<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 OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] 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 AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 30, 1997, WAS APPROXIMATELY
$7,822,064 BASED UPON THE AVERAGE BID AND ASKED PRICE FOR SHARES OF THE
REGISTRANT'S COMMON STOCK ON THAT DATE. AS OF SEPTEMBER 30, 1997, THERE WERE
1,039,615 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING, OF WHICH
APPROXIMATELY 767,810 SHARES WERE HELD BY NON-AFFILIATES.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
SEPTEMBER 30, 1997, 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 24, 1998, ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT.
PAGE 1 OF 61.
EXHIBIT INDEX APPEARS ON PAGE: 12.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
MACC Private Equities Inc. (the "Corporation") 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 Corporation has one direct wholly-owned subsidiary, MorAmerica Capital
Corporation ("MorAmerica Capital"). As of September 30, 1997, MorAmerica
Capital comprised approximately 93% of the Corporation's assets. MorAmerica
Capital is an Iowa corporation incorporated in 1959 and which has been licensed
as a small business investment company since that year. It has also elected
treatment as a BDC under the 1940 Act.
On March 15, 1997, MorAmerica Realty Services, Inc. ("MorAmerica Realty")
(a former wholly-owned subsidiary of the Corporation), merged its wholly-owned
subsidiary, Motel Services, Inc. ("Motel Services"), with and into MorAmerica
Realty, and MorAmerica Realty merged with and into the Corporation on March 31,
1997. 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 had been limited to an orderly wind-up of affairs.
THE CORPORATION'S OPERATION AS A BDC
As noted above, both the Corporation 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 Corporation 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.
2
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The Corporation'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 1940 Act, of the company's shares. In order to maintain their status as
BDCs, the Corporation 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) through 55(a)(3) of the 1940 Act. Accordingly, the
Corporation 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 fiscal year ended September 30, 1997, the Corporation made total
investments of $9,800,370 in nine new portfolio companies and in follow-on
investments in seven 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 1998.
During fiscal year 1997, the Corporation had $1,223,420 in realized gains
from the sale of investments in five portfolio companies. Over the same
period, $271,318 in realized losses were recognized from one portfolio company.
ITEM 2. PROPERTIES.
The Corporation 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 Corporation.
3
<PAGE> 4
ITEM 3. LEGAL PROCEEDINGS.
There are no items to report.
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
Corporation's Executive Officers as of December 15, 1997, as well certain other
information with respect to such persons:
Name Age Positions Currently Held Principal Occupations
- ---- --- with the Corporation During the Past Five Years
------------------------ ---------------------------
David R. Schroder 54 Director, President and Director, President and
Secretary Secretary of the
Investment Advisor;
MorAmerica Capital;
InvestAmerica Venture
Group, Inc.; InvestAmerica
N.D. Management, Inc.; and
InvestAmerica N.D., L.L.C.
Robert A. Comey 51 Director, Executive Vice Director, Executive Vice
President and Treasurer President, Treasurer and
Assistant Secretary of
MorAmerica Capital; the
Investment Advisor;
InvestAmerica Venture
Group, Inc.; InvestAmerica
N.D. Management, Inc. and
InvestAmerica N.D., L.L.C.
Kevin F. Mullane 42 Vice President Vice President of
MorAmerica Capital; Vice
President and Director of
the Investment Advisor;
InvestAmerica N.D.
Management, Inc.; and
InvestAmerica N.D., L.L.C.
4
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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 Corporation's Annual Report to
Shareholders for the fiscal year ended September 30, 1997 (the "1997 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 1997 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 1997 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 1997 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 Corporation's definitive proxy statement in connection with
its 1998 Annual Meeting of Stockholders, scheduled to be held on February 24,
1998 (the "1998 Proxy Statement"). Information in response to this Item also
is included under the caption "Executive Officers of the Registrant" of this
Report.
5
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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
1998 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 1998
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Corporation and MorAmerica Capital each have executed an Investment
Advisory Agreement with the Investment Advisor. With respect to the
Corporation, the Investment Advisory Agreement provides for a management fee
payable to the Investment Advisor equal to 2.5% of Assets Under Management
(as that term is defined in the Investment Advisory Agreement). With respect
to MorAmerica Capital, the management fee is equal to 2.5% of Capital Under
Management (as that term is defined in the Investment Advisory Agreement), not
to exceed 2.5% of Assets Under Management, plus $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. On
July 15, 1997, the Boards of Directors of the Corporation and MorAmerica
Capital approved the extension of the Corporation's and MorAmerica Capital's
existing Investment Advisory Agreements for additional one-year terms. On
December 16, 1997, the Boards of Directors of the Corporation and MorAmerica
Capital approved certain proposed amendments to the Investment Advisory
Agreements of the Corporation and MorAmerica Capital, respectively, subject to
approval by the shareholders of the Corporation. Additional information with
respect to the Investment Advisory Agreements is incorporated by reference to
the Section captioned "Proposal 4 -- Approval of Proposed Amendments to
Investment Advisory Agreements" of the 1998 Proxy Statement.
Management fees under the Investment Advisory Agreements on a consolidated
basis amounted to $684,584 for fiscal year 1997. No incentive fees were paid
under the Investment Advisory Agreements during fiscal year 1997.
The Investment Advisor is owned by its three principal officers and
directors, all of whom are also officers and/or directors of the Corporation.
These individuals and their positions held with the Investment Advisor are:
6
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Name Offices
---- -------
David R. Schroder Director, President and Secretary
Robert A. Comey Director, Executive Vice President,
and Treasurer
Kevin F. Mullane Director, Vice President and
Assistant Secretary
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 1997 Annual Report.
Consolidated Balance Sheet at September 30, 1997
Consolidated Statement of Operations for the year
ended September 30, 1997
Consolidated Statements of Changes in Net Assets
for the years ended September 30, 1997, and September 30, 1996
Consolidated Statement of Cash Flows for the year ended
September 30, 1997
Notes to Consolidated Financial Statements
Consolidated Schedule of Investments as of September 30, 1997
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 1997 Annual Report.
2. No financial statement schedules of the Corporation 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 Corporation.
3.2**** By-Laws of the Corporation.
7
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4 See Exhibits 3.1 and 3.2.
10.1** Investment Advisory Agreement between the Corporation and
InvestAmerica Investment Advisors, Inc., dated October 1, 1994.
10.1.a**** First Amendment to Investment Advisory Agreement between the
Corporation and InvestAmerica Investment Advisors, Inc., dated
August 1, 1996.
10.1.b Second Amendment to Investment Advisory Agreement between the
Corporation and InvestAmerica Investment Advisors, Inc., dated
August 1, 1997.
10.2** Investment Advisory Agreement between MorAmerica Capital
Corporation and InvestAmerica Investment Advisors, Inc., dated
October 1, 1994.
10.2.a**** First Amendment to Investment Advisory Agreement between
MorAmerica Capital Corporation and InvestAmerica Investment
Advisors, Inc., dated August 1, 1996.
10.2.b Second Amendment to Investment Advisory Agreement between
MorAmerica Capital Corporation and InvestAmerica Investment
Advisors, Inc., dated August 2, 1997.
10.3*** Agreement between the Corporation and Zions Bancorporation,
dated May 13, 1996.
13 1997 Annual Report to Stockholders.
21 Subsidiaries of the Corporation and jurisdiction of
incorporation.
27 Financial Data Schedule
*Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997, as filed with the
Commission on May 14, 1997.
**Incorporated by reference to Amendment No. 3 to the Corporation's
Registration Statement on Form N-2, filed with the Commission on January 24,
1995 (File No. 33-79276).
***Incorporated by reference to the Corporation's Current Report on Form
8-K, dated May 13, 1996, filed with the Commission on May 13, 1996.
8
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****Incorporated by reference to the Corporation's Annual Report on Form
10-K, for the year ended September 30, 1996, as filed with the Commission on
December 27, 1996.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the three months ended September
30, 1997.
[Remainder of page intentionally left blank.]
9
<PAGE> 10
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 16,
1997.
/s/ David R. Schroder
----------------------------------------
David R. Schroder
President and Secretary
10
<PAGE> 11
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 16, 1997
- ---------------------------------- -----------------------
Paul M. Bass. Jr.
Chairman of the Board of Directors
/s/ David R. Schroder December 16, 1997
- ---------------------------------- -----------------------
David R. Schroder
Director, President and Secretary
/s/ Robert A. Comey December 16, 1997
- ---------------------------------- -----------------------
Robert A. Comey
Director, Executive Vice President
and Treasurer
/s/ Henry T. Madden December 16, 1997
- ---------------------------------- -----------------------
Henry T. Madden
Director
/s/ John D. Wolfe December 12, 1997
- ---------------------------------- -----------------------
John D. Wolfe
Director
/s/ Michael W. Dunn December 12, 1997
- ---------------------------------- -----------------------
Michael W. Dunn
Director
/s/ James L. Miller December 16, 1997
- ---------------------------------- -----------------------
James L. Miller
Director
/s/ Todd J. Stevens December 16, 1997
- ---------------------------------- -----------------------
Todd J. Stevens
Director
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description Sequential Page
- ------- ----------- ---------------
10.1.b Second Amendment to Investment Advisory Agreement
between the Corporation and InvestAmerica
Investment Advisors, Inc., dated August 1, 1997 13
10.2.b Second Amendment to Investment Advisory Agreement
between MorAmerica Capital Corporation and
InvestAmerica Investment Advisors, Inc., dated
August 1, 1997 16
13 1997 Annual Report to Stockholders 19
21 Subsidiaries of the Corporation and Jurisdiction
of Incorporation 57
27 Financial Data Schedule 59
12
<PAGE> 1
EXHIBIT 10.1.B
Second Amendment to Investment Advisory Agreement
between the Corporation and InvestAmerica Investment
Advisors, Inc., dated August 1, 1997
13
<PAGE> 2
SECOND AMENDMENT TO MACC PRIVATE EQUITIES INC.
