<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24412
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MACC Private Equities Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S><C>
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)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
Please indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by 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 December 31, 1997, the registrant had issued and outstanding
1,039,615 shares of common stock.
Page 1 of 14
Exhibit Index appears at page 13
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Index
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
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<S> <C>
Condensed Consolidated Balance
Sheets (Unaudited) at December 31,
1997, and September 30, 1997................................................. 3
Condensed Consolidated Statements of
Operations (Unaudited) for the three
months ended December 31, 1997, and
the three months ended December 31, 1996..................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended December 31, 1997, and
the three months ended December 31, 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
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
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Assets
<S> <C> <C>
Loans and investments in portfolio securities at market
or fair value, cost of $21,664,717 $ 19,051,212 18,424,612
U.S. treasury bills, at cost, which approximates market 1,580,079 2,928,924
Certificates of deposit 1,879,801 1,756,801
Cash 2,527,893 756,754
Other assets, net 739,098 1,035,331
Deferred income taxes 1,077,000 1,093,000
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Total assets $ 26,855,083 25,995,422
============ ============
Liabilities and stockholders' equity
Liabilities:
Debentures payable, net of discount $ 11,246,656 10,244,478
Accrued interest 108,104 259,662
Accounts payable and other liabilities 96,072 111,440
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Total liabilities 11,450,832 10,615,580
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Stockholders' equity:
Common stock, $.01 par value per share;
4,000,000 shares authorized;
1,039,615 shares issued and outstanding 10,396 10,396
Additional paid-in-capital 15,312,381 15,312,381
Net investment income (198,306) (239,290)
Net realized gain on investments 2,893,285 2,551,781
Unrealized depreciation on investments (2,613,505) (2,255,426)
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Total stockholders' equity $ 15,404,251 15,379,842
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Total liabilities and stockholders' equity $ 26,855,083 25,995,422
============ ============
Net assets per share $ 14.82 $ 14.79
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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MACC PRIVATE EQUITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
December 31, December 31,
1997 1996
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Investment income:
<S> <C> <C>
Interest $ 429,046 418,271
Dividends 78,043 11,200
Other 52,161 38,487
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Total income 559,250 467,958
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Operating expenses:
Interest 223,891 225,381
Management fees 162,965 171,146
Professional fees 48,542 63,000
Other 55,868 71,158
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Total operating expenses 491,266 530,685
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Investment income (expense),
net before income tax expense 67,984 (62,727)
Income tax expense (27,000) 0
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Investment income (expense), net 40,984 (62,727)
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Realized and unrealized gain (loss) on investments:
Net realized gain on investments 330,504 2,434
Net change in unrealized appreciation/
depreciation on investments (358,079) (15,663)
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Net loss on investments
before income tax benefit (27,575) (13,229)
Income tax benefit 11,000 0
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Net loss on investments (16,575) (13,229)
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Net change in net assets
from operations $ 24,409 (75,956)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
December 31, December 31,
1997 1996
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Cash flows from operating activities:
<S> <C> <C>
Increase (decrease) in net assets
from operations $ 24,409 (75,956)
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Adjustments to reconcile increase (decrease)
in net assets from operations to net cash
provided by (used in) operating activities:
Change in provision for doubtful accounts (3,060) (3,594)
Net realized and unrealized loss on investments 27,575 13,229
Deferred income taxes 16,000 0
Other 6,017 5,552
Change in assets and liabilities:
Other assets 295,454 213,752
Accrued interest, accounts payable,
and other liabilities (166,926) (391,057)
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Total adjustments 175,060 (162,118)
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Net cash provided by (used in) operating activities 199,469 (238,074)
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Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 1,115,101 46,807
Purchases of loans and investments in
portfolio securities (1,769,276)
(3,461,062)
Proceeds from disposition of other investments 1,947,073 5,930,278
Purchases of other investments (1,795,940) (3,824,785)
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Net cash used in investing activities (503,042) (1,308,762)
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Cash flows from financing activities -
Proceeds from issuance of long term debentures 1,000,000 0
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Net increase (decrease) in cash and cash equivalents 696,427 (1,546,836)
Cash and cash equivalents at beginning of period 2,902,406 5,066,011
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Cash and cash equivalents at end of period $ 3,598,833 3,519,175
=========== ===========
Supplemental disclosures of cash flow information -
Cash paid during the period for interest $ 373,271 373,271
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Assets received in lieu of cash $ 0 8,000
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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MACC PRIVATE EQUITIES INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1997, September 30, 1997, and December 31, 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 "Corporation") 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 its
Subsidiary as of and for the year ended September 30, 1997. 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.
[Remainder of page intentionally left blank]
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by the Corporation pursuant to the
safe-harbor provisions of the 1995 Act. In connection with these safe-harbor
provisions, the Corporation has identified in its Annual Report to Shareholders
for the fiscal year ended September 30, 1997, 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 Corporation. The
Corporation further cautions that such factors 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.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997, Compared to Three Months Ended
December 31, 1996
Total investment income includes the Corporation's income from
interest, dividends and fees. Net investment income/expense represents total
investment 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 funds.
During the current year, first quarter total investment income of
$559,250 was approximately 20% greater than total investment income of $467,958
for the prior year first quarter. In the current year first quarter as compared
to the prior year first quarter, interest income increased $10,775, dividend
income increased $66,843, and other income (which consists primarily of
commitment fees earned with respect to portfolio investments) increased $13,674.
