YEARS ENDED SEPTEMBER 30
Ended Sept. 30, Ended Feb. 15, -------------------------------------------------
1995 1995 1994 1993 1992(4) 1991(4)
--------------- -------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income
(expense) net $103,653 (525,592)(2) (1,613,419)(2) (2,613,832)(2) (5,144,766) (4,282,820)
Net realized gain
(loss) on investments 1,102,697 4,514,338 (448,784) 1,051,036 395,704 1,408,154
Net change in net
unrealized appreciation/
depreciation
on investments $586,458 (948,191) 2,292,753 (3,391,714) (2,467,761) 391,304
---------- ---------- ---------- ----------- ----------- -----------
Net increase in net
assets or decrease
(increase) in net
deficit from
operations $1,792,808 3,548,371 230,550 (4,954,510) (7,216,823) (2,483,362)
========== ========== ========== =========== =========== ===========
Extraordinary item -
gain on extinguish-
ment of debt - - 11,622,270 - - -
---------- ---------- ---------- ----------- ----------- -----------
Net increase in net
assets or decrease
(increase) in net
deficit from opera-
tions $1,792,808 3,548,371 11,852,820 (4,954,510) (7,216,823) (2,483,362)
========== ========== ========== =========== =========== ===========
Net increase in net
assets or decrease
(increase) in net
deficit from opera-
tions per common
share before extra-
ordinary item $1.80 3.56(3) 119.52 (2,568.43) (3,741.22) (1,287.38)
========== ========== ========== =========== =========== ===========
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months YEARS ENDED SEPTEMBER 30
Ended Sept. 30, Ended Feb. 15, -------------------------------------------------
1995 1995 1994 1993 1992(4) 1991(4)
------------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Extraordinary item
per common share - - 6,025.02 - - -
----------- ---------- ---------- ----------- ----------- ------------
Net increase in net
assets or net
decrease
(increase) in
net deficit from
operations per
common share $1.80 3.56 6,144.54 (2,568.43) (3,741.22) (1,287.38)
=========== ========== ========== =========== ========== ============
Total assets $28,006,385 25,775,717 22,781,482 22,995,992 27,307,503 35,293,442
=========== ========== ========== =========== ========== ============
Total long term
debt $10,228,647 10,224,152 54,772,521 65,764,431 64,785,150 65,396,586
=========== ========== ========== =========== ========== ============
</TABLE>
(1) Four and one-half months ended February 15, 1995 and fiscal years
ended September 30, 1994, through 1991, represent selected financial
data of MorAmerica Financial Corporation, the predecessor to the
Corporation.
(2) Including $253,908, $624,527 and $586,095 of reorganization
expenses in the four and one-half months ended February 15, 1995,
1994 and 1993, respectively.
(3) Computed using 996,539 shares outstanding at February 15, 1995.
(4) Data related to operations for the years ended September 30, 1992
and 1991 have been derived from MorAmerica Financial Corporation's
unaudited consolidated statements of operations.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction
The Corporation was formed as a Delaware corporation on
March 3, 1994. The Corporation's wholly-owned subsidiary,
MorAmerica Capital, is an Iowa corporation incorporated in 1959
and which has been licensed as a small business investment
corporation since that year.
The Corporation is the successor in interest to MorAmerica
Financial Corporation ("MorAmerica Financial"). On
February 19, 1993, MorAmerica Financial and its principal
subsidiary, Morris Plan Liquidation Company ("Morris Plan"),
filed for protection under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the
-5-
<PAGE> 9
Northern District of Iowa, Cedar Rapids Division (the
"Bankruptcy Court") (Case Nos. 93-10268LC and 93-10269LC,
jointly administered). On December 28, 1993, the Bankruptcy
Court confirmed the MorAmerica Financial and Morris Plan
Amended Debtors' Joint Plan of Reorganization (the "Plan").
Pursuant to the terms of the Plan, MorAmerica Financial was
merged with and into the Corporation on February 15, 1995. The
effective date of the Plan was February 15, 1995, the date upon
which all issued and outstanding shares of the Corporation's
common stock were issued to creditors of the predecessor
companies.
As discussed in detail in the Notes to Consolidated
Financial Statements, because the Corporation adopted
fresh-start accounting on February 15, 1995, the effective date
of the Plan, the Financial Statements on a fresh-start basis
are not comparable to those of the predecessor companies.
Accordingly, the Financial Statements are presented on a
predecessor-successor company basis. However, for purposes of
the following discussion, the results of operations for the
four and one-half months ended February 15, 1995 and the seven
and one-half months ended September 30, 1995, have been
combined.
Results of Operations
Total income includes the Corporation's income from
interest, dividends and fees. Net Investment income represents
total income minus operating and interest expenses, net of
applicable income taxes. The main objective of portfolio
company investments is to achieve capital appreciation;
however, a significant proportion of new portfolio investments
are structured so as to provide a current yield through
interest or dividends. The Corporation also earns interest on
short term investments of cash funds. For the twelve months
ended September 30, 1995, total income was $1,722,477, total
operating expenses were $2,060,508, tax benefit equaled
$170,000, and net investment expense was $168,031. The
Corporation reserved $200,000 for potential losses from a
personal injury lawsuit against a subsidiary of the
Corporation. This amount constitutes a significant portion of
other operating expenses for the seven and one-half months
ended September 30, 1995. In spite of this reserve, the net
investment expense of $168,031 for the twelve-month period was
a substantial improvement over net investment expense in prior
years. The Corporation views this as a significant step toward
meeting one of the Corporation's long-term goals of achieving
net investment income and increased earnings stability. In
order to progress further toward this goal, the Corporation
intends to repurchase during fiscal year 1996 up to five
percent of the outstanding shares of the Corporation's Common
-6-
<PAGE> 10
Stock from holders of fewer than 100 shares each. The
Corporation believes that these repurchases may result in lower
shareholder communication expenses.
Net realized gain on investments for the twelve months
ended September 30, 1995 totaled $5,462,035. These gains have
substantially contributed to the net change in net assets from
operations of $5,341,179 for the twelve-month period.
Management does not attempt to maintain a comparable level of
realized gains from year to year, but instead attempts to
maximize total investment portfolio appreciation through
realizing gains in the disposition of securities and investing
in new portfolio investments.
Financial Condition, Liquidity and Capital Resources
To date, the Corporation has relied upon several sources to
fund its investment activities, including the Corporation's
U.S. treasury bills, cash and cash equivalents, and the Small
Business Investment Company ("SBIC") capital program operated
by the Small Business Administration (the "SBA"). As of
September 30, 1995, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively totaled $11,855,627. The
Corporation believes that this provides adequate funds for the
Corporation's planned $7,000,000 in new and follow on
investment activities over the next twelve month period.