INVESTMENT ADVISORY AGREEMENT
THIS SECOND AMENDMENT TO MACC PRIVATE EQUITIES INC. INVESTMENT ADVISORY
AGREEMENT (this "Second Amendment"), dated as of August 1, 1997, amends the
terms of the MACC Private Equities Inc. Investment Advisory Agreement (the
"Agreement") dated as of October 1, 1994, among MACC Private Equities Inc. (the
"Corporation") and InvestAmerica Investment Advisers, Inc. ("InvestAmerica"),
as previously amended by the First Amendment to MACC Private Equities Inc.
Investment Advisory Agreement (the "First Amendment"), dated as of August 1,
1996. All terms and conditions of the Agreement shall remain in full force and
effect except as expressly amended herein. All capitalized terms used but not
defined herein shall have their respective meanings set forth in the Agreement.
WHEREAS, the original term of the Agreement was for two years from the
date thereof, through September 30, 1996, subject to annual continuance
thereafter in accordance with Section 15 of the Investment Company Act of 1940,
as amended, by a majority of the Board of Directors of the Corporation who are
not interested persons of the Corporation, or by a vote of the holders of a
majority of the vote of the Corporation's outstanding voting securities;
WHEREAS, the original term of the Agreement was extended through September
30, 1997, pursuant to the First Amendment;
WHEREAS, at a meeting duly held on July 15, 1997, a majority of the Board
of Directors of the Corporation who are not interested persons of the
Corporation, having requested from InvestAmerica and received and evaluated
such information as deemed reasonably necessary to evaluate the terms of the
Agreement, determined that the continuance of the Agreement for an additional
one-year term was in the best interests of the Corporation;
NOW, THEREFOR, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Pursuant to Section 7 of the Agreement, the term of the Agreement
shall be continued in effect for a one year period from October 1, 1997,
through September 30, 1998.
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO
MACC PRIVATE EQUITIES INC. INVESTMENT ADVISORY AGREEMENT as of the date first
above written.
MACC PRIVATE EQUITIES INC.
By /s/ Paul M. Bass, Jr.
-------------------------------
Paul M. Bass, Jr., Chairman
14
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INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ David R. Schroder
------------------------------
David R. Schroder, President
15
<PAGE> 1
EXHIBIT 10.2.B
Second Amendment to Investment Advisory Agreement
between MorAmerica Capital Corporation and
InvestAmerica Investment Advisors, Inc.,
dated August 1, 1997
16
<PAGE> 2
SECOND AMENDMENT TO MORAMERICA CAPITAL CORPORATION
INVESTMENT ADVISORY AGREEMENT
THIS SECOND AMENDMENT TO MORAMERICA CAPITAL CORPORATION. INVESTMENT
ADVISORY AGREEMENT (this "Second Amendment"), dated as of August 1, 1997,
amends the terms of the MorAmerica Capital Corporation Investment Advisory
Agreement (the "Agreement") dated as of October 1, 1994, among MorAmerica
Capital Corporation (the "Corporation") and InvestAmerica Investment Advisers,
Inc. ("InvestAmerica"), as previously amended by the First Amendment to
MorAmerica Capital Corporation Investment Advisory Agreement (the "First
Amendment"), dated as of August 1, 1996. All terms and conditions of the
Agreement shall remain in full force and effect except as expressly amended
herein. All capitalized terms used but not defined herein shall have their
respective meanings set forth in the Agreement.
WHEREAS, the original term of the Agreement was for two years from the
date thereof, through September 30, 1996, subject to annual continuance
thereafter in accordance with Section 15 of the Investment Company Act of 1940,
as amended, by a majority of the Board of Directors of the Corporation who are
not interested persons of the Corporation, or by a vote of the holders of a
majority of the vote of the Corporation's outstanding voting securities;
WHEREAS, the original term of the Agreement was extended through September
30, 1997, pursuant to the First Amendment;
WHEREAS, at a meeting duly held on July 15, 1997, a majority of the Board
of Directors of the Corporation who are not interested persons of the
Corporation, having requested from InvestAmerica and received and evaluated
such information as deemed reasonably necessary to evaluate the terms of the
Agreement, determined that the continuance of the Agreement for an additional
one-year term was in the best interests of the Corporation;
NOW, THEREFOR, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Pursuant to Section 7 of the Agreement, the term of the Agreement
shall be continued in effect for a one year period from October 1, 1997,
through September 30, 1998.
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT TO
MORAMERICA CAPITAL CORPORATION INVESTMENT ADVISORY AGREEMENT as of the date
first above written.
MORAMERICA CAPITAL
CORPORATION.
By /s/ Paul M. Bass, Jr.
------------------------------
Paul M. Bass, Jr., Chairman
17
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INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ David R. Schroder
-----------------------------
David R. Schroder, President
18
<PAGE> 1
EXHIBIT 13
1997 Annual Report to Stockholders
<PAGE> 2
================================================================================
M A C C
Private Equities Inc.
ANNUAL REPORT
SEPTEMBER 30, 1997
================================================================================
<PAGE> 3
CORPORATE PROFILE
MACC Private Equities Inc. (Nasdaq National Market: MACC) (the "Corporation")
is a Delaware corporation and the sole shareholder of MorAmerica Capital
Corporation ("MorAmerica Capital"), a small business investment company
licensed in 1959. The Corporation and MorAmerica Capital are both regulated
under the federal securities laws as business development companies.
[MACC PRIVATE EQUITIES INC. SHARE DATA GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET BID PRICE
PER SHARE PER SHARE
--------------- ----------------
<S> <C> <C>
3/31/95* $13.15 $ 4.55
6/30/95* $13.33 $ 5.91
9/30/95* $15.67 $ 6.7
12/31/95* $15.93 $ 6.25
3/31/96* $16.09 $ 7.95
6/30/96* $15.88 $10.11
9/30/96* $16.1 $ 8.64
12/31/96* $16.02 $ 9.32
3/31/97 $16.16 $10.5
6/30/97 $14.71 $10
9/30/97 $14.79 $ 9.625
</TABLE>
===================================
*Net asset value per share and
market bid price per share values
have been adjusted to reflect the
payment of a 10% stock split
effected in the form of a stock
dividend on March 31, 1997.
===================================
As business development companies, the Corporation and MorAmerica
Capital focus the majority of their investing activities in U.S.-owned
businesses with annual sales volumes ranging from $1,000,000 to $30,000,000.
The companies also provide managerial support to their portfolio companies,
generally through membership on the board of directors.
Typically, the Corporation and MorAmerica Capital invest in businesses
with at least five to eight years of operating experience; however,
occasionally a minor portion of their consolidated investment portfolio may
consist of earlier stage ventures. MorAmerica Capital's investment portfolio
traditionally has been concentrated on manufacturing, distribution and service
businesses with no focus on any single technology or industry.
The investment strategy of the Corporation and MorAmerica Capital is to
realize capital gains from portfolio investment divestitures and liquidity
events five to seven years after the initial investment. In order to earn a
high return and to balance the Corporation's current expenses, the Corporation
and MorAmerica Capital seek current yielding investments with equity features,
such as preferred stock or debentures with warrants.
Table of Contents
===========================================================
To Our Shareholders. . . . . . . . . . . . . . . . 3
Selected Financial Data. . . . . . . . . . . . . . 5
Management's Discussion
and Analysis . . . . . . . . . . . . . . . . . . 6
Financial Statements . . . . . . . . . . . . . . . 16
Shareholder Information. . . . . . . . . . . . . . 35
===========================================================
2
<PAGE> 4
TO OUR SHAREHOLDERS
PROGRESS TOWARD CORPORATE GOALS
As we do each year, when the Board of Directors of your Corporation first
convened in Fiscal Year 1997, we reaffirmed the Corporation's primary goal,
which is to increase shareholder value. Despite a decline in the
Corporation's net asset value, which is one measure of shareholder value, we
are pleased to report that your Corporation was successful in a number of other
areas last year which moved us forward toward achieving our goal of enhanced
shareholder value.
One step we took this year to enhance shareholder value was the
declaration and payment of a 10% stock split effected in the form of a stock
dividend. Approximately 94,863 newly issued shares were distributed to
shareholders of the Corporation as of March 14, 1997, under the stock dividend.
We determined that the payment of a stock dividend was desirable in order to
increase the number of issued and outstanding shares of the Corporation's
Common Stock. The Corporation's liquidity has been restricted due to its
relatively few issued and outstanding shares. Thus, by increasing the number of
shares outstanding through the dividend, we have attempted to address this
liquidity consideration, while at the same time rewarding our existing
shareholders.
