<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24412
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MACC Private Equities Inc.
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(Exact name of registrant as specified in its charter)
Delaware 42-1421406
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
101 Second Street S.E., Suite 800, Cedar Rapids, Iowa 52401
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(Address of principal executive offices)
(Zip Code)
(319) 363-8249
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Please indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At June 30, 1997, the registrant had issued and outstanding 1,058,961
shares of common stock.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
------- -------------------- ----
<S> <C> <C>
Condensed Consolidated Balance
Sheets (Unaudited) at June 30,
1997, and September 30, 1996............................................. 3
Condensed Consolidated Statements of
Operations (Unaudited) for the three
months ended June 30, 1997, and
June 30, 1996, and the nine months
months ended June 30, 1997, and
June 30, 1996............................................................ 4
Condensed Consolidated Statements
of Cash Flows (Unaudited) for the nine
months ended June 30, 1997, and
the nine months ended June 30, 1996..................................... 5
Notes to Condensed Consolidated
Financial Statements.................................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results Of Operations........................ 7
PART II. OTHER INFORMATION....................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................ 11
Signatures.............................................................. 12
EXHIBIT INDEX........................................................... 13
</TABLE>
2
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Assets
Loans and investments in portfolio securities at market
or fair value, cost of $17,762,386 $ 17,162,642 11,620,748
U.S. treasury bills, at cost, which approximates market 4,827,384 12,202,414
Certificates of deposit 1,657,801 1,657,801
Cash 408,784 321,191
Other assets, net 898,930 1,011,644
Deferred income tax 1,093,000 1,093,000
-------------- --------------
Total assets $ 26,048,541 27,906,798
============== ==============
Liabilities and stockholders' equity
Liabilities:
Debentures payable, net of discount $ 10,242,291 10,236,250
Accrued interest 106,974 259,662
Accounts payable and other liabilities 126,428 333,117
-------------- --------------
Total liabilities 10,475,693 10,829,029
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Stockholders' equity:
Common stock, $.01 par value per share;
4,000,000 shares authorized;
1,058,961 shares issued and
outstanding 964,098 in 1996
(See Note 2) 10,590 9,641
Additional paid-in-capital 15,492,575 15,492,575
Net investment (loss) income (311,015) 14,077
Net realized gain on investments 980,442 1,616,869
Unrealized depreciation on investments (599,744) (55,393)
-------------- --------------
Total stockholders' equity $ 15,572,848 17,077,769
-------------- --------------
Total liabilities and stockholders' equity $ 26,048,541 27,906,798
============== ==============
Net assets per share (See Note 2) $ 14.71 $ 17.71
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
MACC PRIVATE EQUITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the three For the nine For the three For the nine
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1997 1997 1996 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Investment income:
Interest $ 313,232 1,167,054 358,980 999,984
Dividends 42,794 67,735 26,635 97,216
Other 3,930 53,119 147,999 158,206
------------ ------------ ------------- ------------
Total income 359,956 1,287,908 533,614 1,255,406
------------ ------------ ------------- ------------
Operating expenses:
Interest 220,974 670,254 222,685 664,490
Management fees 171,146 513,438 143,119 457,076
Professional fees 39,025 173,231 73,630 200,695
Other operating expenses 85,818 260,264 80,719 203,679
Change in provision for
doubtful accounts (334) (4,188) (9,981) (16,216)
------------ ------------ ------------- ------------
Total operating expenses 516,629 1,612,999 510,172 1,509,724
------------ ------------ ------------- ------------
Investment (expense) income,
net before income tax expense (156,673) (325,091) 23,442 (254,318)
Income tax expense (79,000) 0 0 0
------------ ------------ ------------- ------------
Investment (expense) income net (235,673) (325,091) 23,442 (254,318)
------------ ------------ ------------- ------------
Realized and unrealized (loss) gain on
investments:
Net realized (loss) gain on investments (1,280,290) (619,237) 326,541 984,945
Net change in unrealized appreciation/
depreciation on investments (145,636) (544,352) (588,799) (645,775)
------------ ------------ ------------- ------------
Net (loss) gain on investments
before income tax
benefit (expense) (1,425,926) (1,163,589) (262,258) 339,170
Income tax benefit (expense) 117,000 0 (345,000) (602,000)
------------ ------------ ------------- ------------
Net loss on investments (1,308,926) (1,163,589) (607,258) (262,830)
------------ ------------ ------------- ------------