Liquidity for the next several years will not be impacted
by principal payments on the Corporation's debentures payable
because there are no scheduled principal payments until 2000.
Debentures payable are composed of $10,290,000 in principal
amount of SBA-guaranteed debentures issued by the Corporation's
subsidary MorAmerica Capital which mature as follows:
$2,450,000 in 2000, $5,690,000 in 2001 and $2,150,000 in 2003.
In response to recent federal budget reduction proposals,
the availability of capital through the SBIC capital program is
being debated. Both the SBA and the SBIC trade association
have put forth plans to support continued SBIC capital
availability. If at some point in the future the Corporation's
U.S. treasury bills, cash and cash equivalents were
insufficient to fund its investment activities and funding from
the SBIC capital program were not available at that time, any
deficiencies may have to be sought from public or private
funding sources. As discussed in detail in the Corporation's
Proxy Statement relating to its Annual Meeting of Shareholders
to be held February 27, 1996, the Corporation has requested its
shareholders to approve the policy and practice of the
Corporation of issuing shares of common stock for a price less
than net asset value per share in order to have the flexibility
to compensate for this contingency. There can be no assurance
that shareholders will approve this proposal.
-7-
<PAGE> 11
Portfolio Activity
During twelve months ended on September 30, 1995, the
Corporation invested $4,082,089 in eleven portfolio companies.
Of this amount, $3,723,144 was invested in eight new portfolio
companies and $358,945 was invested in follow-on investments in
three existing portfolio companies.
Portfolio Changes
Set forth in the table below are the significant increases
and decreases in fair value of portfolio company securities
held by the Corporation at September 30, 1995.
<TABLE>
<CAPTION>
FAIR VALUE
-----------------------------------------
Twelve Months Twelve Months
Portfolio Company Ended 9/30/95 Ended 9/30/94
----------------- ------------- -------------
<S> <C> <C>
Arcadian Corporation $2,779,943 $1,599,228
Environmental Solvents Corp. 341,453 227,636
The Forgotten Woman 300,000 500,000
Physicians Sales & Service/ 1,174,123 925,479
Taylor Medical Inc.
Portrait Display Labs, Inc. 445,001 750,001
Smith Pipe & Steel Co. 444,694 318,475
West End All Natural 0 300,000
Soda Brew, L.P.
</TABLE>
Determination of Net Asset Value
The net asset value per share of the Corporation's
outstanding common stock is determined quarterly, as soon as
practicable after and as of the end of each calendar quarter,
by dividing the value of total assets minus liabilities by the
total number of shares outstanding at the date as of which the
determination is made.
In calculating the value of the total assets, securities
that are traded in the over-the-counter market or on a stock
exchange are valued in accordance with the current valuation
policies of the Small Business Administration ("SBA"). Under
SBA regulations, publicly traded equity securities are valued
by taking the average of the close (or bid price in the case of
over-the-counter equity securities) for the valuation date and
the preceding two days. This policy differs from the
Securities and Exchange Commission's guidelines which utilize
only a one day price measurement. The Company's use of SBA
valuation procedures did not result in a material variance as
-8-
<PAGE> 12
of September 30, 1995, from valuations using the Securities and
Exchange Commission's guidelines.
All other investments are valued at fair value as
determined in good faith by the Board of Directors. The Board
of Directors has determined that all other investment will be
valued initially at cost, but such valuation will be subject to
semi-annual adjustments if the Board of Directors determines in
good faith that cost no longer represents fair value.
Risks
Pursuant to Section 64(b)(1) of the Investment Company Act
of 1940, a business development company is required to describe
the risk factors involved in an investment in the securities of
such company due to the nature of the Corporation's investment
portfolio. Accordingly, the Corporation states that:
The portfolio securities of the Corporation consist
primarily of securities issued by small, privately held
companies. Generally, little or no public information is
available concerning the companies in which the Corporation
invests, and the Corporation must rely on the diligence of the
Investment Advisor to obtain the information necessary for the
Corporation's investment decisions. In order to maintain their
status as business development companies, the Corporation and
MorAmerica Capital both must invest at least 50% of their total
assets in the types of portfolio investments described by
Sections 55(a)(1) though 55(a)(3) of the Investment Company Act
of 1940, as amended. These investments generally are
securities purchased in private placement transactions from
small privately held companies. Typically, the success or
failure of such companies depends on the management talents and
efforts of one person or a small group of persons, so that the
death, disability or resignation of such person or persons
could have a materially adverse impact on such companies.
Moreover, smaller companies frequently have smaller product
lines and smaller market shares than larger companies and may
be more vulnerable to economic downturns. Because these
companies will generally have highly leveraged capital
structures, reduced cash flows resulting from an economic
downturn may adversely affect the return on, or the recovery
of, the Corporation's investments. Investment in these
companies therefore involves a high degree of business and
financial risk, which can result in substantial losses and
should be considered speculative.
The Corporation's investments primarily consist of
securities acquired directly from the issuers in private
transactions, which are usually subject to restrictions on
resale and are generally illiquid. No established trading
-9-
<PAGE> 13
market generally exists with regard to such securities, and
most of such securities are not available for sale to the
public without registration under the Securities Act of 1933,
as amended, which involves significant delay and expense.
The investments of the Corporation are generally long-term
in nature. Many existing investments do not bear a current
yield and a return on such investments will be earned only
after the investment matures or is sold. Most investments to
be made in the future are expected to be structured so as to
return current yields throughout most of the terms of such
investments, but will only produce capital gains, if any, after
approximately five to eight years due to accompanying equity
features. There can be no assurance, however, that any of the
Corporation's investments will produce current yields or
capital gains.
[Balance of this page intentionally left blank]
-10-
<PAGE> 14
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1995
<TABLE>
<CAPTION>
Assets
<S> <C>
Loans and investments in portfolio securities
at market or fair value, cost of $11,728,872(note 3) $ 12,315,330
U.S. treasury bills, at cost which approximates market 10,047,197
Cash and cash equivalents 1,808,430
Receivables:
Dividends and interest 264,526
Investment securities sold 1,858,436
Other assets, net 700,466
Deferred income taxes(note 5) 1,012,000
------------
Total assets $ 28,006,385
============
Liabilities and Stockholder's Equity
Liabilities:
Debentures payable net of discount(note 4) $ 10,228,647
Accrued interest 259,662
Accounts payable and other liabilities(note 6) 335,955
------------
Total liabilities 10,824,264
------------
Stockholders' equity(note 2):
Common stock, $0.1 par value per share.