Also in an attempt to provide economical liquidity for selling
shareholders and enhanced value for remaining shareholders, the Corporation, as
it had in Fiscal Year 1996, undertook a Commission-Free Shareholder Sales Plan
during Fiscal Year 1997. Under this program during Fiscal Year 1997, the
Corporation repurchased 19,346 shares of its Common Stock from those
shareholders who owned less than 100 shares each. Over the past two years, the
Corporation has now repurchased a total of 70,061 shares under this program.
These shareholders had expressed an interest in an economical way to achieve
liquidity in their investments (without incurring brokerage costs), and the
Corporation was again pleased to provide this service to its shareholders. The
Board of Directors will continue to evaluate the stock dividend,
Commission-Free Shareholder Sales Plan and other means of increasing the value
of your investment by addressing liquidity and other value creation
considerations. Another successful step taken to support our annual goal of
increased shareholder value was that we achieved and exceeded the
Corporation's Fiscal Year 1997 investment goal of $8.5 million. The Corporation
invested $9,800,370, which exceeded our goal by 15% and exceeded 1996
investments by 91%. This investment level represents the single highest level
in the history of the Corporation and its subsidiary, MorAmerica Capital, and
we commend our management team on its ability to invest these funds in a very
competitive environment. The Corporation views achievement of its Fiscal Year
1997 investment level goal as another example of the successful support of two
most important investment objectives, long-term capital growth and increased
earnings stability.
As you know, the venture capital business has inherent risks and
variances which make it difficult to achieve a steady investment return. The
"Corporate Profile" section of this Annual Report indicates that your
Corporation's portfolio investments are expected to mature in from five to
seven years after the initial investment (the "investment cycle"). Last year,
we tried to emphasize some of the risks inherent in venture capital investing.
Specifically, due to the early stage in the investment cycle of a large number
of our portfolio investments, we noted that some early losses or depreciation
might be anticipated. Portfolio investments that generate losses or
depreciation are more likely to do so early in the investment cycle, and those
portfolio investments that generate gains or appreciation are more likely to do
so later in the investment cycle. In the three years commencing with Fiscal
Year 1995, the Corporation has invested $19,017,710 in new and follow-on
portfolio investments. When compared with $18,424,612, the total value of the
Corporation's investment portfolio at the end of Fiscal Year 1997, it becomes
quite clear that a substantial percentage of the Corporation's portfolio
investments are early in the investment
3
<PAGE> 5
cycle. Indeed, we did suffer significant depreciation in one of our larger
investments in fiscal 1997 which contributed significantly to a decline in net
asset value for the period. The good news in this area is that the majority
of our portfolio companies are healthy and over time may appreciate in value
as our investments mature.
Net asset value per share is not the only measure of shareholder value.
Of at least equal importance is the market price per share of the Corporation's
common stock. We are pleased to report that, after giving effect to the stock
dividend paid during Fiscal Year 1997, the closing bid price for shares of the
Corporation's Common Stock hit an all-time high during the third quarter of
Fiscal Year 1997. During June, 1997, the closing market bid price for shares
of the common stock reached $11.00. Prior to that date, the bid price for
shares of the Corporation's Common Stock had not closed above $10.11, adjusted
for the stock dividend.
In short, during the past year, as with each year, the Corporation has
attempted to build value for our shareholders. The results of our efforts in
this regard are best reflected in the MACC Private Equities Inc. Share Data
chart on page 2, which shows that the closing market bid price for the
Corporation's Common Stock increased from $4.55 on March 31, 1995 (the last day
of the first month in which trading in the Corporation's Common Stock
commenced) and from $8.64 on September 30, 1996, to $9.625 on September 30,
1997, increases of approximately 112% and 11%, respectively. Importantly, we
are beginning to develop a long-term trend as illustrated by the fact that for
the two full years ended September 30, 1997, the market bid price increased by
43.6%. We were pleased with the results of our efforts and our goal is to
continue to build value for our shareholders.
FINANCIAL PERFORMANCE
The Corporation had a net asset value per share of $14.79 as of
September 30, 1997, a decrease of approximately 8% as compared to net asset
value per share of $16.10 on September 30, 1996, adjusted for the stock
dividend. Additionally, the Corporation achieved net realized gains on
portfolio investments of $952,102 and a net change in net assets from
operations of ($1,501,298).
On December 12, 1996, the Board of Directors increased MorAmerica
Capital's paid-in-capital from $10,110,000 to $10,510,000. This change
increases MorAmerica Capital's maximum single investment size from $2,181,900
to $2,261,900 and thus supports larger investments as projected in the
Corporation's growth plans.
OPERATIONS - INVESTMENT AND DIVESTITURE ACTIVITY
During Fiscal Year 1997, the Corporation made total investments of
$9,800,370 in nine new portfolio companies and in follow-on investments in
seven 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 1998.
Divestitures and portfolio company liquidity events for Fiscal Year
1997 were significant with $1,223,420 in realized gains from the sale of
investments in five portfolio companies. Over the same period, $271,318 in
realized losses were recognized from one portfolio company, for a net realized
gain on investments of $952,102.
Most of the Corporation's portfolio investments are expected to mature
five to seven years after the initial investment. The Corporation continues to
review a number of promising investment prospects and will pursue profitable
divestiture opportunities whenever possible.
In conclusion, Fiscal Year 1997 was an eventful year in which we saw
our closing market bid price increase and our investment rate hit an all-time
high. We appreciate the trust placed in us by our shareholders, and we will
strive to continue to reward that trust by working to create increases in
shareholder value.
Paul M. Bass, Jr., David R. Schroder,
Chairman President
4
<PAGE> 6
SELECTED FINANCIAL DATA
MACC PRIVATE EQUITIES INC.(1)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
Seven and One- Four and One-
Half Months Half Months
Ended Sept. 30, Ended Feb. 15,
1997 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment (expense) income
net $(253,367) (89,576) 103,653 (17,776)(2) (1,613,419)(2) (2,613,832)(2)
Net realized gain (loss) on
investments, net of tax 952,102 514,172 1,102,697 4,514,338 (448,784) 1,051,036
Net change in unrealized
appreciation/depreciation
on investments (2,200,033) (641,851) 586,458 (948,191) 2,292,753 (3,391,714)
----------- ---------- --------- ---------- ------------ -----------
Net (decrease) increase
in net assets or (increase)
decrease in net deficit from $(1,501,298) (217,255) 1,792,808 3,548,371 230,550 (4,954,510)
operations =========== ========== ========= ========== ========== ==========
Extraordinary item - gain on
extinguishment of debt ________- _______- _______- _______- 11,622,270 ______-
==========
Net (decrease) increase in net
assets or (increase) decrease
in net deficit from operations $(1,501,298) (217,255) 1,792,808 3,548,371 11,852,820 (4,954,510)
=========== ========== ========= ========== ========== ==========
Net (decrease) increase in net
assets or (increase) decrease
in net deficit from operations
per common share before
extraordinary item $ (1.44)(4) (0.20)(3) 1.64(3) 3.24(3) 119.52 (2,568.43)
=========== ========== ==== ==== ====== ==========
Extraordinary item per
common share _______- ______- ______- ______- 6,025.02 ______-
========
Net (decrease) increase in
net assets or net (increase)
decrease in net deficit from
operations per common share $ (1.44) (0.20)(3) 1.64(3) 3.24(3) 6,144.54 (2,568.43)
=========== ========== ==== ==== ======== =========
Total assets $25,995,422 27,906,798 28,006,385 25,775,717 22,781,482 22,995,992
=========== ========== ========== ========== ========== ==========
Total long term debt $10,244,478 10,236,250 10,228,647 10,224,152 54,772,521 65,764,431
=========== ========== ========== ========== ========== ==========
</TABLE>
___________________________
(1)Four and one-half months ended February 15, 1995 and fiscal years ended
September 30, 1994, and 1993, 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, and fiscal years 1994 and
1993, respectively.
(3)Per share data have been restated to reflect a 10% stock split effected in
the form of a stock dividend on March 31, 1997.
(4)Computed using 1,039,615 shares outstanding at September 30, 1997.
5
<PAGE> 7
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 Corporation pursuant to
the safe-harbor provisions of the 1995 Act. In connection with these
safe-harbor provisions, the Corporation has identified in the "Risks" Section
below important factors that could cause actual results to differ materially
from those contained in any forward-looking statement made by or on behalf of
the Corporation. The Corporation further cautions that the factors identified
in the "Risks" Section are not exhaustive or exclusive. The Corporation does
not undertake to update any forward-looking statement which may be made from
time to time by or on behalf of the Corporation.
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 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"), which operated a variety of financial
service businesses, principally including state-chartered savings associations
known as "Morris Plan" companies, a mortgage lending company and MorAmerica
Capital. 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. 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. 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.
Because the Corporation adopted fresh-start accounting on February 15,
1995, the Financial Statements on a fresh-start basis are not comparable to
those of the predecessor companies. Accordingly, the Consolidated Statements of
Changes in Net Assets (Deficit) are presented on a predecessor-successor
company basis for fiscal year 1995.
