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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, 1996
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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
- --------------------------------------------- -------------------
(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, 1996, the registrant had issued and outstanding 964,098 shares
of common stock.
Page 1 of 15
Exhibit Index appears at page 12
<PAGE> 2
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
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Condensed Consolidated Balance
Sheets (Unaudited) at December 31,
1996, and September 30, 1996 . . . . . . . . . . . . . 3
Condensed Consolidated Statements of
Operations (Unaudited) for the three
months ended December 31, 1996 and
the three months ended December 31, 1995 . . . . . . . 4
Condensed Consolidated Statements
of Cash Flows (Unaudited) for the three
months ended December 31, 1996, and
the three months ended December 31, 1995 . . . . . . 5
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
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of Financial Condition and Results Of Operations . . . 7
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PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 10
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Signatures . . . . . . . . . . . . . . . . . . . . . . 11
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
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PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
----------- -------------
Assets
<S> <C> <C>
Loans and investments in portfolio securities at market
or fair value, cost of $15,092,830 $15,021,774 11,620,748
U.S. treasury bills, at cost which approximates market 8,653,268 12,202,414
Certificates of deposit 1,657,801 1,657,801
Cash 218,008 321,191
Other assets, net 797,938 1,011,644
Deferred income tax 1,093,000 1,093,000
----------- -----------
Total assets $27,441,789 27,906,798
=========== ===========
Liabilities and stockholders' equity
Liabilities:
Debentures payable, net of discount $10,238,254 10,236,250
Accrued interest 105,412 259,662
Accounts payable and other liabilities
96,310 333,117
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Total liabilities 10,439,976 10,829,029
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Stockholders' equity:
Common stock, $.01 par value per share;
2,000,000 shares authorized;
964,098 shares issued and
outstanding 9,641 9,641
Additional paid-in-capital 15,492,575 15,492,575
Net investment (loss) income (48,650) 14,077
Net realized gain on investments 1,619,303 1,616,869
Unrealized depreciation on investments (71,056) (55,393)
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Total stockholders' equity $17,001,813 17,077,769
----------- -----------
Total liabilities and stockholders' equity $27,441,789 27,906,798
=========== ===========
Net assets per share $ 17.63 $ 17.71
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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MACC PRIVATE EQUITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
December 31, December 31,
1996 1995
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<S> <C> <C>
Investment income:
Interest $418,271 327,492
Dividends 11,200 46,510
Other 38,487 2,182
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Total Income 467,958 376,184
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Operating expenses:
Interest 225,381 220,844
Management fees 171,146 157,517
Professional fees 63,000 61,311
Other operating expenses 73,962 56,679
Change in provision for
doubtful accounts (2,804) (3,008)
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Total operating expenses 530,685 493,343
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Investment expense net (62,727) (117,159)
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Realized and unrealized (loss)
gain on investments:
Net realized gain on
investments 2,434 500,766
Net change in
unrealized
appreciation/
depreciation on
investments (15,663) (180,514)
-------- ---------
Net (loss) gain on
investments before
income tax expense (13,229) 320,252
Income tax expense 0 (245,000)
-------- ---------
Net (loss) gain on
investments (13,229) 75,252
Net change in net assets
from operations $(75,956) (41,907)
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Decrease in net assets
from operations $ (75,956) (41,907)
----------- -----------
Adjustments to reconcile decrease in net assets
from operations to net cash (used in)
provided by operating activities:
Change in provision for doubtful accounts (3,594) (3,008)
Net realized and unrealized
gain on investments 13,229 (320,252)
Deferred income taxes 0 245,000
Other 5,552 5,371
Change in assets and liabilities:
Receivables and other assets 213,752 1,769,874
Accrued interest, accounts payable, and
other liabilities (391,057) (226,292)
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Total adjustments (162,118) 1,470,693
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Net cash (used in) provided by operating
activities: (238,074) 1,428,786
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Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 46,807 2,336,095
Purchases of loans and investments in
portfolio securities (3,461,062) (681,018)
Proceeds from disposition of other investments 5,930,278 4,302,748
Purchases of other investments (3,824,785) (4,788,657)