Authorized 2,000,000 shares; issued 996,539 shares. 9,965
Additional paid-in capital(note 5) 15,379,348
Net investment income 103,653
Net realized gain on investments 1,102,697
Unrealized appreciation on investments 586,458
------------
Total stockholders' equity 17,182,121
------------
Commitments and contingency(note 6).
Total liabilities and stockholders' equity $ 28,006,385
============
Net assets per share $ 17.24
============
</TABLE>
See accompanying notes to consolidated financial statements.
-11-
<PAGE> 15
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co.) - (Predecessor Co.) -
See note 1 See note 1
Seven and one-half Four and one-half
months ended months ended
September 30, February 15,
1995 1995
---- ----
<S> <C> <C>
Investment income:
Interest $ 728,919 253,737
Dividends 432,209 195,205
Earnings of liquidating trust 79,907 -
Other 25,197 7,303
---------- ---------
Total income 1,266,232 456,245
---------- ---------
Operating expenses:
Interest 552,046 328,532
Management fees (note 6) 380,982 217,844
Professional and stock transfer fees 167,871 106,742
Other operating expenses (note 6) 295,133 74,811
Change in provision for doubtful accounts (63,453) -
---------- ---------
Total operating expenses 1,332,579 727,929
---------- ---------
Investment expense, net
before income tax benefit (66,347) (271,684)
Income tax benefit (note 5) 170,000 -
---------- ---------
Investment income (expense), net 103,653 (271,684)
---------- ---------
Realized and unrealized gain on investments (note 3):
Net realized gain on investments 947,697 4,514,338
Net change in unrealized
appreciation on investments 586,458 (948,191)
---------- ---------
Net gain on investments
before income tax benefit 1,534,155 3,566,147
Income tax benefit (note 5) 155,000 -
---------- ---------
Net gain on investments 1,689,155 3,566,147
---------- ---------
Net change in net assets from
operations before reorganization items 1,792,808 3,294,463
Reorganization items:
Professional fees - 97,946
Adjustment to allowance on notes receivable - (286,006)
Fresh-start adjustment to debentures payable - (65,848)
---------- ---------
- (253,908)
---------- ---------
Net change in net assets from operations $1,792,808 3,548,371
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-12-
<PAGE> 16
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets (Deficit)
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp. MorAmerica
(Successor Co.) - (Predecessor Co.) - Financial Corp.
See note 1 See note 1 (Predecessor Co.) -
Seven and one-half Four and one-half See note 1
months ended months ended Year ended
September 30, February 15, September 30,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operations:
Net investment income (expense) $ 103,653 (271,684) (988,892)
Net realized gain (loss) on investments 1,102,697 4,514,338 (448,784)
Net change in unrealized appreciation/
depreciation on investments 586,458 (948,191) 2,292,753
------------- ------------- -------------
Net increase in
net assets from operations 1,792,808 3,294,463 855,077
Reorganization items - professional fees and other -- 253,908 (624,527)
Extraordinary item - gain on
extinguishment of debt (note 2) -- -- 11,622,270
Recognized income tax benefit of preconfirmation
net operating losses (note 5) 687,000 -- --
Cancellation of debt to prepetition debt holders
through issuance of common stock (note 2) -- 46,615,347 --
------------- ------------- -------------
Net increase in net assets 2,479,808 50,163,718 11,852,820
Net assets (deficit):
Beginning of period 14,702,313 (35,461,405) (47,314,225)
------------- ------------- -------------
End of period $ 17,182,121 14,702,313 (35,461,405)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 13 -
<PAGE> 17
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co.)-- (Predecessor Co.)--
See note 1 See note 1
Seven and one-half Four and one-half
months ended months ended
September 30, February 15,
1995 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Increase in net assets from operations $ 1,792,808 3,294,463
------------- --------------
Adjustments to reconcile increase
in net assets from operations to
net cash used in operating activities:
Reorganization item - professional fees - (97,946)
Change in provision for doubtful accounts (63,453) -
Net realized and unrealized
gain on investments (1,534,155) (3,566,147)
Deferred income taxes (325,000) -
Other 5,230 5,321
Change in assets and liabilities:
(Increase) decrease in receivables (1,933,172) 7,290
Decrease (increase) in other assets 187,974 (349,373)
(Decrease) increase in accrued interest,
accounts payable, and other liabilities (193,400) 405,387
------------- --------------
Total adjustments (3,855,976) (3,595,468)
------------- --------------
Net cash used in operating activities (2,063,168) (301,005)
------------- --------------
Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 1,938,041 9,904,937
Purchases of loans and investments
in portfolio securities (2,897,529) (714,145)
Proceeds from disposition of other investments 4,211,496 14,137,594
Purchases of other investments (7,469,125) (12,559,479)
------------- --------------
Net cash (used in) provided
by investing activities (4,217,117) 10,768,907
------------- --------------
Cash flows from financing activities -
principal payments on long-term debt - (607,669)
------------- --------------
Net (decrease) increase in cash
and cash equivalents (6,280,285) 9,860,233
Cash and cash equivalents at beginning of period 12,536,088 2,675,855
------------- --------------
Cash and cash equivalents at end of period $ 6,255,803 12,536,088
============= ==============
Supplemental disclosure of cash flow information -
cash paid during the period for interest $ 507,306 373,271
============= ==============
Supplemental disclosures of noncash
investing and financing information:
Proceeds from sale of investment held in escrow $ 42,296 46,644
============= ==============
Cancellation of debt to prepetition debt
holders through issuance of common stock $ - 46,615,347
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE> 18
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
(1) Summary of Significant Accounting Policies and Related Matters
Basis of Presentation
The consolidated financial statements include the accounts of MACC
Private Equities Inc. (Equities) and its wholly owned subsidiaries,
MorAmerica Capital Corporation (MACC) and MorAmerica Realty
Services, Inc. (MRS) (the Company, Successor Company) on February
15, 1995 and thereafter and MorAmerica Financial Corporation and
subsidiaries (the Predecessor Company) prior to February 15, 1995.
Equities and MACC are qualified as business development companies
under the Investment Company Act of 1940. All material intercompany
accounts and transactions have been eliminated. The financial
statements have been prepared in accordance with generally accepted
accounting principles for investment companies. Since February
15, 1995, as discussed below, the financial statements are presented
in accordance with AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code"
(SOP 90-7).
On February 15, 1995, the Company consummated a plan of reorganization
(the Plan) as confirmed by the United States Bankruptcy Court for
the Northern District of Iowa on December 28, 1993. Under terms of
the Plan, the Predecessor Company, exclusive of MACC and MRS, merged
into Equities. As of February 15, 1995, the Company adopted
fresh-start reporting in accordance with SOP 90-7 resulting in the
Company's assets and liabilities being adjusted to fair values.
Since the financial statements on a fresh-start basis are not
comparable with those of the Predecessor Company, the Company has
presented the financial statements on a predecessor-successor
company basis.