Because of the diversity of financial service businesses operated by
MorAmerica Financial, the consolidated financial statements of MorAmerica
Financial for periods ended prior to the fresh-start date are not necessarily
representative of the results of operations of the Corporation or MorAmerica
Capital because the continuing business of the Corporation on a consolidated
basis has
6
<PAGE> 8
been and continues to be solely venture capital investing. Moreover, the
portfolio investments of the Corporation and MorAmerica Capital are expected to
mature in five to seven years, and the current principals of the Investment
Advisor have managed the Corporation and MorAmerica Capital throughout each of
the periods shown below. Accordingly, for purposes of discussing the results
of operations of the Corporation for the current fiscal year, as compared to
the results of operations of the Corporation and MorAmerica Capital for prior
fiscal years, the financial results of solely the venture capital operations
for the fiscal years ended September 30, 1997, through September 30, 1987, are
set forth in the following table. The table sets forth financial information
solely for MorAmerica Capital for the years ended September 30, 1987, through
the four and one-half months ended February 15, 1995, and for the Corporation
and MorAmerica Capital on a consolidated basis for periods ended after February
15, 1995. The following table should not be relied upon to the exclusion of the
audited financial statements or the selected financial data included elsewhere
in this Annual Report.
VENTURE CAPITAL OPERATIONS(1)
FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS ONLY)
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months
Ended Sept. 30, Ended Feb. 15,
1997 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Investment (expense) income
before income tax (253) (266) (66) (204) (1,011) (1,135)
Income tax benefit - 176 170 40 0 0
------ ---- ----- ------ ----- ------
Investment (expense)
income, net (253) (90) 104 (164) (1,011) (1,135)
------ ---- ----- ------ ----- ------
Net realized gain (loss) on
investments before income
tax 952 906 948 6,217 (449) 1,051
Income tax (expense) benefit - (392) 155 (1,206) 0 0
------ ---- ----- ------ ----- ------
Net realized gain (loss) on
investments, net 952 514 1,103 5,011 (449) 1,051
------ ---- ----- ------ ----- ------
Net change in unrealized
appreciation/depreciation
on investments (2,200) (642) 586 (3,150) 2,340 (2,394)
------ ---- ----- ------ ----- ------
Net (decrease) increase in
net assets from operations (1,501) (218) 1,793 1,697 880 (2,478)
====== ==== ===== ====== ===== ======
</TABLE>
(1)Fiscal years 1997 and 1996 and the seven and one-half months ended September
30, 1995, represent selected financial data of the Corporation on a
consolidated basis. All other periods represent selected financial data of
MorAmerica Capital on an unconsolidated basis. Data related to the results of
operations of MorAmerica Capital on an unconsolidated basis have been derived
from MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.
7
<PAGE> 9
VENTURE CAPITAL OPERATIONS(1)
FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS ONLY)
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment
(expense) income
before income tax (513) (816) (172) (646) (1,191) (1,471)
Income tax benefit 126 314 68 263 0 0
------ ----- ------ ------ ------ ------
Investment
(expense) income,
net (387) (502) (104) (383) (1,191) (1,471)
------ ----- ------ ------ ------ ------
Net realized gain
(loss) on investments
before income tax 396 1,779 6,852 17,907 4,675 170
Income tax
(expense) benefit (179) (685) (2,725) (7,310) (125) 0
------ ----- ------ ------ ------ ------
Net realized gain
(loss) on
investments, net 217 1,094 4,127 10,597 4,550 170
------ ----- ------ ------ ------ ------
Net change in
unrealized
appreciation/depreci-
ation on investments (2,468) 392 (6,081) (4,417) (2,256) 4,446
------ ----- ------ ------ ------ ------
Net (decrease)
increase in net assets
from operations (2,638) 984 (2,058) 5,797 1,103 3,145
====== ===== ====== ====== ====== ======
</TABLE>
(1)Fiscal years 1997 and 1996 and the seven and one-half months ended September
30, 1995, represent selected financial data of the Corporation on a consolidated
basis. All other periods represent selected financial data of MorAmerica
Capital on an unconsolidated basis. Data related to the results of operations
of MorAmerica Capital on an unconsolidated basis have been derived from
MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.
Results of Operations
Total investment 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,
realized gains, and unrealized appreciation in the portfolio. These are not
included in net investment income. However, another one of the Corporation's
long-term goals is to achieve net investment income and increased earnings
stability in future years. In this regard, 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.
8
<PAGE> 10
For fiscal year 1997, total investment income was $1,797,789, total
operating expenses were $2,051,156 and net investment expense was $253,367.
During fiscal year 1997, total income of $1,797,789, increased by
$107,998, or 6%, as compared to total income of $1,689,791 for fiscal year
1996. The increase in total income during the current year was the result of
increases in interest income and dividend income of 6% and 67%, respectively.
The Corporation attributes the increase in interest income to the higher number
of new and follow-on debt portfolio investments made since the end of fiscal
year 1996. The increase in dividend income is primarily attributable to
dividends paid by one new portfolio company and dividends paid by an existing
portfolio company which had not previously paid cash dividends.
Total operating expenses of $2,051,156 of the Corporation during fiscal
year 1997 increased by $95,789, or 5%, as compared to total operating expenses
of $1,955,367 for fiscal year 1996. The increase in total operating expenses
during the current year was the result of increases in management fees due to
increases in capital under management, and, in 1996, operating expenses included
a reduction in provision for doubtful accounts of $44,644.
The net investment expense of $253,367 for the current fiscal year was
an increase over net investment expense for fiscal year 1996 of $89,576. The
principal reason for the increase in net investment expense is that no income
tax benefit was recorded by the Corporation in the current fiscal year.
Excluding the effect of the income tax benefit, net investment expense before
income tax benefit was $265,576 in fiscal year 1996, and $253,267 in the current
fiscal year. This net investment expense level also represents a substantial
improvement over the net investment expense of the Corporation and MorAmerica
Capital for periods prior to fiscal year 1996 and the fifth straight year of
declines in net investment expense before income tax for MorAmerica Capital.
The Corporation views this as a step toward meeting its goal of achieving net
investment income and increased earnings stability, and anticipates that
current-yielding portfolio investments to be made in future periods should
increase total income during such periods.
In order to progress further toward this goal by decreasing operating
expenses, beginning in fiscal year 1996, the Corporation instituted a program to
facilitate its repurchase of shares of its Common Stock from those shareholders
owning fewer than 100 shares ("odd-lot shareholders"). During fiscal year
1996, the Corporation repurchased 50,715 shares from odd-lot shareholders,
representing approximately 676 beneficial owners of the Common Stock. Also
pursuant to this program, during fiscal year 1997 the Corporation repurchased
approximately 19,346 shares, representing approximately 280 beneficial owners of
the Common Stock. Accordingly, the Corporation believes that its repurchases to
date may result in lower shareholder communication expenses in future periods.
Net realized gain on investments for fiscal year 1997 totaled $952,102.
The Corporation also recorded net change in unrealized depreciation during
fiscal year 1997 of $2,200,033. These two items resulted in a net loss on
investments for fiscal year 1997 of $1,247,931. The change in depreciation was
due largely to depreciation taken in one portfolio company during the year.
9
<PAGE> 11
Most of the Corporation's portfolio investments are structured to mature
in five to seven years. 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. Due to
the provisions of the plans of reorganization under which MorAmerica Financial
operated during 1986-1993, a substantial percentage of the proceeds from
MorAmerica Capital's portfolio company liquidity events and divestitures was
paid out to creditors of the Corporation's predecessor entities, and therefore,
MorAmerica Capital made fewer portfolio investments during this period. During
fiscal years 1995 through 1997, MorAmerica Capital recorded higher levels of
new and follow-on portfolio investments, and the Corporation anticipates that
MorAmerica Capital will continue these higher portfolio investment levels over
the foreseeable future. As an ordinary element of its investment cycle, the
Corporation typically experiences unrealized depreciation and/or realized
losses on portfolio investments before it experiences unrealized appreciation
and/or realized gains.
The Corporation attributes approximately $1,629,876 of the net change in
unrealized depreciation on investment before income taxes to the write-down of
the Corporation's investment in one portfolio company recorded during the third
quarter of fiscal year 1997. The Corporation attributes the balance of the net
change in unrealized depreciation on investment before income taxes in fiscal
year 1997 to the earlier stage of the investment cycle of a large percentage of
the Corporation's investment portfolio, as described above. In addition, the
Corporation anticipates that it may realize fewer portfolio company liquidity
events and divestitures and could experience a higher level of unrealized
depreciation and/or realized losses on portfolio investments over the next
several years, and, as a result, the rate of growth, if any, in the
Corporation's net asset value may slow over this period. The Corporation
anticipates that the rate of growth, if any, in net asset value per share may
continue to increase over the next three to ten year period as a higher
percentage of the Corporation's portfolio investments reach maturity and
investment gains, if any, are taken. However, it is difficult to predict the
timing and amount of gains in the investment portfolio.
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
equivalents and cash, and the Small Business Investment Company ("SBIC") capital
program operated by the Small Business Administration (the "SBA").
The Corporation, 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 for the next three
years in commitment periods of up to five years through the SBIC program and the
Corporation anticipates that there will be capital available in future periods.
The Corporation 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 Corporation.
10
<PAGE> 12
As of September 30, 1997, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively totaled $5,442,479. The Corporation believes
that cash and anticipated corporate cash flows may not provide adequate funds
for the Corporation's planned $7,000,000 in new and follow-on investment
activities during fiscal year 1998. The Corporation anticipates that it will
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. MorAmerica Capital expects to apply for and
issue up to an additional $2,000,000 in SBA-guaranteed debentures in fiscal year
1998. With respect to these plans, MorAmerica Capital issued $1,000,000 in
SBA-guaranteed debentures in December, 1997. MorAmerica Capital may also apply
for additional leverage during the next twelve months. There can be no
assurances that the Corporation will be able to obtain any or all of the needed
capital through the SBIC capital program or other sources.