The increase in dividend income is attributable to dividends received from four
portfolio companies, one of which was not a portfolio company of the Corporation
during the prior year period, and another of which had not paid a dividend
during the prior year period but made a full year dividend payment during the
current year period. It is anticipated dividend income will continue to increase
over future periods.
Total operating expenses for the first quarter of the current year were
$491,266, a decrease of approximately 7% as compared to total operating expenses
for the prior year first quarter of $530,685. Professional fees decreased by
$14,458 and other expenses, which
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includes administrative expenses associated with being a public company,
decreased by $15,290. Management fees decreased from $171,146 to $162,965 in the
current year first quarter as compared to the prior year first quarter due to
the decrease in assets under management.
During the current year first quarter, the Corporation recorded net
realized gain on investments before income taxes of $330,504, as compared with
net realized gain on investments before income taxes of $2,434 during the prior
year period. The higher level of net realized gains on investment is primarily
due to the sale of one portfolio company. 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.
The Corporation recorded net change in unrealized appreciation/
depreciation on investments of ($358,079) during the current year
first quarter, as compared to ($15,663) during the prior year first quarter.
Net change in unrealized appreciation/depreciation on investments
represents the change for the period in the unrealized appreciation on the
Corporation's total investment portfolio net of unrealized depreciation on
the Corporation's total portfolio investment. Generally, when the Corporation
increases the fair value of a portfolio investment above its cost, the
unrealized appreciation item for the portfolio as a whole increases, and when
the Corporation decreases the fair value of a portfolio investment below its
cost, the unrealized depreciation item for the portfolio as a whole
increases. When the Corporation sells an appreciated portfolio
investment for a gain, unrealized appreciation for the portfolio as a whole
decreases as the gain is realized. Similarly, when the Corporation sells a
depreciated portfolio investment for a loss, unrealized depreciation for
the portfolio as a whole decreases as the loss is realized. The net change in
unrealized appreciation/depreciation on investments of ($358,079) recorded
during the current year first quarter is the net effect of the sale of one
appreciated portfolio investment for a gain of approximately $320,000, and a
decrease of approximately $38,000 in the fair value of one portfolio
investment.
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
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through the SBIC capital 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 future source
of debt financing for the Corporation.
As of December 31, 1997, the Corporation's U.S. treasury bills,
certificates of deposit and cash totaled $5,987,773. The Corporation obtained
$1,000,000 in new SBA Guaranteed Debentures in December 1997 and plans to obtain
an additional $1,000,000 this fiscal year. The Corporation believes that its
existing U.S. treasury bills, certificates of deposit and cash, together with
the proceeds from the additional $1,000,000 in SBA guaranteed debentures and
other anticipated cash flows, will provide adequate funds for the Corporation's
anticipated cash requirements during the current fiscal year, including
portfolio investment activities, odd-lot shareholder stock repurchases and
administrative expenses. The Corporation has planned $7,000,000 in new and
follow-on investment activities during the current fiscal year, of which
$1,769,276 was invested during the first quarter of the current fiscal year.
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 $11,290,000 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, $2,150,000 in 2003 and $1,000,000 in 2007. It is anticipated
MorAmerica Capital would be able to roll over this debt with new ten year
debentures when it matures.
The Corporation anticipates that it may seek additional capital, either
in the form of additional SBA-guaranteed debentures 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
During the three months ended December 31, 1997, the Corporation
invested $1,769,276 in seven portfolio companies, consisting of $1,277,500
invested in two new portfolio companies and $491,776 invested in follow-on
investments in five existing portfolio companies. The Corporation's investment
level objectives for fiscal year 1998 call for total new and follow-on
investments of $7,000,000. Based upon the total amount of new and follow-on
investments made during the three months ended December 31, 1997, the
Corporation 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 Corporation's overriding
concern of investing in only those portfolio companies which satisfy the
Corporation's investment criteria.
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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 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 Corporation's use of SBA valuation
procedures did not result in a material variance as of December 31, 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.
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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
December 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACC PRIVATE EQUITIES INC.
Date: 2/12/98 By: /s/ David Schroder
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David Schroder, President
Date: 2/12/98 By: /s/ Robert A. Comey
------------------------ -----------------------------
Robert A. Comey, Treasurer
12
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EXHIBIT INDEX
Exhibit Description Page
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(27) Financial Data Schedule 14
13
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-30-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 23,244,796
<INVESTMENTS-AT-VALUE> 20,631,291
<RECEIVABLES> 0
<ASSETS-OTHER> 739,098
<OTHER-ITEMS-ASSETS> 5,484,694
<TOTAL-ASSETS> 26,855,083
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 11,246,656
<OTHER-ITEMS-LIABILITIES> 204,176
<TOTAL-LIABILITIES> 11,450,832
<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> (198,306)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,893,285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,613,505)
<NET-ASSETS> 15,404,251
<DIVIDEND-INCOME> 78,043
<INTEREST-INCOME> 429,046
<OTHER-INCOME> 52,161
<EXPENSES-NET> 518,266
<NET-INVESTMENT-INCOME> 40,984
<REALIZED-GAINS-CURRENT> 341,504
<APPREC-INCREASE-CURRENT> (358,079)
<NET-CHANGE-FROM-OPS> 24,409
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24,409
<ACCUMULATED-NII-PRIOR> (239,290)
<ACCUMULATED-GAINS-PRIOR> 2,551,781
<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>