Cash Equivalents
For purposes of reporting cash flows, the Company considers
certificates of deposit and U.S. treasury bills with maturities of
three months or less from purchase, overnight repurchase agreements,
and money market deposit accounts to be cash equivalents. At
September 30, 1995, such amounts totaled $6,083,215.
Loans and Investments in Portfolio Securities
Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the average of
the bid price on the three final days of the valuation period.
Restricted and other securities for which quotations are not readily
available are valued at fair value as determined by the board of
directors. Realization of the carrying value of investments is
subject to future developments (see note 3). Investment transactions
are recorded on the trade date. Identified cost is used to
determine realized gains and losses. Under the provisions of SOP
90-7, the fair value of loans and investments in portfolio
securities on February 15, 1995, the fresh-start date, is considered
the cost basis for financial statement purposes.
Allowance for Possible Loan and Note Losses
Loan and note losses are accounted for under the allowance method,
whereby losses and recoveries are charged or credited directly to
the allowance. The amount of the allowance is determined on the
basis of several factors, including past loss experience,
evaluation of potential losses in the loan and note portfolio,
prevailing and anticipated economic conditions, and reviews and
examination of the loan and note portfolio by management. Loans and
notes, net are included in other assets and amounted to $190,255 at
September 30, 1995.
(Continued)
-15-
<PAGE> 19
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies and Related Matters,
Continued
Income Taxes
Equities and its subsidiaries are members of a consolidated group for
income tax purposes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.
(2) Plan of Reorganization
As stated in note 1, on February 15, 1995, the Company consummated the
Plan as confirmed by the United States Bankruptcy Court for the
Northern District of Iowa on December 28, 1993.
Under the Plan, Class H creditors under a prior plan of reorganization
(Old Plan) (excluding debt to a subsidiary of MorAmerica Financial
Corporation) were divided into Class H-1 (claims exceeding $7,621)
and Class H-2 (claims less than $7,621). Class H-2 creditors
received cash equal to approximately 5.9 percent of the outstanding
principal amount of such claims. Class H-1 creditors received pro
rata 31.1 percent of common stock of Equities in exchange for their
claims. Class K creditors under the Old Plan were divided into
Class K-1 and K-2 based upon claims less than or exceeding $1,297.
Class K-2 creditors received cash equal to approximately 12.7
percent of the outstanding principal amount of such claims. Class
K-1 creditors received 68.9 percent of common stock of Equities in
exchange for their claims. The Class N interests under the Old Plan
(MorAmerica Financial Corporation stockholders) were canceled.
The following condensed consolidated balance sheet reflects the impact
that the consummation of the Plan had on the Company's financial
position as of February 15, 1995, under the provisions of SOP
90-7, as discussed in note 1:
(Continued)
-16-
<PAGE> 20
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
<TABLE>
<CAPTION> Historical Adjusted
balance balance
sheet Cancellation Cancellation Issuance Fresh- sheet
February 15, of of of new start February 15,
1995 debt(a) stock(b) stock(c) adjustments(d) 1995
---- ------- -------- -------- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets
------
Loans and investments
in portfolio securities $ 9,722,120 -- -- -- -- 9,722,120
U.S. treasury bills 13,009,482 -- -- -- -- 13,009,482
Cash and cash equivalents 1,868,801 -- -- -- -- 1,868,801
Receivables and other assets 1,175,314 -- -- -- -- 1,175,314
------------ ------------ ------------ ------------ ------------ ------------
Total assets $25,775,717 -- -- -- -- 25,775,717
============ ============ ============ ============ ============ ===========
Liabilities and
Stockholders' Equity
--------------------
Liabilities not subject
to compromise:
Debentures payable $10,290,000 -- -- -- (65,848) 10,224,152
Other liabilities 849,252 -- -- -- -- 849,252
------------ ------------ ------------ ------------ ------------ ------------
11,139,252 -- -- -- (65,848) 11,073,404
------------ ------------ ------------ ------------ ------------ ------------
Liabilities subject to compromise:
Notes payable 43,592,430 (43,592,430) -- -- -- --
Accrued interest and
other liability 3,022,917 (3,022,917) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
46,615,347 (46,615,347) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 57,754,599 (46,615,347) -- -- (65,848) 11,073,404
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' (deficit) equity:
Capital stock 4,628 -- (4,628) 9,965 -- 9,965
Preferred stock 5,890,930 -- (5,890,930) -- -- --
Additional paid-in capital 2,708,688 -- (2,708,688) 14,626,500 65,848 14,692,348
Treasury stock (7,088,747) -- 7,088,747 -- -- --
Accumulated deficit (30,344,278) 46,615,347 1,515,499 (14,636,465) (3,150,103) --
Net unrealized depreciation
of loans and investments
in portfolio securities 3,150,103 -- -- -- 3,150,103 --
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' (deficit) equity (31,978,882) 46,615,347 -- -- 65,848 14,702,313
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $25,775,717 -- -- -- -- 25,775,717
============ ============ ============ ============ ============ ===========
(Continued)
</TABLE>
-17-
<PAGE> 21
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
The balance sheet reflects adjustments to record:
(a) Cancellation of Debt
To reflect the cancellation of debt through elimination of
$43,592,430 of notes payable and $3,022,917 of accrued interest
related to the notes payable and obligation due to the Central
States Southeast and Southwest Area Health and Welfare Pension
Fund.
(b) Cancellation of Stock
To reflect the cancellation of old ownership rights totaling
$1,515,499.
(c) Issuance of New Stock
To reflect the issuance of 996,539 shares of new common stock
to prepetition debt holders.
(d) Fresh Start Adjustments
Reflects fresh start adjustments including the reclassification
of accumulated deficit and net unrealized depreciation on loans
and investments in portfolio securities into additional
paid-in-capital under fresh start reporting.
(3) Loans and Investments in Portfolio Securities
Loans and investments in portfolio securities include debt and equity
securities in small business concerns located primarily in the
Midwest, Texas, and Florida. The Company determined that the fair
value of its portfolio securities was $12,315,330 at September
30, 1995. Among the factors considered by the Company in
determining the fair value of investments are the cost of the
investment; developments, including recent financing transactions,
since the acquisition of the investment; the financial condition and
operating results of the investee; the long-term potential of the
business of the investee; and other factors generally pertinent to
the valuation of investments.
The Company acquired its portfolio securities by direct purchase from
the issuers under investment representation, and values the
securities on the premise that, in most instances, they may not be
sold without registration under the Securities Act of 1933. The
price of securities purchased was determined by direct negotiation
between the Company and the seller. All portfolio securities at
September 30, 1995, except for Physician Sales and Services, Inc.