Liquidity for the next two 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
subsidiary, MorAmerica Capital, which mature as follows: $2,450,000 in 2000,
$5,690,000 in 2001 and $2,150,000 in 2003. It is anticipated MorAmerica Capital
would be able to roll over this debt with new ten year debentures when it comes
due.
Additional capital is anticipated to be required during fiscal year
1998, and the Corporation anticipates that it may seek additional capital in
fiscal year 1998 and 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 Corporation, to fund growth of the
Corporation, to meet principal payments, if necessary, as the outstanding
SBA-guaranteed debentures become due and payable and for other corporate
purposes.
Portfolio Activity
The Corporation's investment objectives for fiscal year 1997 called for
total new and follow-on investments of $8,500,000. During this period, the
Corporation invested $9,800,370 in 16 portfolio companies. Of this amount,
$8,225,789 was invested in nine new portfolio companies and $1,574,581 was
invested in follow-on investments in seven existing portfolio companies. The
Corporation's investments for fiscal year 1997 not only exceeded the
Corporation's investment objective, but also represent an all-time high and a
substantial improvement over total portfolio investments of prior one-year
periods. The Corporation's total investments were $5,135,250 in 1996 and
$4,082,089 in 1995. Management views investment objectives for any given year
as secondary in importance to the Corporation's overriding concern of investing
only in those portfolio companies which satisfy the Corporation's investment
criteria.
The Corporation attributes its higher level of investment during fiscal
year 1997 and its ability to achieve its investment level objective to a
continued strengthening of co-investment ties
11
<PAGE> 13
with investment partners who provide deal flow, a very active venture
financing market in 1997 and a continued commitment to increase the average
size of new investments.
Portfolio Changes
The table below summarizes the significant increases and decreases in
fair value of portfolio company securities held by the Corporation at September
30, 1997, as compared with fair value at September 30, 1996.
<TABLE>
<CAPTION>
FAIR VALUE
--------------------------------------------
Portfolio Company September 30, 1997 September 30, 1996
- ----------------- ------------------ ------------------
<S> <C> <C>
Apertus Technologies, Inc. $ 71,703 81,945
Central Fiber Corporation 550,000 400,000
Miles Media Group, Inc. 1,100,003 850,003
Northword Holding Corp. 235,208 470,415
Pharmco Products, Inc. 820,420 500,000
Portrait Display Inc. 200,000 650,002
Progressive Solutions, Inc. 875,200 625,200
Tuttle Design Build, Inc. 1 1,075,014
</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 of September 30, 1997, 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.
12
<PAGE> 14
Risks
Portfolio 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
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.
Some 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 are structured so as to return a current yield throughout most of
the term of the investments. However, these investments will typically produce
capital gains only when sold in five to seven years. There can be no assurance,
however, that any of the Corporation's investments will produce current yields
or capital gains.
13
<PAGE> 15
Operations Risks
The Corporation generally relies on portfolio investment divestitures
and liquidity events, as well as increases in fair value of portfolio
investments, to provide for increases in net asset value in any period. The
Corporation has stated above that it anticipates that the rate of growth in net
asset value may slow over the next several years depending on the timing of
gains from the current portfolio, but that the rate of growth in net asset value
may then increase for several years due to the higher investment levels achieved
in the last several fiscal years and anticipated to be achieved into the
foreseeable future. The Corporation typically relies on the sale of portfolio
companies in negotiated transactions and on the initial public offering of
portfolio company securities to provide for portfolio investment divestitures
and liquidity events. Accordingly, a contraction in the markets generally for
corporate acquisitions and/or initial public offerings could adversely affect
the Corporation's ability to realize capital gains, if any, from the sale of its
portfolio company securities. The SBIC guidelines under which MorAmerica
Capital operates permit the MorAmerica Capital Board of Directors to determine
increases in fair value of unliquidated portfolio investments based upon a
number of factors, including subsequent financings provided to portfolio
companies. Accordingly, decreases in the supply or demand for additional capital
to the Corporation's portfolio companies could adversely affect MorAmerica
Capital's ability to achieve increases, if any, in fair value of its portfolio
investments. The Corporation's failure to achieve its investment level
objectives for any particular year or years could also adversely affect the rate
of increase, if any, in net asset value.
Interest Rate Risks
The Corporation faces several risks in relation to changes in prevailing
market interest rates. First, at September 30, 1997, the Corporation had
outstanding $10,290,000 in principal amount of SBA-guaranteed debentures issued
by the Corporation's subsidiary, MorAmerica Capital, which mature as follows:
$2,450,000 in 2000, $5,690,000 in 2001 and $2,150,000 in 2003. These debentures
provide for a fixed rate of interest, and accordingly, changes in market
interest rates will have no effect on the amount of interest paid by the
Corporation with respect to the SBA-guaranteed debentures which are presently
outstanding. However, if MorAmerica Capital were to re-finance any of the
maturing SBA-guaranteed debentures by issuing additional SBA-guaranteed
debentures at a time when market interest rates have increased relative to the
rates paid on the maturing debentures, then the Corporation may incur higher
interest expenses during subsequent periods, and the Corporation's ability
during such periods to achieve a net operating profit, if any, could be
adversely affected.
Second, the Corporation has stated that one of its goals is to structure
more portfolio investments to provide a current yield in order to provide the
Corporation with increased earnings stability. These investments typically
provide for a fixed preferred dividend or interest rate. Accordingly, the
Corporation's ability to earn a net operating profit under its current strategy
could be adversely affected by a decrease in market interest rates over the next
several years because the increased level of portfolio investments anticipated
to be made during this period would reflect these lower interest
14
<PAGE> 16
rates, which would adversely affect the Corporation's projected total income
over the foreseeable future.
Third, many of the Corporation's portfolio companies have or will also
issue debt senior to the Corporation's investment. The payment of principal and
interest due on the Corporation's investment, therefore, will generally be
subordinate to payments due on any such senior debt. Moreover, senior debt
typically bears interest at a floating rate, whereas the Corporation's
investments generally do not. Therefore, any increase in market interest rates
may put significant economic pressure on those portfolio companies that have
issued senior debt which bears interest a floating rate. Accordingly, the
Corporation's ability to achieve net operating income and generally to realize
on its portfolio investments may be adversely affected by an increase in market
interest rates.
[Remainder of page intentionally left blank]
15
<PAGE> 17
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors
MACC Private Equities Inc.:
We have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiary, including the consolidated schedule of
investments, as of September 30, 1997, and the related consolidated statements
of operations and cash flows for the year ended September 30, 1997, and the
consolidated statements of changes in net assets for the years ended September
30, 1997 and 1996. 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 audit.
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, 1997. 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.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of MACC Private
Equities Inc. and subsidiary as of September 30, 1997, and the results of their
operations and their cash flows for the year then ended, and changes in net
assets for the years ended September 30, 1997 and 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
October 30, 1997
16
<PAGE> 18
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Loans and investments in portfolio securities
at market or fair value, cost of $20,680,038 (note 2) $18,424,612
U.S. treasury bills, at cost, which approximates market 2,928,924
Certificates of deposit 1,756,801
Cash 756,754
Other assets, net 1,035,331
Deferred income taxes (note 5) 1,093,000
-----------
Total assets $25,995,422
===========
Liabilities and Stockholders' Equity
Liabilities:
Debentures payable, net of discount (note 3) $10,244,478
Accrued interest 259,662
Accounts payable and other liabilities 111,440
-----------
Total liabilities 10,615,580
-----------
Stockholders' equity (notes 3 and 4):
Common stock, $.01 par value per share;
authorized 4,000,000 shares; issued 1,039,615 shares. 10,396
Additional paid-in-capital (notes 4 and 5) 15,312,381
Net investment loss (239,290)
Net realized gain on investments 2,551,781
Unrealized depreciation on investments (2,255,426)
-----------
Total stockholders' equity 15,379,842
-----------
Commitments (note 6)
Total liabilities and stockholders' equity $25,995,422
===========
Net assets per share $ 14.79
===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 19
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Investment income:
Interest $ 1,493,840
Dividends 181,378
Other 122,571
-----------
Total income 1,797,789
-----------
Operating expenses:
Interest 891,460
Management fees (note 6) 684,584
Professional fees 203,501
Other 271,611
-----------
Total operating expenses 2,051,156
-----------
Investment expense, net (253,367)
-----------
Realized and unrealized gain (loss) on investments (note 2):
Net realized gain on investments 952,102
Net change in unrealized
appreciation/depreciation on investments (2,200,033)
-----------
Net loss on investments (1,247,931)
-----------
Net change in net assets from operations $(1,501,298)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 20
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operations:
Net investment expense $ (253,367) (89,576)
Net realized gain on investments, net of tax 952,102 514,172
Net change in unrealized
depreciation on investments (2,200,033) (641,851)
----------- ----------
Net decrease in
net assets from operations (1,501,298) (217,255)
Issuance of common stock (note 4) - 354,000
Repurchase/retirement of common stock (note 4) (180,388) (506,097)
Recognized income tax benefit of
preconfirmation net operating losses - 265,000
Payments for fractional shares in connection
with stock split (note 4) ( 16,241) -
----------- ----------
Net decrease in net assets (1,697,927) (104,352)
Net assets:
Beginning of period 17,077,769 17,182,121
----------- ----------
End of period $15,379,842 17,077,769
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Decrease in net assets from operations $(1,501,298)
-----------
Adjustments to reconcile decrease
in net assets from operations to
net cash used in operating activities:
Change in provision for doubtful accounts 86,632
Net realized and unrealized loss on investments 1,247,931
Other 22,418
Change in assets and liabilities:
Receivables and other assets 157,891
Accrued interest, accounts payable, and other
liabilities (221,677)
-----------
Total adjustments 1,293,195
-----------
Net cash used in operating activities (208,103)
-----------
Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 1,466,175
Purchases of loans and investments
in portfolio securities (9,800,370)
Proceeds from disposition of other investments 18,146,077
Purchases of other investments (11,570,755)
-----------
Net cash used in investing activities (1,758,873)
-----------
Cash flows from financing activities:
Payments for fractional shares in
connection with stock split (16,241)
Retirement of common stock (180,388)
-----------
Net cash used in financing activities (196,629)
-----------
Net decrease in cash and cash equivalents (2,163,605)
Cash and cash equivalents at beginning of year 5,066,011
-----------
Cash and cash equivalents at end of year $ 2,902,406
===========
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 876,082
===========
Supplemental disclosure of noncash
investing and financing information -
Assets received in lieu of cash $ 321,441
</TABLE> ===========
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 subsidiary,
MorAmerica Capital Corporation (MACC). Effective March 31, 1997,
MorAmerica Realty Services, Inc., a former subsidiary, was merged into
Equities. Equities and MACC (the Company) 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.