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Net cash (used in) provided by investing
activities (1,308,762) 1,169,168
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Net (decrease) increase in cash and cash
equivalents (1,546,836) 2,597,954
Cash and cash equivalents at
beginning of period 5,066,011 6,255,803
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Cash and cash equivalents at
end of period $ 3,519,175 8,853,757
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 373,271 373,271
=========== ===========
Assets received in lieu of cash $ 8,000 $ 0
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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MACC PRIVATE EQUITIES INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1996, September 30, 1996, and December 31, 1995
(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") have been prepared in accordance with generally accepted
accounting principles for investment companies. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 as of and for the year ended September 30, 1996. 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This section contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by the Company pursuant to the
safe-harbor provisions of the 1995 Act. In connection with these safe-harbor
provisions, the Company has identified in its Annual Report to Shareholders for
the fiscal year ended September 30, 1996, important factors which could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. The Company further cautions
that such factors are not exhaustive or exclusive. The Company does not
undertake to update any forward-looking statement which may be made from time
to time by or on behalf of the Company.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996, Compared to Three Months Ended
December 31, 1995.
Total investment income includes the Company's income from interest,
dividends and fees. Net investment income (expense) 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, and realized gains and losses from, and unrealized appreciation
and depreciation in, portfolio investments are not included within total
investment income. However, consistent with one of the Company's long-term
goals of achieving net investment income and increased earnings stability in
future years, a significant proportion of new portfolio investments are
structured so as to provide a current yield through interest or dividends. The
Company also earns interest on short term investments of cash funds.
During the current year, first quarter total investment income of
$467,958 was approximately 24% greater than total investment income of $376,184
for the prior year first quarter. In the current year first quarter as
compared to the prior year first quarter, interest income increased $90,779,
dividend income decreased $35,310, and other income increased $36,305. The
increase in investment income for the current year first quarter was largely
due to the increased investment level and the interest on new portfolio
investments. While dividend income decreased, this was offset by the increase
in other income, consisting primarily of closing fees on new investments.
Total operating expenses for the first quarter of the current year
were $530,685, an increase of approximately 8% as compared to total operating
expenses for the prior year first quarter of $493,343. Management fees
increased from $157,517 to $171,146 in the current year first quarter as
compared to the prior year first quarter due to the increase in assets under
management and in
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other operating expenses, administrative fees associated with being a public
company increased by $16,585 during the current year period as compared to the
prior year period.
During the current year first quarter, the Company recorded a net
realized gain on investments before income taxes of $2,434, as compared with a
net realized gain on investments before income taxes of $500,766 during the
prior year period. The lower level of net realized gains on investments during
the current year first quarter as compared to the prior year first quarter is
consistent with the expectations of management expressed in the Company's
Annual Report to Shareholders for the fiscal year ended September 30, 1996, due
to the early stage in the investment cycle of most of the Company's portfolio
investments. However, based upon developments subsequent to the date of this
Report on Form 10- Q, management has revised its expectations regarding
portfolio investment divestiture and liquidity events for the remainder of the
current fiscal year, which may result in greater net realized gains on
investments than previously anticipated for the current fiscal year.
Management does not attempt to maintain a comparable level of realized gains
from year to year or quarter to quarter 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
Due to the net investment expense and net loss on investments recorded
during the first quarter of the current fiscal year, the Company did not
utilize any of its deferred tax assets relating to net operating loss
carryforwards at the fresh-start date, or record any increase in deferred tax
assets during this period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has relied upon several sources to fund its
investment activities, including the Company's U.S. treasury bills, cash
equivalents and cash, and the Small Business Investment Company ("SBIC")
capital program operated by the Small Business Administration (the "SBA").