(29,603 common shares carried at $1,174,123 with a cost of $270,789)
and Apertus Technologies, Inc. (28,922 common shares carried at
$242,222 with a cost of $250,537) are considered to be restricted in
their disposition and are illiquid.
(Continued)
-18-
<PAGE> 22
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Debentures Payable
Debentures of MACC guaranteed by the Small Business Administration
(SBA) of $10,290,000 at September 30, 1995 are unsecured.
Maturities of the debentures are as follows:
<TABLE>
<CAPTION>
Interest
Year ending September 30, Debentures rate
------------------------ ---------- --------
<S> <C> <C>
2000 $ 2,450,000 9.30%
2001 5,690,000 9.08
2003 2,150,000 6.12
----------- ====
$10,290,000
===========
</TABLE>
The debentures contain restrictions on the acquisition or repurchase of
MACC's capital stock, distributions to MACC's shareholder other than
out of undistributed net realized earnings, officers'
salaries, and certain other matters. At September 30, 1995, none of
MACC's undistributed net realized earnings (computed under SBA
guidelines) of $4,333,201 were available for distribution to
Equities.
(5) Income Taxes
Components of income tax benefit (all of which is deferred) for the
seven and one-half months ended September 30, 1995 consist of
$250,000 for federal benefit and $75,000 of state benefit. No
income tax expense or benefit is recorded for the four and one-half
month period ended February 15, 1995.
Income taxes for the seven and one-half months ended September 30, 1995
and the four and one-half months ended February 15, 1995 differed
from the amounts computed by applying the United States federal
income tax rate of 34 percent to pre-tax income due to the
following:
<TABLE>
<CAPTION>
Seven and one-half Four and one-half
months ended months ended
September 30, 1995 February 15, 1995
<S> <C> <C>
Computed "expected" tax expense $ 499,000 1,206,000
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal tax effect (50,000) -
Nontaxable dividend income and other earnings (174,000) (66,000)
Nondeductible reorganization costs - 33,000
Change in the beginning of the period balance of
the valuation allowance for deferred tax assets (600,000) (1,180,000)
Other - 7,000
---------- ----------
Income tax benefit $ (325,000) -
========== ==========
</TABLE>
(Continued)
-19-
<PAGE> 23
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1995 are as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 6,200,000
Built-in capital loss carryforward at
fresh-start date 491,000
Other 211,000
-----------
Total gross deferred tax assets 6,902,000
Less valuation allowance 5,890,000
-----------
Net deferred tax assets $ 1,012,000
===========
</TABLE>
The $1,012,000 of deferred tax assets include $687,000 related to net
operating losses at the fresh-start date. This benefit, under SOP
90-7, has been credited to additional paid-in capital of
$14,692,348, resulting in a balance of $15,379,348 at September 30,
1995.
The valuation allowance for deferred tax assets as of September 30,
1994 was $13,600,000. The net change in the total valuation
allowance for the year ended September 30, 1995 was a decrease of
$7,710,000. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
projected future taxable income, and tax planning strategies in
making this assessment. In order to fully realize the deferred tax
assets, the Company will need to generate future taxable income of
approximately $17 million prior to the expiration of the net
operating loss carryforwards in 2009. Taxable loss for the periods
October 1, 1994 through February 15, 1995 and February 16, 1995
through September 30, 1995 was approximately $419,000. Based upon
the level of historical taxable income of MACC and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences,
net of the existing valuation allowance at September 30, 1995.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of September 30, 1995 will
primarily be allocated to additional paid-in capital under the
provisions of SOP 90-7.
At September 30, 1995, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $15,500,000 which
are available to offset future federal taxable income, if any,
through 2009. Approximately $2,446,000 of the carryforwards are
available for the year ending September 30, 1996, with approximately
$1,004,000 available annually thereafter. Approximately $13,142,000
of net operating loss carryforwards at fresh-start date were lost
due to ownership change rules in the Internal Revenue Code.
(Continued)
-20-
<PAGE> 24
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingency
Management Agreements
Effective October 1, 1994, Equities entered into an investment advisory
agreement (the Agreement) with InvestAmerica Investment Advisors,
Inc. (IAIA). Four of Equities' officers are officers and
stockholders of IAIA. The Agreement has a two-year term, renewable
annually thereafter by the board of directors of Equities. The
management fee is equal to 2.5 percent of the assets under
management, on an annual basis. The management fee is calculated
excluding MACC. In addition, Equities contracted to pay an
incentive fee of 13.4 percent of the net capital gains (as defined
in the Agreement), before taxes, on the disposition of investments.
The Agreement may be terminated by either party upon sixty days
written notice. Total expenses under the Agreement amounted to
$69,107 for the seven and one-half months ended September 30, 1995
and $26,719 for the four and one-half months ended February 15,
1995. There were no incentive fees accrued or paid under the
Agreement.
Effective October 1, 1994, MACC entered into a separate investment
advisory agreement with IAIA. This agreement has a two-year term,
renewable annually thereafter by the board of directors of MACC.
The fee is equal to 2.5 percent of the capital under management on
an annual basis, but in no event more than 2.5 percent of the assets
under management on an annual basis; plus $6,000 per month through
January 31, 1995 (which then decreased to $5,000 per month from
February 1, 1995 to September 30, 1998). In addition, MACC
contracted to pay IAIA 13.4 percent of the net realized capital
gains (as defined in the agreement), before taxes, on investments in
the form of an incentive fee. Capital losses and realized capital
gains are not cumulative under the incentive fee computation. Total
expenses (exclusive of incentive fees) under this agreement amounted
to $311,875 for the seven and one-half months ended September 30,
1995 and $191,125 for the four and one-half month period ended
February 15, 1995. Total incentive fees were $-0- for the seven and
one-half month period ended September 30, 1995 and $1,032,800 for
the four and one-half month period ended February 15, 1995. At
September 30, 1995, incentive fees payable amounted to $59,195.
Contingency
MRS, a wholly owned subsidiary of Equities is a defendant in a personal
injury lawsuit. MRS has recorded a $200,000 provision for estimated
loss on the lawsuit at September 30, 1995. Management believes
that any loss on ultimate disposition of the matter will not be
materially greater than the provision and is the legal
responsibility of MRS. The amount provided is included in accounts
payable and other liabilities on the balance sheet and in other
operating expenses in the consolidated statement of operations for
the seven and one-half months ended September 30, 1995.