On February 15, 1995, the Company consummated a plan of reorganization
as confirmed by the United States Bankruptcy Court for the Northern
District of Iowa on December 28, 1993. As of February 15, 1995, the
Company adopted fresh-start reporting in accordance with AICPA
Statement of Position (SOP) 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," resulting in the Company's
assets and liabilities being adjusted to fair values.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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 and money market deposit accounts to
be cash equivalents. At September 30, 1997, such amounts totaled
$2,145,652.
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 trading 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 2). 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.
21
<PAGE> 23
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS, CONTINUED
Income Taxes
Equities and its subsidiary 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 of a
change in tax rates on deferred tax assets and liabilities is
recognized in the period that includes the enactment date.
Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires that disclosures
be made regarding the estimated fair value of financial instruments,
which are generally described as cash, contractual obligations, or
rights to pay or receive cash. The carrying amount approximates fair
value for certain financial instruments because of the short-term
maturity of these instruments, including cash, U.S. treasury bills,
certificates of deposit, accrued interest, and accounts payable.
Portfolio investments are recorded at fair value. The
consolidated schedule of investments discloses the applicable fair
value and cost for each security investment, which aggregated to
$18,424,612 and $20,680,038, respectively, at September 30, 1997.
The estimated fair value of long-term debt is $10,800,000, with cost of
$10,290,000. This amount was calculated by discounting future cash
flows through estimated maturity using the borrowing rate currently
available to the Company for debt of similar original maturity.
Effect of New Financial Accounting Standards
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was adopted by the Company for the
year ended September 30, 1997, and provides standards for accounting
recognition or derecognition of assets and liabilities. SFAS 125 had
no material effect on the financial position and results of operations
of the Company.
No proposed financial accounting standards are expected to have a
material effect on the Company.
(2) LOANS AND INVESTMENTS IN PORTFOLIO SECURITIES
Loans and investments in portfolio securities include debt and equity
securities in small business concerns located throughout the
continental United States, with current concentrations in the Midwest
and New England. The Company determined that the fair value of its
portfolio securities was $18,424,612 at September 30, 1997. Among the
factors considered by the Company in determining the fair value of
investments were 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. 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.
22
<PAGE> 24
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) LOANS AND INVESTMENTS IN PORTFOLIO SECURITIES, CONTINUED
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, 1997, except for
Apertus Technologies, Inc. (28,922 common shares carried at $71,703,
with a cost of $250,536), are considered to be restricted in their
disposition and are illiquid.
(3) DEBENTURES PAYABLE
Debentures of MACC guaranteed by the Small Business Administration (SBA) of
$10,290,000 at September 30, 1997, are unsecured. In accordance with
SOP 90-7, the debentures were revalued to fair value on February 15,
1995. Debentures payable at September 30, 1997, are recorded net of
discount of $45,522. 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, 1997, $708,574 of MACC's
undistributed net realized earnings (computed under SBA guidelines) of
$6,441,040 were available for distribution to Equities.
(4) STOCKHOLDERS' EQUITY
Transactions in common stock during the year ended September 30, 1997, were
as follows:
<TABLE>
<CAPTION>
Shares Amount
-------- ----------
<S> <C> <C>
Purchase and retirement of shares (1) (19,346) $ (180,388)
Issuance of shares (2) 94,863 -
-------- ----------
Net change 75,517 $ (180,388)
======== ==========
</TABLE>
The purchase, retirement, and issuance of shares increased common stock
by $755. Amounts greater than par were allocated to additional paid-in
capital, increasing the balance by $180,194 to $15,312,381.
(1) The Company conducted a Commission-Free Shareholder
Sales Plan, purchasing outstanding shares from stockholders
with less than 100 shares.
23
<PAGE> 25
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) STOCKHOLDERS' EQUITY, CONTINUED
(2) On February 25, 1997, the Company declared a 10
percent stock split effected in the form of a dividend to
shareholders of record on March 14, 1997. As part of this
transaction, the Company made payments to shareholders
totaling $16,241, representing the amount due for fractional
shares. These payments were allocated to net realized gain on
investments.
On February 25, 1997, the Company's shareholders approved a resolution
to increase the number of shares authorized from 2,000,000 to
4,000,000.
(5) INCOME TAXES
Income tax expense 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>
<S> <C>
Computed "expected" tax benefit $(493,000)
Increase (reduction) in income taxes resulting from:
State income tax benefit, net of federal tax effect (87,000)
Nontaxable dividend income (48,000)
Change in the beginning of the period balance
valuation allowance for deferred tax assets 625,000
Other 3,000
----------
Income tax expense $ -
==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1997, are as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $5,441,000
Unrealized depreciation on investments 1,984,000
Other 103,000
----------
Total gross deferred tax assets 7,528,000
Less valuation allowance 6,435,000
----------
Net deferred tax assets $1,093,000
==========
</TABLE>
The valuation allowance for deferred tax assets as of September 30,
1996, was $5,810,000. The net change in the total valuation allowance
for the year ended September 30, 1997, was an increase of $625,000. 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 gross deferred tax assets, the Company
will need to generate future taxable income of approximately $19
million prior to the expiration of the net operating loss carryforwards
in 2009. The Company had no taxable income for the year ended
September 30, 1997. Based upon the level of historical taxable income
of MACC and projections for future taxable income over the periods in
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, 1997.
24
<PAGE> 26
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) INCOME TAXES, CONTINUED
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of September 30, 1997, will
primarily be allocated to additional paid-in capital under the
provisions of SOP 90-7.
At September 30, 1997, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$13,603,000, which are available to offset future federal taxable
income, if any, through 2009. Approximately $2,557,000 of the
carryforwards are available for the year ending September 30, 1998,
with approximately $1,004,000 available annually thereafter.
(6) COMMITMENTS
Management Agreements
Equities has an investment advisory agreement (the Agreement) with
InvestAmerica Investment Advisors, Inc. (IAIA). Three of Equities'
officers are officers and stockholders of IAIA. The Agreement expires
September 30, 1998, but may be renewed 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 60 days written
notice. Total management fees under the Agreement amounted to $94,592
for the year ended September 30, 1997. There were no incentive fees
accrued or paid under the Agreement in 1997.
MACC has a separate investment advisory agreement with IAIA. This
agreement expires September 30, 1998, but may be renewed annually
thereafter by the board of directors of MACC. The fee is equal to 2.5
percent of the capital under management (as defined in the Agreement)
on an annual basis, but in no event more than 2.5 percent of the assets
under management on an annual basis; plus $5,000 per month through
September 30, 1998. In addition, MACC contracted to pay IAIA 13.4
percent of the net realized capital gains, before taxes, on investments
in the form of an incentive fee. Net realized capital gains, as
defined in the agreement, are calculated as gross realized gains, net
of capital losses, less any unrealized depreciation, including
reversals of previously recorded unrealized depreciation, recorded
during the year. Capital losses and realized capital gains are not
cumulative under the incentive fee computation. Total management fees
under this agreement amounted to $589,992 for the year ended September
30, 1997. Incentive fees are an expense in determining net realized
gain (loss) on investments in the consolidated statement of operations.
There were no incentive fees accrued or paid under this agreement in
1997.