Net change in net assets
from operations $(1,544,599) (1,488,680) (583,816) (517,148)
============ ============ ============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Cash flows from operating activities:
Decrease in net assets
from operations $ (1,488,680) (517,148)
------------- -------------
Adjustments to reconcile decrease in
net assets from operations to net cash
(used in) provided by operating activities:
Change in provision for doubtful accounts (4,928) (17,072)
Net realized and unrealized loss (gain) on investments 1,163,589 (339,170)
Deferred income taxes 0 602,000
Other 16,684 16,233
Change in assets and liabilities:
Other assets 106,999 1,559,266
Accrued interest, accounts payable,
and other liabilities (359,377) (385,250)
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Total adjustments 922,967 1,436,007
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Net cash (used in) provided by operating activities (565,713) 918,859
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Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 1,587,627 4,333,082
Purchases of loans and investments in
portfolio securities (8,293,110) (4,936,703)
Proceeds from disposition of other investments 16,951,018 12,658,207
Purchases of other investments (9,327,682) (11,368,467)
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Net cash provided by investing activities 917,853 686,119
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Cash flows from financing activities:
Dividend payment (16,241) 0
Proceeds from issuance of common stock 0 354,000
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Net cash (used in) provided by financing activities (16,241) 354,000
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Net increase in cash and cash equivalents 335,899 1,958,978
Cash and cash equivalents at beginning of period 5,066,011 6,255,803
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Cash and cash equivalents at end of period $ 5,401,910 8,214,781
============= =============
Supplemental disclosures of cash flow information -
Cash paid during the period for interest $ 809,751 812,151
============= =============
Assets received in lieu of cash $ 245,441 0
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
MACC PRIVATE EQUITIES INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1997, September 30, 1996, and June 30, 1996
(1) Basis of Presentation
The accompanying condensed consolidated financial statements, which
include the accounts of MACC Private Equities Inc. and its wholly-owned
subsidiary MorAmerica Capital Corporation (the "Company") have been prepared in
accordance with generally accepted accounting principles for investment
companies. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The financial statements included herein have been prepared in accordance
with generally accepted accounting principles for interim financial information
and instructions to Form 10-Q and Article 6 of Regulation S-X. The financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of MACC Private Equities Inc. and Subsidiaries as
of and for the year ended September 30, 1996. The information reflects all
adjustments consisting of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the interim periods. The results of the interim period reported
are not necessarily indicative of results to be expected for the year.
(2) Common Stock
In the second quarter ended March 31, 1997, the Company declared a 10%
stock dividend resulting in the issuance of 94,863 shares of common stock to
its shareholders. Cash of $16,141 was paid for fractional shares. The Company
had total shares issued and outstanding on June 30, 1997, of 1,058,961 as
compared to total shares issued and outstanding on September 30, 1996, of
964,098.
[Remainder of page intentionally left blank]
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by the Company pursuant to the
safe-harbor provisions of the 1995 Act. In connection with these safe-harbor
provisions, the Company has identified in its Annual Report to Shareholders for
the fiscal year ended September 30, 1996, important factors which could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. The Company further cautions
that such factors are not exhaustive or exclusive. The Company does not
undertake to update any forward-looking statement which may be made from time
to time by or on behalf of the Company.
RESULTS OF OPERATIONS
Third Quarter and Nine Months Ended June 30, 1997, Compared to Third
Quarter and Nine Months Ended June 30, 1996
Total investment income includes the Company's income from interest,
dividends and fees. Net investment expense represents total investment income
minus operating and interest expenses, net of applicable income taxes. Total
investment income does not include realized gains and losses or unrealized
appreciation and depreciation in portfolio investments. However, consistent
with one of the Company's long-term goals of achieving net investment income
and increased earnings stability in future years, a significant proportion of
new portfolio investments are structured so as to provide a current yield
through interest or dividends. The Company also earns interest on short term
investments of cash funds.