-21-
<PAGE> 25
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Stated
Company Equity Security Value cost
------- ------ -------- ----- ------
<S> <C> <C> <C> <C>
Manufacturing:
Central Fiber Corporation *Warrants to purchase 18.4 common
Wellsville, Kansas shares at $1.00, expires
Recycles and manufactures October 29, 2002 $ - -
cellulose fiber products *Warrants to purchase 10.4 common
shares at $1.00, expires
October 29, 2002 - -
15.60% *12% Debt security, due November 1, 1999 400,000 400,000
------- -------
400,000 400,000
------- -------
Cirque Corporation 2.77% *100,000 Shares Series A Pfd. at $3.35 335,000 335,000
Salt Lake City, Utah
Develops, manufactures, and markets
computer pointing devices
Hemco Corporation - 12% Debt security, due November 20, 1996 93,943 93,943
Holland, Michigan
Manufacturer of precision metal gauges
Houghton Acquisition Corporation *Warrants to purchase 897.7014
Alton, Illinois common shares at $1.00 26 26
Manufacturer of rotors for use in 4,000 Shares Class A Pfd. 400,000 400,000
subfractional horsepower motors ------- -------
10.32% 400,026 400,026
------- -------
</TABLE>
-22-
<PAGE> 26
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Stated
Company Equity Security Value cost
------- ------ -------- ----- ------
<S> <C> <C> <C> <C>
Manufacturing, continued:
J-Tec Associates, Inc. *Warrants to purchase 3,200 common shares
Cedar Rapids, Iowa at $0.1375, expires December 1, 1995 $ - -
Designer and manufacturer of gaseous *87,413 Shares Series C Pfd. at $2.86 9,248 9,248
flow measurement and metering devices *51,129 Shares of Series E Pfd. at $27.83 52,635 52,635
*5,244 Shares Series C Pfd. at $2.86 555 555
*31,250 Shares Series D Pfd. at $1.60 1,849 1,849
*58 Common shares at $6.044 13 13
------- -------
6.43% 64,300 64,300
------- -------
Linton Truss Corp. 14% Debt security, due March 1, 2001 442,500 442,500
Delray Beach, Florida *Warrant to purchase 14.68% of
Markets and manufactures common shares, expires
residential roof and floor truss systems February 24, 2005 15 15
------- -------
14.68% 442,515 442,515
------- -------
Mesa Industries, Inc. 13% Debt security, due November 19, 1998 62,500 62,500
Elkhorn, Wisconsin 13% Debt security, due November 19, 1998 37,500 37,500
Manufacturer of folding tables
------- -------
- 100,000 100,000
------- -------
Microdynamics, Inc. - *Three-year royalty participation 58,603 126,803
Dallas, Texas and escrow receivable ------- -------
Manufacturer of microprocessor-based
footwear and apparel equipment
</TABLE>
-23-
<PAGE> 27
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Manufacturing, continued:
Monitronics 1.33% *73,214 Common shares $ 54,910 54,703
Dallas, Texas ------- ------
Manufacturer and installer of home
security systems and
monitoring services
Portrait Display Labs, Inc. *535,715 Shares Series B Pfd. 400,001 750,001
Freemont, California 9% Debt security, due November 21, 1995 45,000 45,000
Distributes monitors for *Warrants to purchase 16,071 common
portable computers shares at $.14, expires August 23, 1998 - -
------- ------
7.90% 445,001 795,001
------- ------
Quaker City Castings, Inc. 13.5% Debt security, due December 10, 1998 56,000 56,000
Salem, Ohio *Warrants to purchase 16.6% of
Foundry producing gray and ductile common shares at $2.00 - -
iron and steel castings 400 Shares Cum. Redeemable Pfd. at $1,000 627,197 627,197
100 Shares Series B Pfd. at $1,000 156,799 156,799
------- ------
16.66% 839,996 839,996
------- ------
West End All Natural Soda Brew, L.P. *120,000 Shares Class B Pfd. at $.01 - 600,000
St. Louis, Missouri *72,868 Common shares at $.01 - -
Producer of soda brew
------- ------
5.70% - 600,000
------- ------
Total manufacturing 18.82 % 3,234,294 4,252,287
------- --------- --------
Chemicals:
Arcadian Corp. Less than 154,764 Common shares at $3.33 2,779,943 2,063,520
Memphis, Tennessee 1.00% --------- ---------
Manufacturer of ammonia
and nitrogen solutions
</TABLE>
-24-
<PAGE> 28
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Chemicals, continued:
Coastwide Energy Services, Inc. *Warrants to purchase 742 common shares
Dallas, Texas at $1.54, expires December 22, 1996 $ 2,969 -
Supplier of diesel fuel, *Warrants to purchase 742 common shares
lubricants, chemicals, at $6.83, expires December 22, 1996 - -
and logistical support to
oil and gas exploration
production companies Less than
---------- ----------
1.00% 2,969 -
---------- ----------
Environmental Solvents
Corporation *5% Debt security, due October 30, 1998 46,663 31,109
Jacksonville, Florida *7% Debt security, due June 30, 1999 25,810 17,207
Developer and manufacturer of *416,667 Shares of Series A-1 Conv. Pfd.
