<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24412
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MACC Private Equities Inc.
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(Exact name of registrant as specified in its charter)
Delaware 42-1421406
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
101 Second Street S.E., Suite 800, Cedar Rapids, Iowa 52401
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(Address of principal executive offices)
(Zip Code)
(319) 363-8249
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Please 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At December 31, 1995, the registrant had issued and outstanding 996,539
shares of common stock.
Page 1 of 16
Exhibit Index appears at page 13
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MACC PRIVATE EQUITIES INC.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance
Sheets (Unaudited) at December 31,
1995, and September 30, 1995. . . . . . . . 3
Condensed Consolidated Statements of
Operations (Unaudited) for the three
months ended December 31, 1995, and the
three months ended December 31, 1994. . . . 4
Condensed Consolidated Statements
of Cash Flows (Unaudited) for the three
months ended December 31, 1995, and the
three months ended December 31, 1994. . . . 5
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . 9
Item 1. Legal Proceedings . . . . . . . . . . . . . 9
Signatures. . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . 13
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PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MACC PRIVATE EQUITIES INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
MACC Private MACC Private
Equities Inc. Equities Inc.
December 31, September 30,
1995 1995
------------- -------------
<S> <C> <C>
Assets
Loans and investments in
portfolio securities at market
or fair value, cost of $10,773,499 $ 11,179,443 12,315,330
U.S. treasury bills, at cost
which approximates market 12,457,102 10,047,197
Cash and cash equivalents 2,482,388 1,808,430
Receivables:
Dividends and interest 155,809 264,526
Investment securities sold 228,722 1,858,436
Other assets, net 469,545 700,466
Deferred income taxes 1,089,000 1,012,000
------------ -----------
Total assets $ 28,062,009 28,006,385
============ ===========
Liabilities and stockholders'
equity
Liabilities:
Debentures payable net
of discount $ 10,230,470 10,228,647
Interest payable 105,412 259,662
Accounts payable and other
liabilities 263,913 335,955
------------ -----------
Total liabilities 10,599,795 10,824,264
Stockholders' equity:
Common stock, $.01 par value;
2,000,000 shares authorized;
996,539 shares issued 9,965 9,965
Additional paid-in-capital 15,701,348 15,379,348
Net investment (loss) income (13,506) 103,653
Net realized gain on investments 1,358,463 1,102,697
Unrealized appreciation on investments 405,944 586,458
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Total stockholders' equity 17,462,214 17,182,121
Contingency (note 2)
------------ -----------
Total liabilities and
stockholders' equity $ 28,062,009 28,006,385
============ ===========
Net assets per share $ 17.52 17.24
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MACC PRIVATE EQUITIES INC.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co. (Predecessor Co.
See Note 1) See Note 1)
Three months Three months
ended December ended December
31, 1995 31, 1994
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<S> <C> <C>
Investment income:
Interest $ 327,492 135,687
Dividends 46,510 55,334
Other 2,182 1,269
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Total income 376,184 192,290
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Operating expenses:
Interest 220,844 219,021
Management fees 157,517 154,469
Professional fees 69,082 65,770
Other operating expenses 48,908 28,116
Change in provision for
doubtful accounts (3,008) ---
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Total operating expenses 493,343 467,376
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Investment expense net (117,159) (275,086)
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Realized and unrealized
gain on investments:
Net realized gain on
investments 500,766 2,340,099
Net change in unrealized
appreciation on
investments (180,514) (243,129)
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Net gain on investments
before income taxes 320,252 2,096,970
Income taxes (245,000) ---
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Net gain on investments 75,252 2,096,970
Net change in net assets
from operations before
reorganization item (41,907) 1,821,884
Reorganization item:
Professional fees --- 42,777
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Net change in net
assets from operations $ (41,907) 1,779,107
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MACC Private Equities Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co. (Predecessor Co.