25
<PAGE> 27
<TABLE>
<CAPTION>
Schedule 1
----------
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
Company Equity Security Value Cost
------- -------- -------- ----- ----
<S> <C> <C> <C> <C>
Manufacturing:
Central Fiber Corporation *Warrant to purchase 18.4 common
Wellsville, Kansas shares at $1.00, expires
Recycles and manufactures October 29, 2002 $ 150,000 -
cellulose fiber products *Warrant to purchase 10.4 common
shares at $1.00, expires
October 29, 2002 - -
12% Debt security, due January 1, 2003 400,000 400,000
---------- ---------
15.60% 550,000 400,000
---------- ---------
Centrum Industries, Inc. 11% Debt security, due March 31, 2001 1,254,890 1,254,890
Holland, Ohio *Warrant to purchase 627,445 common
Holding Company with strategic basic shares at $2.00, expires March 8, 2004 13 13
industry holdings *Warrant to purchase 3,732 common
shares at $2.00, expires - -
March 8, 2004
*Warrant to purchase 4,547 common
shares at $2.00, expires - -
March 8, 2004
*Stock option to purchase 10,756 common
shares at $2.00, expires - -
September 1, 2007 ---------- ---------
5.40% 1,254,903 1,254,903
---------- ---------
Cirque Corporation *100,000 Shares Series A Pfd. at $3.35 335,000 335,000
Salt Lake City, Utah *55,834 Shares Series A Pfd. at $6.00 335,004 335,004
---------- ---------
Develops, manufactures, and markets 3.45% 670,004 670,004
PC pointing devices ---------- ---------
Humane Manufacturing, LLC 12% Debt security, due April 3, 2002 784,300 784,300
Baraboo, Wisconsin Membership interest 101,200 101,200
---------- ---------
Manufacturer of rubber mats and metal 44.28% 885,500 885,500
---------- ---------
animal confinement equipment
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
Schedule 1, Cont'd
------------------
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Company Equity Security Value Cost
------- ------ -------- ----- ----
<S> <C> <C> <C> <C>
Manufacturing, continued:
J-Tec Associates, Inc. *87,413 Shares Series C Pfd. at $2.86 $ 9,245 9,248
Cedar Rapids, Iowa *51,129 Shares Series E Pfd. at $27.83 52,622 52,635
Designer and manufacturer of gaseous *5,244 Shares Series C Pfd. at $2.86 555 555
and liquid flow measurement *31,250 Shares Series D Pfd. at $1.60 1,849 1,849
and metering devices *58 Common shares at $6.044 13 13
*3,200 Common shares at $0.1375 16 440
---------- --------
6.43% 64,300 64,740
---------- --------
KW Products, Inc.
Cedar Rapids, Iowa Variable rate debt security, due
Manufacturer of automobile after-market January 1, 2001 418,483 418,483
engine and brake repair machinery *29,340 Common shares at $.01 92,910 92,910
---------- --------
28.50% 511,393 511,393
---------- --------
Linton Truss Corporation *10% Debt security, due March 1, 2001 408,514 408,514
Delray Beach, Florida *542.8 Common shares at $73.69 40,000 40,000
Markets and manufactures residential *400 Shares Series 1 Pfd. - -
roof and floor truss systems *14% Debt security, due October 31, 2001 80,000 80,000
*Warrant to purchase 14.682% of
common shares, expires February 24, 2005 15 15
*Warrant to purchase 5.0% of
common shares, expires February 24, 2005 - -
*Warrant to purchase 1.224% of
common shares, expires February 24, 2005 - -
---------- --------
20.91% 528,529 528,529
---------- --------
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
Schedule 1, Cont'd
------------------
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Company Equity Security Value Cost
------- ------ -------- ----- ----
<S> <C> <C> <C> <C>
Manufacturing, continued:
Monitronics 1.29% *73,214 Common shares $ 73,214 54,703
Dallas, Texas -------- -------
Provides home security
systems monitoring services
Murphey Acquisition, LLC 12% Debt security, due November 15, 2001 937,500 937,500
Mishawaka, Indiana Membership interest - -
-------- -------
Manufacturer of custom plastic 19.29% 937,500 937,500
injection molded products for the RV and -------- -------
other industries
Portrait Display, Inc. *535,715 Shares Series B Pfd. at $1.40 99,999 750,001
Freemont, California *Warrant to purchase 16,071 common
Designs and markets pivot enabling shares at $.14, expires August 23, 1998 - -
software for LCD computer monitors *71,429 Shares Series C Pfd. at $1.40 100,001 100,001
*Warrant to purchase 13,570 Series C Pfd.
at $1.40, expires November 21, 2001 - -
*Warrant to purchase 12,240 Series C Pfd.
at $1.40, expires November 21, 2001 - -
*Warrant to purchase 27,160 Series C Pfd.
at $1.40, expires November 21, 2001 - -
-------- -------
7.20% 200,000 850,002
-------- -------
Simoniz USA, Inc. 12% Debt security, due January 2, 2002 750,000 750,000
Bolton, Connecticut *Warrant to purchase 6.5625% of common shares
Producer of cleaning and wax at $7,803.72 per share, expires December 23, 2006 - -
-------- -------
products under the Simoniz 6.56% 750,000 750,000
-------- -------
brand and private label brand names
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
Schedule 1, Cont'd
------------------
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Percent of
Company Equity Security net assets
------- ------ -------- ----------
<S> <C> <C> <C>
Manufacturing, continued:
Taylor Holdings, Inc. 8% Debt security, due May 31, 2003
Kansas City, Missouri *48,038 Common shares at $1.00
Manufacturer of industrial *292,800 Shares Pfd. at $1.04
bagging equipment *Warrant to purchase 56,529 common shares
at $1.00, expires May 31, 2002
16.80%
Tru-Circle Corporation 11% Debt security, due December 11, 2001
Wichita, Kansas *Warrant to purchase 271,234 common shares
Manufacturer of precision parts for the at $.45, expires December 11, 2007
aircraft, aerospace, and defense industries 9.00%
Weld Racing, Inc. 13% Debt security, due June 13, 2002
Kansas City, Missouri *Warrant to purchase 26.9824 common shares
Manufacturer of custom wheels for the at $1.00, expires June 13, 2008
performance automotive aftermarket 4.50%
Total manufacturing 60.09%
-------
Chemicals:
Pharmco Products, Inc. 12% Debt security, due April 1, 2000
Brookfield, Connecticut 16,675 Shares Class A Res. Pfd. at $10.00
Distributor and processor of ethyl *25 Common shares
alcohol products 8.75%
Total chemicals 5.32%
-------
Value Cost
----- ----
<S> <C> <C>
<CAPTION>
Manufacturing, continued:
Taylor Holdings, Inc. $ 574,163 574,163
Kansas City, Missouri 48,038 48,038
Manufacturer of industrial 304,512 304,512
bagging equipment
565 565
---------- ----------
927,278 927,278
---------- ----------
Tru-Circle Corporation 1,218,750 1,218,750
Wichita, Kansas
Manufacturer of precision parts for the 122 122
---------- ----------
aircraft, aerospace, and defense industries 1,218,872 1,218,872
---------- ----------
Weld Racing, Inc. 700,000 700,000
Kansas City, Missouri
Manufacturer of custom wheels for the 32 32
---------- ----------
performance automotive aftermarket 700,032 700,032
---------- ----------
Total manufacturing 9,271,525 9,753,456
---------- ----------
Chemicals:
Pharmco Products, Inc. 333,250 333,250
Brookfield, Connecticut 487,170 166,750
Distributor and processor of ethyl - -
---------- ----------
alcohol products 820,420 500,000
---------- ----------
Total chemicals 820,420 500,000
---------- ----------
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Company Equity Security
------- ------ --------
<S> <C> <C>
Service/Merchandising:
Apertus Technologies, Inc. Less than
Eden Prairie, Minnesota 1.00% *28,922 Common shares at $8.66
Acquires, develops, markets, and
licenses IBM and IBM compatible
mainframe software
Concentrix Corporation 11,550 Shares 10% Amortizing Pfd. at $100.00
Rochester, New York *Warrant to purchase 412,500 common shares
Provides media outsourcing solutions at $.01, expires April 1, 2007
to corporations including telemarketing, *Warrant to purchase 82,500 common shares
fulfillment and creative communications at $.01, expires April 1, 2007
*Warrant to purchase 82,500 common shares
at $.01, expires April 1, 2007
*Warrant to purchase 100,650 common shares
at $.01, expires April 1, 2007
8.25%
Heritage Consumer Products, LLC 12% Debt security, due September 1, 2004
Brookfield, Connecticut Membership interest
Distributor of consumer over the counter 9.30%
pharmaceutical products
NewPath Communications, LC 10% Debt security, due April 16, 2002
Des Moines, Iowa Membership interest
Rural cable TV network with subscribers 6.93%
in Iowa, Illinois and Missouri
Value Cost
----- ----
<CAPTION>
<S> <C> <C>
Service/Merchandising:
Apertus Technologies, Inc.