nontoxic, environmentally safe and 276,143 Shares of Series B-1 Pfd. 265,980 177,320
solvents for industrial *16,667 Common shares at $.30 3,000 2,000
cleaning applications
---------- ----------
12.20% 341,453 227,636
---------- ----------
Pharmco Products, Inc. 12% Debt security, due April 1, 2000 333,250 333,250
Brookfield, Connecticut 16,675 Shares Class A Res. Pfd. 166,750 166,750
Distributor and processor of *25 Common shares - -
ethyl alcohol products
---------- ----------
8.75% 500,000 500,000
---------- ----------
Total chemicals 21.09 % 3,624,365 2,791,156
----- ---------- ----------
</TABLE>
-25-
<PAGE> 29
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Stated
Company Equity Security Value cost
------- ------ -------- ----- ------
<S> <C> <C> <C> <C>
Service/Merchandising:
Apertus Technologies, Inc. Less than
Eden Prairie, Minnesota 1.00% *28,922 Common shares at $8.66 $ 242,222 250,536
Acquires, develops, markets, ---------- -------
and licenses IBM and IBM
compatible mainframe software
The Forgotten Woman, Inc. 6.07% 40,000 Shares of Conv. Pfd. at $12.50 300,000 500,000
Long Island City, New York ---------- -------
Retail woman's clothing store
specializing in large sizes
Organized Living, Inc. 6.00% 400,000 Shares Series A Pfd. 400,000 400,000
Lenexa, Kansas ---------- -------
Retail specialty store for storage
and organizational products
Physician Sales and Services, Inc. Less than *29,603 Common shares 1,174,122 270,786
Beaumont, Texas 1.00% ---------- -------
Distributor of medical supplies to
physician and alternate care markets
Potpourri Collection, Inc. Variable debt security, due May 31, 2001 400,000 400,000
Medfield, Massachusetts *Warrants to purchase 40 common
Gift and stitchery mail shares at $.01, expires December 23, 2001 - -
order catalog retailer ---------- -------
3.46% 400,000 400,000
---------- -------
</TABLE>
-26-
<PAGE> 30
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Service/Merchandising, continued:
Progressive Solutions, Inc. 12% Debt security, due December 31, 1999 $ 150,000 150,000
Salt Lake City, Utah 12% Debt security, due March 31, 2000 350,000 350,000
Develops court automated software *Warrant to purchase 33,852 common shares
and public records at $1.00, expires January 25, 2000 100 100
management software *Warrant to purchase 14,505 common
shares at $1.00, expires
December 13, 2004 100 100
-------- --------
28.80% 500,200 500,200
-------- --------
Smith Pipe and Steel Company *47,308 Shares Series A Pfd. at $1.00 47,308 47,308
Phoenix, Arizona *18,923 Common shares at $1.00 397,386 271,167
Distributor of pipe, steel,
and building products
-------- --------
9.00% 444,694 318,475
-------- --------
Tuttle Design Building, Inc. 12% Debt security, due April 1, 2000 675,000 675,000
Lakeworth, Florida *Warrant to purchase 13.5% of common
Distributor of ornamental plants shares, expires March 28, 2005 14 14
to retailers and provider of
irrigation and landscaping services -------- --------
13.50% 675,014 675,014
-------- --------
Total service/merchandising 24.07 % 4,136,252 3,315,011
------- -------- --------
Other:
Biomune, Inc. - *Intercreditor agreement
Lenexa, Kansas sharing in operating cash
Manufactures and markets flow over 12-year period 1 50,000
veterinary vaccine products -------- --------
</TABLE>
-27-
<PAGE> 31
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Other, continued:
Miles Media Group, Inc. *Warrants to purchase common shares at
Sarasota, Florida variable prices, expires February 2, 2001 $ - -
Tourist magazine publisher *Warrants to purchase 1,799 common
shares at $52.64, expires June 1, 2002 - -
12% Loan, due June 1, 1997 200,000 200,000
*4,500 Shares Red. Pfd. at $100.00 450,000 450,000
*1,550 Shares Class A Conv. Pfd. at $32.26 50,003 50,003
*5,000 Shares Class C Conv. Pfd. at $10.00 50,000 50,000
*1,000 Shares Red. Pfd. at $100.00 100,000 100,000
*Warrants to purchase 1,100 common shares
at variable prices, expires
December 1, 2001 - -
------- -------
26.70% 850,003 850,003
------- -------
Northword Holding Corp. *325.8 Shares Red. Pfd. at $1,000 325,800 325,800
Minocqua, Wisconsin *235 Common shares at $615.38 144,615 144,615
Publisher of nature related books, *Earnout warrant - -
calendars, posters, and
audio products" *Earnout warrant - -
------- -------
2.57% 470,415 470,415
------- -------
Total others 7.68 % 1,320,419 1,370,418
---- --------- ---------
$ 12,315,330 11,728,872
========== ==========
</TABLE>
-28-
<PAGE> 32
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments
*Presently nonincome producing
Notes:
(a) For investments held at the February 15, 1995 fresh-start
date, the stated cost represents the fair value of the
investments at the fresh-start date.
(b) At September 30, 1995, all securities, except for Physician
Sales and Services, Inc. and Apertus Technologies, Inc. are
considered to be restricted in their disposition and are
stated at what the board of directors considers to be fair
market value.
(c) The percentages in the "equity" column express the actual or
potential equity interest held by MACC Private Equities Inc.
and subsidiaries (the Companies) in each issuer. The
percentage represents the amount of the issuer's common stock
held by the Companies as a percentage of the issuer's total
outstanding common stock, or where the issuer has outstanding
warrants, convertible securities, or shares reserved for
employee stock options, the percentage reflects the approximate
equity interest held by the Companies upon the exercise of all
warrants, conversion rights, and reserved employee options.
(d) At September 30, 1995, the cost of securities for federal
income tax purposes was $13,543,241 and the aggregate
unrealized appreciation and depreciation based on that cost
was:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 3,832,824
Unrealized depreciation (5,060,735)
----------------------
Net unrealized depreciation $ (1,227,911)
======================
</TABLE>
(e) The Company owns a portfolio which includes investments in
restricted securities of small businesses. Within this
portfolio, 16 of these restricted securities include
registration rights and 11 of these restricted securities do
not include registration rights.
Within the 16 securities that include registration rights, the
actual rights include the following general characteristics:
1. The securities generally provide for demand rights.
(a) The demand rights may only be required from a
low of 25 percent of the security holders to a
high of a majority of the security holders.
-29-
<PAGE> 33
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments, Continued
Notes, continued:
(b) The security holders may require from one to two demand
registrations.
(c) The small businesses are generally only required to use "best
efforts" to comply with the demands.
2. The securities generally allow the security holders to register
securities if the small business registers its securities i.e.,
"piggyback rights."
(a) Piggyback rights generally may be accessed by individual
security holders.
(b) Under piggyback rights, the small business and its investment
bankers are only required to use best efforts to comply with
the right.
3. The Companies expect that, in general, the securities that they
will acquire in the future will include demand and piggyback rights.
-30-
<PAGE> 34
[KPMG PEAT MARWICK LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
MACC Private Equities Inc.:
We have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiaries, including the consolidated schedule of
investments, as of September 30, 1995 and the related consolidated statements
of operations and cash flows for the seven and one-half months ended September
30, 1995 and the four and one-half months ended February 15, 1995, and the
consolidated statements of changes in net assets (deficit) for the seven and
one-half months ended September 30, 1995 and the four and one-half months ended
February 15, 1995 and the year ended September 30, 1994. These consolidated
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation or examination of securities owned as of
September 30, 1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As explained in note 1, MACC Private Equities Inc. and subsidiaries (successor
company) consummated a plan of reorganization on February 15, 1995 and adopted
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Since the financial statements on a fresh-start basis are not comparable with
those of MorAmerica Financial Corporation and subsidiaries (predecessor
company), the financial statements are presented on a predecessor/successor
company basis.
As explained in note 3, the consolidated financial statements include
securities valued at $8,119,042 at September 30, 1995 whose values have been
estimated by the board of directors in the absence of readily ascertainable
market values. We have reviewed the procedures used by the board of directors
in arriving at the estimated value of such securities and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of MACC Private
Equities Inc. and subsidiaries as of September 30, 1995, and the results of its
operations and its cash flows for the year then ended, and changes in net
assets (deficit) for the years ended September 30, 1995 and 1994 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
November 1, 1995
-31-
<PAGE> 35
SHAREHOLDER INFORMATION
Stock Transfer Agent
Chemical Mellon Shareholder Services, L.L.C., 85 Challenger
Road, Overpeck Centre, Ridgefield Park, New Jersey 07660
(telephone (800) 288-9541 and (800) 231-5469 (TDD)) serves as
transfer agent and registrar for the Corporation's common
stock. Certificates to be transferred should be mailed
directly to the transfer agent, preferably by registered mail.