See note 1) See note 1)
For the For the
three months three months
ended ended
December 31, December 31,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
(Decrease) increase in net
assets from operations $ (41,907) 1,821,884
Adjustments to reconcile the increase (decrease)
in net assets from operations to
net cash provided by (used in) operating activities:
Reorganization item - professional
fees --- (42,777)
Change in provision for
doubtful accounts (3,008) ---
Net realized and unrealized gain
on investments (320,252) (2,096,970)
Deferred income taxes 245,000 ---
Other 5,371 3,547
Change in assets and liabilities:
Decrease (increase) in receivables 1,738,431 (331,877)
Decrease in other assets 31,443 102,412
Decrease in accrued interest,
accounts payable, and other
liabilities (226,292) (205,503)
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Total adjustments 1,470,693 (2,571,168)
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Net cash provided by (used in)
operating activities: 1,428,786 (749,284)
----------- ----------
Cash flows from investing activities:
Proceeds from disposition of and
payments on loans and investments
in portfolio securities 2,336,095 7,238,749
Purchases of loans and investments
in portfolio securities (681,018) (820,515)
Proceeds from disposition of other
investments 4,302,748 ---
Purchases of other investments (4,788,657) (609,117)
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Net cash provided by
investing activities 1,169,168 5,809,117
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Cash flows from financing activities:
Principal payments on long-term debt --- (604,085)
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Net increase in cash and
cash equivalents 2,597,954 4,455,748
Cash and cash equivalents at
beginning of period 6,255,803 6,498,146
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Cash and cash equivalents at
end of period $ 8,853,757 10,953,894
=========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the period
for interest $ 373,271 373,271
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MACC PRIVATE EQUITIES INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1995, September 30, 1995 and December 31, 1994
(1) Basis of Presentation
The accompanying condensed consolidated financial statements, which
include the accounts of MACC Private Equities Inc. and its wholly-owned
subsidiaries MorAmerica Capital Corporation and MorAmerica Realty Services,
Inc. (the "Company"), after February 15, 1995 (the "Successor Company"), and
MorAmerica Financial Corporation and subsidiaries prior to February 15, 1995
(the "Predecessor Company"), have been prepared in accordance with generally
accepted accounting principles for investment companies. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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,
MorAmerica Financial Corporation and its subsidiaries, exclusive of MorAmerica
Capital Corporation and MorAmerica Realty Services, Inc., merged into the
Company, a business development company regulated by the Securities and
Exchange Commission. As of February 15, 1995, the Company adopted fresh-start
reporting in accordance with the American Institute of Certified Public
Accountants 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 the Predecessor Company, the
Company has presented the financial statements required for Form 10-Q reporting
on a predecessor-successor company basis.
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and instructions to Form 10-Q and Article 6 of Regulation S-X. The
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto of MACC Private Equities Inc. and
Subsidiaries (Successor Company) as of and for the year ended September 30,
1995. The information reflects all adjustments consisting of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods. The results
of the interim period reported are not necessarily indicative of results to be
expected for the year.
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(2) Contingency
MorAmerica Realty Services, Inc. ("MRS"), a wholly-owned subsidiary of
the Company, is a defendant in a personal injury lawsuit. Management
believes that any loss on ultimate disposition of the matter will not be
materially greater than the provision recorded as of September 30, 1995,
and is the legal responsibility of MRS. The amount provided is included
in accounts payable and other liabilities on the balance sheets as of
December 31, and September 30, 1995.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.
Results of Operations
First Quarter Ended December 31, 1995, Compared to First Quarter Ended
December 31, 1994.
During the current year, first quarter total income of $376,184
increased approximately 96% over total income of $192,290 for the prior year
period. The increase in the current period as compared to the prior year
period is due to increased interest from short-term investments and portfolio
companies of $191,805.
Total operating expenses for the first quarter of the current year
total $493,343, an increase of approximately 6% as compared to total operating
expenses for the prior year first quarter of $467,376. The increase in total
operating expenses for the current period is due mainly to directors' and
officers' liability insurance premiums of $18,588.
Net gain on investments before income taxes of $320,252 was earned by
the Company in the first quarter of the current year as compared with
$2,096,970 during the prior year period. The net realized gain on investments
for the first quarter of the current year, $500,766, consisted of the following
net realized gains on sales of securities of two portfolio companies, Physician
Sales and Services, Inc., $730,413, and Quaker City Castings, Inc., $370,353.
In addition, these gains were partially offset by net realized loss on
investments related to West End All Natural Soda Brew, L.P., ($600,000).
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.
Income Taxes
During the current year first quarter the Company utilized a portion of
its deferred tax assets relating to net operating
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<PAGE> 8
loss carryforwards at the fresh-start date. Under fresh-start
reporting, such utilization resulted in a charge to operations of $245,000 for
the reduction in deferred tax assets. During the current year first quarter
the Company recorded an increase of $322,000 in deferred tax assets based upon
its projection of future taxable income. The $322,000 increase in deferred tax
assets resulted in a corresponding increase in paid-in capital under
fresh-start reporting.
Financial Condition, Liquidity and Capital Resources
As of December 31, 1995, the Company's U.S. treasury bills, cash and
cash equivalents totaled $14,939,490. The Company believes that this provides
adequate funds for the Company's investment activities over the next twelve
month period.