During the current year, third quarter total investment income of $359,956
was approximately 33% less than total investment income of $533,614 for the
prior year third quarter. In the current year third quarter as compared to the
prior year third quarter, interest income decreased $45,748, dividend income
increased $16,159, and other income decreased $144,069. Interest income
incurred an adjustment of $70,316 attributable to a portfolio company loss
during the quarter. Without this loss and interest adjustment, interest income
would have been an increase over the third quarter 1996. Dividend income has
increased due to a large dividend paid on one portfolio company. The decrease
in other income was primarily due to lower processing fees on new investments
in the current quarter, and a prior year $78,002 adjustment of an accrual for a
lawsuit against a subsidiary and an estimated initial recovery under the
subsidiary's insurance policy.
7
<PAGE> 8
For the current nine-month period, total income of $1,287,908 increased
approximately 3% over total income of $1,255,406 in the prior year nine-month
period. For the current year nine-month period as compared to the prior year
nine-month period, interest income increased from $999,984 to $1,167,054 while
dividend income decreased $97,216 to $67,735. The increase in investment
income and particularly the increase in interest income during the current year
nine-month period is primarily attributable to the significant percentage of
the new and follow-on portfolio investments made by the Company since the end
of the prior year nine-month period that were structured as subordinated
debentures.
Total operating expenses for the third quarter and nine-month period of
the current year total $516,629 and $1,612,999, respectively, increases of
approximately 1% and 7%, respectively, as compared to total operating expenses
for the prior year third quarter of $510,172 and nine-month period of
$1,509,724. Management fees increased from $143,119 to $171,146 in the current
year third quarter as compared to the prior year third quarter due to the
increase in assets and capital under management. The decrease of $34,605 in
professional fees during the current year third quarter and $27,464 in the
current year nine-month period as compared to the prior year third quarter and
nine-month period was due largely to the reduced corporate legal expenses for
the current periods.
During the current year third quarter and nine-month period, the Company
recorded net realized losses on investments before income taxes of $1,280,290
and $619,237, respectively, as compared with net realized gains on investments
before income taxes during the prior year third quarter and nine-month period
of $326,541 and $984,945, respectively. The net realized and unrealized losses
on investments during the current year third quarter and nine-month period are
due primarily to the write off of $1,444,989 and a write down of $144,128 of
one portfolio company investment. These realized and unrealized losses were
not anticipated by management, and the results for the current year periods
reflect the total write off and write down of this portfolio company
investment. The write off and write down of this portfolio company investment
was in accordance with the company's valuation policies which provide for
semi-annual valuation and interim adjustments based on portfolio company
events. Management does not attempt to maintain a comparable level of realized
gains from year to year or quarter to quarter but instead attempts to maximize
total investment portfolio appreciation through realizing gains in the
disposition of securities and investing in new portfolio investments.
[Remainder of page intentionally left blank]
8
<PAGE> 9
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has relied upon several sources to fund its
investment activities, including the Company's U.S. treasury bills, cash
equivalents and cash, and the Small Business Investment Company ("SBIC")
capital program operated by the Small Business Administration (the "SBA").
The Company, through its wholly-owned subsidiary, MorAmerica Capital, from
time to time may seek to procure additional capital through the SBIC capital
program to provide a portion of its future investment capital requirements. At
present, there is availability of capital through the SBIC capital program and
the Company anticipates that there will be capital available in future periods.
The Company also believes that federal legislation which permits SBICs to
obtain debt financing from federal home loan banks may provide an additional
future source of debt financing for the Company.
As of June 30, 1997 the Company's U.S. treasury bills, certificates of
deposit and cash totaled $6,893,969. The Company believes that this provides
adequate funds for the Company's planned $8,500,000 in new and follow-on
investment activities during the current fiscal year, of which $8,293,110 was
invested during the first nine months of the current fiscal year. The Company
may need additional capital to meet its anticipated cash requirements over the
next twelve months, including investment activities, operating expenses and
odd-lot shareholder stock repurchases.
Liquidity through 1999 will not be impacted by principal payments on the
Company's debentures payable because there are no scheduled principal payments
until 2000. Debentures payable are composed of $10,290,000 in principal amount
of SBA-guaranteed debentures issued by the Company's subsidiary, MorAmerica
Capital, which mature as follows: $2,450,000 in 2000, $5,690,000 in 2001 and
$2,150,000 in 2003.