Shareholders
The Corporation had approximately 4,645 record holders of
its common stock at November 2, 1995.
Annual Meeting
The Annual Meeting of Shareholders of the Corporation will
be held on Tuesday, February 27, 1996, at 10:00 a.m. at the
Second Floor Ballroom of the Five Seasons Hotel, 350 First
Avenue N.E., Cedar Rapids, Iowa.
Dividends
The Corporation has no history of paying dividends and does
not anticipate declaring any dividends in the foreseeable
future, but instead intends to retain all earnings, if any, for
use in the Corporation's business. The payment of dividends,
if any, in the future is within the discretion of the Board of
Directors and will depend upon the Corporation's earnings,
capital requirements, financial condition and other relevant
factors. The Corporation does not presently have any type of
dividend reinvestment plan.
Market Prices
The common stock of the Corporation has been traded in the
over-the-counter market through the National Association of
Securities Dealers Automated Quotation ("NASDAQ") SmallCap
Market since March 2, 1995, under the symbol "MACC." At the
close of business on November 30, 1995, the bid price for
shares of the Corporation's common stock was $6 3/4. The
following high and low bid quotations for the shares during
each period of the Corporation's fiscal year 1995 (since the
initiation of trading) listed below were taken from quotations
provided to the Corporation by the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
High Low
-------------------------------------------------
<S> <C> <C>
Thirty Days
Ended March 31, 1995.................. $5 $3
Three Months Ended
June 30, 1995......................... 6 1/2 5
Three Months Ended
September 30, 1995.................... 7 3/8 6 1/2
</TABLE>
Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
-32-
<PAGE> 36
---------------------------------------------------
Fund Manager
---------------------------------------------------
InvestAmerica Investment Advisors, Inc.
---------------------------------------------------
Officers and Staff
---------------------------------------------------
DAVID R. SCHRODER
President and Secretary
ROBERT A. COMEY
Executive Vice President and Treasurer
KEVIN F. MULLANE
Vice President
STEVEN J. MASSEY
Vice President
MARILYN M. BENGE
Assistant Secretary
---------------------------------------------------
Board of Directors
---------------------------------------------------
PAUL M. BASS, Jr., Dallas, Texas
Chairman of the Company
Vice Chairman of First Southwest Company,
a regional investment banking firm
ROBERT A. COMEY, Cedar Rapids, Iowa
Executive Vice President of the Company
Executive Vice President of InvestAmerica
Investment Advisors, Inc.
MICHAEL W. DUNN, Manchester, Iowa
President, Farmers and Merchants Savings Bank
HENRY T. MADDEN, Iowa City, Iowa
Adjunct Professor, School of Management
University of Iowa and Management Consultant
JAMES L. MILLER, Cedar Rapids, Iowa
Self-employed, with background in
retail management
DAVID R. SCHRODER, Cedar Rapids, Iowa
President of the Company, President of
InvestAmerica Investment Advisors, Inc.
JOHN D. WOLFE, Mount Vernon, Iowa
Retired from a career in retail banking
and mortgage lending
5380A
-33-
<PAGE> 1
EXHIBIT 21
Subsidiaries of MACC Private Equities Inc.
and Jurisdiction of Incorporation
<PAGE> 2
MACC PRIVATE EQUITIES INC.
SUBSIDIARIES AND JURISDICTIONS
OF INCORPORATION
1. MorAmerica Capital Corporation, a wholly-owned
subsidiary of MACC Private Equities Inc. incorporated
under the laws of the State of Iowa.
2. MorAmerica Realty Services, Inc., formerly d/b/a/
University Inn, a wholly owned subsidiary of MACC
Private Equities Inc. incorporated under the laws of
the State of Iowa.
3. Motel Services, Inc., a wholly owned subsidiary of
MorAmerica Realty Services, Inc. incorporated under
the laws of the State of Iowa.
5395A
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1995
<PERIOD-START> OCT-01-1994 OCT-01-1994
<PERIOD-END> SEP-30-1995 SEP-30-1995
<INVESTMENTS-AT-COST> 11,728,872 11,728,872 <F3>
<INVESTMENTS-AT-VALUE> 10,047,197 10,047,197 <F3>
<RECEIVABLES> 2,122,962 2,122,962 <F3>
<ASSETS-OTHER> 700,466 700,466 <F3>
<OTHER-ITEMS-ASSETS> 3,406,888 3,406,888 <F3>
<TOTAL-ASSETS> 28,006,385 28,006,385 <F3>
<PAYABLE-FOR-SECURITIES> 259,662 259,662 <F3>
<SENIOR-LONG-TERM-DEBT> 10,228,647 10,228,647 <F3>
<OTHER-ITEMS-LIABILITIES> 335,955 335,955 <F3>
<TOTAL-LIABILITIES> 10,824,264 10,824,264 <F3>
<SENIOR-EQUITY> 9,965 9,965 <F3>
<PAID-IN-CAPITAL-COMMON> 15,379,348 15,379,348 <F3>
<SHARES-COMMON-STOCK> 996,539 996,539 <F3>
<SHARES-COMMON-PRIOR> 996,539 996,539 <F3>
<ACCUMULATED-NII-CURRENT> 103,653 103,653 <F3>
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 1,102,697 1,102,697 <F3>
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 586,458 586,458
<NET-ASSETS> 17,182,121 17,182,121
<DIVIDEND-INCOME> 432,209 <F1> 195,205 <F2>
<INTEREST-INCOME> 728,919 <F1> 253,737 <F2>
<OTHER-INCOME> 105,104 <F1> 7,303 <F2>
<EXPENSES-NET> 1,162,579 <F1> 474,021 <F2>
<NET-INVESTMENT-INCOME> 103,653 <F1> (17,776) <F2>
<REALIZED-GAINS-CURRENT> 1,102,697 <F1> 4,514,338 <F2>
<APPREC-INCREASE-CURRENT> 586,458 <F1> (948,191) <F2>
<NET-CHANGE-FROM-OPS> 1,792,808 <F1> 3,548,371 <F2>
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 2,479,808 <F1> 50,163,718 <F2>
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
<FN>
<F1>
Reflects results of seven and one-half months ended September 30, 1995.
<F2>
Reflects results of four and one-half months ended February 15, 1995.
<F3>
Balance sheet data reflects September 30, 1995 information.
</FN>
</TABLE>