It has been anticipated that the Company, through its wholly-owned
subsidiary MorAmerica Capital Corporation, might procure additional capital
through the Small Business Investment Company ("SBIC") capital program to
provide a portion of its future investment requirements. In response to recent
federal budget reduction proposals, the availability of capital through the
SBIC program is being debated. Both the United States Small Business
Administration and the SBIC trade association have put forth plans to support
continued SBIC capital availability. The Company does not now need additional
capital.
Any possible future SBIC industry capital shortfalls would have to be
sought from private or public funding sources. One such source would be the
issuance of some or all of the Company's 1,003,461 shares of authorized but
unissued common stock. Federal securities laws applicable to business
development companies require prior approval by shareholders for the issuance
at less than net asset value per share of the common stock of such companies.
Accordingly, shareholders of the Company will vote at the next Annual
Shareholder's Meeting, scheduled for February 27, 1996, with regard to a
proposal to approve for a one-year period the policy and practice of the
Company of issuing shares of common stock of the Company at a price less than
net asset value per share. There can be no assurances that the Company's
shareholders will approve this proposal.
Portfolio Activity
During the three month period ended December 31, 1995, the Company
invested $681,018 in six portfolio companies, consisting of $358,600 invested
in one new portfolio company and $322,418 invested in follow-on investments in
five existing portfolio companies. The Company presently is contractually
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<PAGE> 9
committed to invest an additional $391,200 in the new portfolio
company, if and when those funds are needed by the new portfolio company. The
Company's investment level objectives for the current fiscal year call for
total new and follow-on investments of $7,000,000.
Determination of Net Asset Value
The net asset value per share of the Company'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 total liabilities
by the total number of shares outstanding at the date as of which the
determination is made.
In calculating the value of 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 closing prices (or bid prices 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 of
December 31, 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 investments 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In 1993, MorAmerica Financial Corporation and the Morris Plan
Liquidation Company ("Morris Plan"), the Company's predecessor entities, filed
for bankruptcy 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"). In December, 1993, the Bankruptcy
Court approved the Plan. Pursuant to the provisions of the Plan, the Board of
Directors declared the effective date of the Plan (the "Effective Date") to be
February 15, 1995.
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<PAGE> 10
The Company's wholly-owned subsidiary MorAmerica Realty Services, Inc.
("MRS") 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, MRS 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 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 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, will be a claim against the Insurer's
liquidation estate.
MRS has retained the counsel previously retained by the Insurer to
continue representation of MRS in the litigation. MRS 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. Please also
see note 2 to the financial statements.
Item 2. Changes in Securities.
There are no items to report.
Item 3. Defaults Upon Senior Securities.
There are no items to report.
Item 4. Submission of Matters to a Vote
of Security Holders.
There are no items to report.
Item 5. Other Information.
There are no items to report.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
No other exhibits are applicable.
(b) Reports on Form 8-K
There are no items to report.
[Remainder of page intentionally left blank.]
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACC PRIVATE EQUITIES INC.
Date: February 13, 1996 By: David Schroder
--------------------- --------------------
David R. Schroder,
President
Date: February 13, 1996 By: Robert Comey
--------------------- --------------------
Robert A. Comey,
Treasurer
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<PAGE> 13
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
(27) Financial Data Schedule 14
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<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10,773,499
<INVESTMENTS-AT-VALUE> 12,457,102
<RECEIVABLES> 384,531
<ASSETS-OTHER> 469,545
<OTHER-ITEMS-ASSETS> 3,977,332
<TOTAL-ASSETS> 28,062,009
<PAYABLE-FOR-SECURITIES> 105,412
<SENIOR-LONG-TERM-DEBT> 10,230,470
<OTHER-ITEMS-LIABILITIES> 263,913
<TOTAL-LIABILITIES> 10,599,795
<SENIOR-EQUITY> 9,965
<PAID-IN-CAPITAL-COMMON> 15,701,348
<SHARES-COMMON-STOCK> 996,539
<SHARES-COMMON-PRIOR> 996,539
<ACCUMULATED-NII-CURRENT> (13,506)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,358,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 405,944
<NET-ASSETS> 17,462,214
<DIVIDEND-INCOME> 46,510
<INTEREST-INCOME> 327,492
<OTHER-INCOME> 2,182
<EXPENSES-NET> 493,343
<NET-INVESTMENT-INCOME> (117,159)
<REALIZED-GAINS-CURRENT> 255,766
<APPREC-INCREASE-CURRENT> (180,514)
<NET-CHANGE-FROM-OPS> (41,907)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 280,093
<ACCUMULATED-NII-PRIOR> 103,653
<ACCUMULATED-GAINS-PRIOR> 1,102,697
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