While additional capital is not anticipated to be required during the
current fiscal year, the Company anticipates that it may seek additional
capital in future years, either in the form of additional SBA-guaranteed
debentures or participating securities issued by MorAmerica Capital or in the
form of common stock of the Company, to fund growth of the Company, to meet
principal payments as the outstanding SBA-guaranteed debentures become due and
payable and for other corporate purposes.
9
<PAGE> 10
PORTFOLIO ACTIVITY
During the three months ended June 30, 1997, the Company invested
$4,532,046 in seven portfolio companies, consisting of $4,187,917 invested in
five new portfolio companies and $344,129 invested in follow-on investments in
two existing portfolio companies. For the nine months ended June 30, 1997, the
Company made total investments of $8,293,110 in fourteen portfolio companies,
consisting of $7,094,289 invested in eight new portfolio companies and
$1,198,821 invested in follow-on investments in six existing portfolio
companies. The Company's investment level objectives for fiscal year 1997 call
for total new and follow-on investments of $8,500,000. Based upon the total
amount of new and follow-on investments made during the nine months ended June
30, 1997, the Company anticipates that it will achieve its investment level
objectives for the current fiscal year. However, management views investment
level objectives for any given year as secondary in importance to the Company's
overriding concern of investing in only those portfolio companies which satisfy
the Company's investment criteria.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Company's outstanding common stock is
determined quarterly, as soon as practicable after and as of the end of each
calendar quarter, by dividing the value of total assets minus total liabilities
by the total number of shares outstanding at the date as of which the
determination is made.
In calculating the value of total assets, securities that are traded in
the over-the-counter market or on a stock exchange are valued in accordance
with the current valuation policies of the Small Business Administration
("SBA"). Under SBA regulations, publicly traded equity securities are valued
by taking the average of the closing prices (or bid prices in the case of
over-the-counter equity securities) for the valuation date and the preceding
two days. This policy differs from the Securities and Exchange Commission's
guidelines which utilize only a one day price measurement. The Company's use
of SBA valuation procedures did not result in a material variance as of June
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.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no items to report.
ITEM 2. CHANGES IN SECURITIES
There are no items to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no items to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
There are no items to report.
ITEM 5. OTHER INFORMATION
There are no items to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
No other exhibits are applicable.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended
June 30, 1997.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACC PRIVATE EQUITIES INC.
Date: 8/12/97 By: /s/ David Schroder, President
------------ ------------------------------
David Schroder, President
Date: 8/12/97 By: /s/ Robert A. Comey, Treasurer
------------ ------------------------------
Robert A. Comey, Treasurer
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- - ------- ----------- ----
<S> <C> <C>
(27) Financial Data Schedule 15
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 22,589,770
<INVESTMENTS-AT-VALUE> 21,990,026
<RECEIVABLES> 0
<ASSETS-OTHER> 898,930
<OTHER-ITEMS-ASSETS> 3,159,585
<TOTAL-ASSETS> 26,048,541
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 10,242,291
<OTHER-ITEMS-LIABILITIES> 233,402
<TOTAL-LIABILITIES> 10,475,693
<SENIOR-EQUITY> 10,590
<PAID-IN-CAPITAL-COMMON> 15,492,575
<SHARES-COMMON-STOCK> 1,058,961
<SHARES-COMMON-PRIOR> 964,098
<ACCUMULATED-NII-CURRENT> (311,015)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 980,442
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (599,744)
<NET-ASSETS> 15,572,848
<DIVIDEND-INCOME> 67,735
<INTEREST-INCOME> 1,167,054
<OTHER-INCOME> 53,119
<EXPENSES-NET> 1,612,999
<NET-INVESTMENT-INCOME> (325,091)
<REALIZED-GAINS-CURRENT> (619,237)
<APPREC-INCREASE-CURRENT> (544,352)
<NET-CHANGE-FROM-OPS> (1,488,680)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 17,190
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 94,863
<NET-CHANGE-IN-ASSETS> 39,678
<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>