The Company, through its wholly-owned subsidiary, MorAmerica Capital,
from time to time may seek to procure additional capital through the SBIC
capital program to provide a portion of its future investment capital
requirements. At present, there is availability of capital through the SBIC
capital program and the Company anticipates that there will be capital
available in future periods. The Company also believes that recently enacted
federal legislation which permits SBICs to obtain debt financing from federal
home loan banks may provide an additional source of debt financing for the
Company.
As of December 31, 1996, the Company's U.S. treasury bills,
certificates of deposit and cash totaled $10,529,077. The Company believes
that this provides adequate funds for the Company's planned $8,500,000 in new
and follow-on investment activities during the current fiscal year, of
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which $3,461,062 was invested during the first quarter of the current fiscal
year. The Company does not now need additional capital to meet its anticipated
cash requirements over the next twelve months, including investment activities,
operating expenses and odd-lot shareholder stock repurchases.
Liquidity for the next several years will not be impacted by principal
payments on the Company'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 Company's
subsidiary, MorAmerica Capital, which mature as follows: $2,450,000 in 2000,
$5,690,000 in 2001 and $2,150,000 in 2003.
While additional capital is not anticipated to be required during the
current fiscal year, the Company anticipates that it may seek additional
capital in future years, either in the form of additional SBA-guaranteed
debentures or participating securities issued by MorAmerica Capital or in the
form of common stock of the Company, to fund growth of the Company, to meet
principal payments as the outstanding SBA-guaranteed debentures become due and
payable and for other corporate purposes.
PORTFOLIO ACTIVITY
During the three months ended December 31, 1996, the Company invested
$3,461,062 in eight portfolio companies, consisting of $2,906,372 invested in
three new portfolio companies and $554,690 invested in follow-on investments in
five existing portfolio companies. The Company's investment level objectives
for fiscal year 1997 call for total new and follow-on investments of
$8,500,000. Based upon the total amount of new and follow-on investments made
during the three months ended December 31, 1996, the Company anticipates that
it will achieve its investment level objectives for the current fiscal year.
However, management views investment level objectives for any given year as
secondary in importance to the Company's overriding concern of investing in
only those portfolio companies which satisfy the Company's investment criteria.
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.
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The Company's use of SBA valuation procedures did not result in a material
variance as of December 31, 1996, 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
ITEMS 1 THOUGH 5.
There are no items to report.
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
The Company filed no Reports on Form 8-K during the three
months ended December 31, 1996.
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10
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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, 1997 By: /s/ David R. Schroder
-------------------------- ----------------------------
David R. Schroder, President
Date: February 13, 1997 By: /s/ Robert A. Comey
-------------------------- ----------------------------
Robert A. Comey, Treasurer
11
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EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
(27) Financial Data Schedule 13
12
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 23,746,098
<INVESTMENTS-AT-VALUE> 23,675,042
<RECEIVABLES> 0
<ASSETS-OTHER> 797,938
<OTHER-ITEMS-ASSETS> 2,968,809
<TOTAL-ASSETS> 27,441,789
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 10,238,254
<OTHER-ITEMS-LIABILITIES> 201,722
<TOTAL-LIABILITIES> 10,439,976
<SENIOR-EQUITY> 9,641
<PAID-IN-CAPITAL-COMMON> 15,492,575
<SHARES-COMMON-STOCK> 964,098
<SHARES-COMMON-PRIOR> 964,098
<ACCUMULATED-NII-CURRENT> (48,650)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,619,303
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (71,056)
<NET-ASSETS> 17,001,813
<DIVIDEND-INCOME> 11,200
<INTEREST-INCOME> 418,271
<OTHER-INCOME> 38,487
<EXPENSES-NET> 530,685
<NET-INVESTMENT-INCOME> (62,727)
<REALIZED-GAINS-CURRENT> 2,434
<APPREC-INCREASE-CURRENT> (15,663)
<NET-CHANGE-FROM-OPS> (75,956)
<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> (75,956)
<ACCUMULATED-NII-PRIOR> 14,077
<ACCUMULATED-GAINS-PRIOR> 1,616,869
<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>