Eden Prairie, Minnesota $ 71,703 250,536
Acquires, develops, markets, and ------------- -----------
licenses IBM and IBM compatible
mainframe software
Concentrix Corporation 1,155,000 1,155,000
Rochester, New York
Provides media outsourcing solutions - -
to corporations including telemarketing,
fulfillment and creative communications - -
- -
- -
------------- -----------
1,155,000 1,155,000
------------- -----------
Heritage Consumer Products, LLC 983,913 983,913
Brookfield, Connecticut 147,587 147,587
------------- -----------
Distributor of consumer over the counter 1,131,500 1,131,500
pharmaceutical products ------------- -----------
NewPath Communications, LC 847,000 847,000
Des Moines, Iowa 385 385
------------- -----------
Rural cable TV network with subscribers 847,385 847,385
------------- -----------
in Iowa, Illinois and Missouri
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Company Equity Security
------- ------ --------
<S> <C> <C>
Service/Merchandising, continued:
Organized Living, Inc. 400,000 Shares Series A Pfd. convertible at $1.00
Lenexa, Kansas 130,435 Shares Series B Pfd. convertible at $1.15
Retail specialty store for storage 43,478 Shares Series B Pfd. convertible at $1.15
and organizational products 6.00%
Potpourri Collection, Inc. Variable debt security, due May 31, 2001
Medfield, Massachusetts *Warrant to purchase 40 common
Gift and stitchery mail order shares at $.01, expires December 23, 2001
catalog retailer 3.46%
Progressive Solutions, Inc. *12% Debt security, due December 31, 1999
Salt Lake City, Utah *12% Debt security, due March 31, 2000
Develops court automation and *Warrant to purchase 33,852 common shares
public records management software at $0.0066, expires January 25, 2000
*Warrant to purchase 14,505 common shares
at $0.0069, expires December 13, 2004
*12% Debt security, due December 31, 1999
*Warrant to purchase 10,000 common shares
at $14.00, expires May 28, 2002
*Warrant to purchase 300 common shares
at $.1667, expires May 28, 2002
*12% Debt security, due May 31, 1997
*12% Debt security, due on demand
*15% Debt security, due on demand
28.80%
RSI Holdings, Inc. 11% Debt security, August 22, 2002
Fargo, North Dakota *Warrant to purchase 1,188 common shares
Satellite simulcast communications and at $251.86, expires May 22, 2007
services to the gaming industry 11.88%
</TABLE>
<TABLE>
<CAPTION>
Value Cost
----- ----
<S> <C> <C>
Service/Merchandising, continued:
Organized Living, Inc. $ 400,000 400,000
Lenexa, Kansas 150,000 150,000
Retail specialty store for storage 50,001 50,001
---------------- ----------------
and organizational products 600,001 600,001
---------------- ----------------
Potpourri Collection, Inc. 383,333 383,333
Medfield, Massachusetts
Gift and stitchery mail order - -
---------------- ----------------
catalog retailer 383,333 383,333
---------------- ----------------
Progressive Solutions, Inc. 111,600 150,000
Salt Lake City, Utah 260,600 350,000
Develops court automation and
public records management software 100 100
100 100
93,200 125,000
- -
- -
149,000 200,000
111,600 150,000
149,000 200,000
---------------- ----------------
875,200 1,175,200
---------------- ----------------
RSI Holdings, Inc. 600,000 600,000
Fargo, North Dakota
Satellite simulcast communications and - -
---------------- ----------------
services to the gaming industry 600,000 600,000
---------------- ----------------
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Company Equity Security
------- ------ --------
<S> <C> <C>
Service/Merchandising, continued:
Sight & Sound Distributors, Inc. 12.5% Debt security, due April 22, 2001
St. Louis, Missouri *Warrant to purchase 53,911 common shares
National video products distributor at $.01, expires April 22, 2007
5.67%
Tuttle Design Building, Inc. *106,362 Shares Pfd. at $13.59
Lakeworth, Florida *26.14% Interest in $550,000 promissory note
Distributor of ornamental and bedding plants *8% Loan due December 31, 1999
to retailers and provider of irrigation 9.00%
and landscaping services
Total service/merchandising
Other:
Miles Media Group, Inc. *Warrant to purchase 570 common
Sarasota, Florida shares at $52.64, expires February 2, 2001
Tourist magazine publisher *Warrant to purchase 1,799 common
shares at $52.64, expires June 1, 2002
12% Loan, due June 1, 1997
*4,500 Shares Red. Pfd. at $100.00
*1,550 Shares Class A Conv. Pfd. at $32.26
*5,000 Shares Class C Conv. Pfd. at $10.00
*1,000 Shares Red. Pfd. at $100.00
*Warrant to purchase 1,100 common shares
shares at $186, expires December 1, 2001
26.70%
</TABLE>
<TABLE>
<CAPTION>
Percent of
net assets Value Cost
---------- ----- ----
<S> <C> <C> <C>
Service/Merchandising, continued:
Sight & Sound Distributors, Inc. $ 1,333,333 1,333,333
St. Louis, Missouri
National video products distributor - -
--------------- -------------
1,333,333 1,333,333
--------------- -------------
Tuttle Design Building, Inc. - 1,444,990
Lakeworth, Florida 1 143,770
Distributor of ornamental and bedding plants - 41,116
--------------- -------------
to retailers and provider of irrigation 1 1,629,876
and landscaping services --------------- -------------
Total service/merchandising 45.35% 6,997,456 9,106,164
------- --------------- -------------
Other:
Miles Media Group, Inc.
Sarasota, Florida - -
Tourist magazine publisher
- -
200,000 200,000
700,000 450,000
50,003 50,003
50,000 50,000
100,000 100,000
- -
--------------- -------------
1,100,003 850,003
--------------- -------------
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
Percent of
Company Equity Security net assets
------- ------ -------- ----------
<S> <C> <C> <C>
Other, continued:
Northword Holding Corporation *325.8 Shares Red. Pfd. at $1,000.00
Minocqua, Wisconsin *235 Common shares at $615.38
Publisher of nature-related books, *Earnout warrant
calendars, posters, and audio products *Earnout warrant
2.10%
Total others 8.65%
-----
Value Cost
----- ----
<CAPTION>
<S> <C> <C>
Other, continued:
Northword Holding Corporation $ 235,208 325,800
Minocqua, Wisconsin - 144,615
Publisher of nature-related books, - -
calendars, posters, and audio products - -
---------------- -----------
235,208 470,415
---------------- -----------
Total others 1,335,211 1,320,418
---------------- -----------
$ 18,424,612 20,680,038
================ ===========
</TABLE>
*Presently nonincome producing
See accompanying notes to consolidated schedule of investments.
33
<PAGE> 35
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(A) For investments held at the February 15, 1995, fresh-start date,
the stated cost represents the fair value at the fresh-start date.
(B) At September 30, 1997, all securities except for 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
subsidiary (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, 1997, the cost of securities for federal income
tax purposes was $23,385,033, and the aggregate unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation $ 720,420
Unrealized depreciation (5,680,841)
-----------
Net unrealized depreciation $(4,960,421)
===========
</TABLE>
(E) The Companies own a portfolio which includes investments in
restricted securities of small businesses. Within this portfolio, 21
of these restricted securities include registration rights, and 6 of
these restricted securities do not include registration rights. Within
the 21 securities that include registration rights, the actual rights
include the following general characteristics:
1. The securities generally provide for demand rights as
follows:
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.
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.
34
<PAGE> 36
SHAREHOLDER INFORMATION
STOCK TRANSFER AGENT
ChaseMellon 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 3,074 record holders of its common
stock at November 28, 1997.
ANNUAL MEETING
The Annual Meeting of Shareholders of the Corporation will be held on
Tuesday, February 24, 1998, at 10:00 a.m. at the Five Seasons Hotel, 350 First
Avenue N.E., Cedar Rapids, Iowa.
DIVIDENDS
The Corporation has no history of paying cash dividends and does not
anticipate declaring any cash dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Corporation's business.
During fiscal year 1997, however, the Corporation declared and paid a 10% stock
split effected in the form of a stock dividend. 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 is traded in the over-the-counter
market through the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market under the symbol "MACC." At the close of
business on November 28, 1997, the bid price for shares of the Corporation's
common stock was $9.375. The following high and low bid quotations for the
shares during each quarterly period ended on the date shown below of the
Corporation's fiscal year 1997 were taken from quotations provided to the
Corporation by the National Association of Securities Dealers, Inc:
<TABLE>
<CAPTION>
High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1996 $ 9.32* 8.18*
March 31, 1997 10.50 9.09*
June 30, 1997 11.00 10.00
September 30, 1997 10.00 9.00
</TABLE>
*High and low bid quotations for the three months ended December 31,
1996, and the low bid quotation for the three months ended March 31, 1997, have
been adjusted to reflect the payment of a 10% stock split effected in the form
of a stock dividend on March 31, 1997.
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
35
<PAGE> 37
---------------------------------------
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
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
TODD J. STEVENS, Salt Lake City, Utah
Manager of the Utah Office of Wasatch Venture
Fund, Manager of the Venture Capital Department of
Zions First National Bank
36
<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.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 23,608,962
<INVESTMENTS-AT-VALUE> 21,353,536
<RECEIVABLES> 0
<ASSETS-OTHER> 1,035,331
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,995,442
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,615,580
<SENIOR-EQUITY> 10,396
<PAID-IN-CAPITAL-COMMON> 15,312,381
<SHARES-COMMON-STOCK> 1,039,615
<SHARES-COMMON-PRIOR> 964,098
<ACCUMULATED-NII-CURRENT> (239,290)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,551,781
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,255,426)
<NET-ASSETS> 15,379,842
<DIVIDEND-INCOME> 181,378
<INTEREST-INCOME> 1,493,840
<OTHER-INCOME> 122,571
<EXPENSES-NET> 2,051,156
<NET-INVESTMENT-INCOME> (253,367)
<REALIZED-GAINS-CURRENT> 952,102
<APPREC-INCREASE-CURRENT> (2,200,033)
<NET-CHANGE-FROM-OPS> (1,501,298)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 17,190
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,346
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 94,863
<NET-CHANGE-IN-ASSETS> (1,697,927)
<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>
