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UNITED STATES
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, 1999
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 [X]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of November 30, 1999, was approximately
$14,025,654 based upon the average bid and asked price for shares of the
registrant's common stock on that date. As of November 30, 1999, there were
1,619,097 shares of the registrant's common stock outstanding, of which
approximately 1,015,432 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, 1999, 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 22, 2000, are incorporated by
reference into Part III of this Report.
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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, 1999, MorAmerica
Capital comprised approximately 99% 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.
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.
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)
2
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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) though 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, 1999, the Corporation made
total investments of $5,697,574 in six new portfolio companies and in follow-on
investments in three existing portfolio companies. The Corporation's
investment-level objectives on a consolidated basis call for new and follow-on
investments of approximately $11,000,000 during fiscal year 2000.
During fiscal year 1999, the Corporation recorded $5,142,177 in net
realized gains.
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.
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, 1999, as well as certain
other information with respect to such persons:
3
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<TABLE>
<CAPTION>
Positions Currently Held Principal Occupations
Name Age with the Corporation During the Past Five Years
- ---- --- -------------------- --------------------------
<S> <C> <C> <C>
David R. Schroder 56 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 53 Director, Executive Vice President Director, Executive Vice President
and Treasurer and Treasurer 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 44 Senior Vice President Senior Vice President of MorAmerica
Capital; Senior Vice President and
Director of the Investment Advisor;
InvestAmerica Venture Group, Inc.;
InvestAmerica N.D. Management,
Inc.; and InvestAmerica N.D., L.L.C.
</TABLE>
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, 1999 (the "1999 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 1999 Annual Report.
4
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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 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information in response to this Item is incorporated by reference to
the "Quantitative and Qualitative Disclosures About Market Risk" section of the
1999 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 therein
contained in the 1999 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 2000 Annual Meeting of Stockholders, scheduled to be held on February 22,
2000 (the "2000 Proxy Statement"). Information in response to this Item also is
included under the caption "Executive Officers of the Registrant" of this
Report.
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 2000 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
2000 Proxy Statement.
5
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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 or 7.5% of Regulatory Capital. 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.
Management fees under the Investment Advisory Agreements on a
consolidated basis amounted to $811,260 for fiscal year 1999. Incentive fees
under the Investment Advisory Agreements on a consolidated basis amounted to
$1,338,957 for fiscal 1999.
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:
Name Offices
---- -------
David R. Schroder Director, President and Secretary
Robert A. Comey Director, Executive Vice President, and Treasurer
Kevin F. Mullane Director and Senior Vice President
Under the Agreement dated May 13, 1996 (the "Agreement"), between the
Corporation, Zions Bancorporation ("Zions") and Zions First National Bank (the
"Bank"), as amended, Zions and the Bank are permitted to increase their
collective ownership of the Corporation's common stock to up to 35% of the
issued and outstanding shares. As of November 30, 1999, Zions and the Bank were
the beneficial owners of approximately 455,981 shares of the Corporation's
Common Stock, representing approximately 28.16% of the outstanding shares.
6
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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 1999 Annual Report.
Consolidated Balance Sheet at September 30, 1999
Consolidated Statement of Operations for the year ended
September 30, 1999
Consolidated Statements of Changes in Net Assets for
the years ended September 30, 1999, and
September 30, 1998
Consolidated Statement of Cash Flows for the year ended
September 30, 1999
Notes to Consolidated Financial Statements
Consolidated Schedule of Investments as of
September 30, 1999
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 1999 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.
4. See Exhibits 3.1 and 3.2.
10.1** Investment Advisory Agreement between the
Corporation and InvestAmerica Investment
Advisors, Inc., dated March 1, 1998.
10.2*** Investment Advisory Agreement between MorAmerica
Capital Corporation and InvestAmerica Investment
Advisors, Inc., dated March 1, 1999.
10.3.a.**** Agreement between the Corporation and Zions
Bancorporation, dated May 13, 1996.
7
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10.3.b.** First Amendment to Agreement between the
Corporation, Zions Bancorporation and Zions
First National Bank, dated April 29, 1998
13 1999 Annual Report to Stockholders.
21 Subsidiary 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 the Corporation's Annual
Report on Form 10-K for the year ended September 30,
1998, as filed with the Commission on December 29,
1998.
*** Incorporated by reference to the Corporation's
Quarterly Report on Form 10-Q for the three months
ended March 31, 1999, as filed with the Commission on
May 12, 1999.
**** 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.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the three months ended
September 30, 1999.
8
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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 15, 1999.
/s/ David R. Schroder
---------------------
David R. Schroder
President and Secretary
9
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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 15, 1999
- -------------------------------------------- -----------------
Paul M. Bass, Jr.
Chairman of the Board of Directors
/s/ David R. Schroder December 15, 1999
- -------------------------------------------- -----------------
David R. Schroder
Director, President and Secretary
/s/ Robert A. Comey December 15, 1999
- -------------------------------------------- -----------------
Robert A. Comey
Director, Executive Vice President
and Treasurer
/s/ Henry T. Madden December 15, 1999
- -------------------------------------------- -----------------
Henry T. Madden
Director
/s/ John D. Wolfe December 15, 1999
- -------------------------------------------- -----------------
John D. Wolfe
Director
/s/ Michael W. Dunn December 15, 1999
- -------------------------------------------- -----------------
Michael W. Dunn
Director
/s/ James L. Miller December 15, 1999
- -------------------------------------------- -----------------
James L. Miller
Director
/s/ Todd J. Stevens December 15, 1999
- -------------------------------------------- -----------------
Todd J. Stevens
Director
- -------------------------------------------- -----------------
Jeri J. Harman
Director
10
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FINANCIAL HIGHLIGHTS EXHIBIT 13
FISCAL 1999 CONTINUED TO SHOW EXCELLENT OPERATING RESULTS, INCREASED MARKET
VALUE AND QUALITY PORTFOLIO GROWTH.
$ IN THOUSANDS, EXCEPT PER SHARE DATA
AT YEAR END SEPTEMBER 30 1999 1998
Total Assets $38,535 31,295
Total Stockholder Equity 23,394 19,528 [GRAPHIC]
Net Assets Per Share 14.45 12.05(1)
FOR THE YEAR
Total Income $2,255 2,682
Net Investment (Expense) Income (7) 622
Net Realized Gain on Investments 5,142 1,566 [GRAPHIC]
Net Change in Unrealized (Depreciation) (608) 2,554
Appreciation on Investments
Net Increase in Net Assets 3,866 4,148
- --------------------------------------------------------------------------------
QUARTERLY STOCK PRICES(1,2) ANNUAL STOCK PRICES(1,2)
- --------------------------------------------------------------------------------
$ Per Share
1999 1998
QUARTER HIGH LOW HIGH LOW
- ------- ---- --- ---- ---
First 8.27 7.02 6.61 5.69
Second 8.08 7.60 6.09 5.13 [GRAPHIC]
Third 9.38 7.53 7.31 6.83
Fourth 12.44 9.25 8.46 6.92
(1) Restated to reflect a 30% stock split effected in the form of a stock
dividend on March 31, 1999.
(2) Closing bid price per share.
MACC PRIVATE EQUITIES INC. 1
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TO OUR SHAREHOLDERS
SHAREHOLDERS WERE REWARDED. Based on strong earnings management rewarded
shareholders with a record year end net asset value. The public market
rewarded shareholders with robust increases in stock price and total
market capitalization. In all, fiscal 1999 was a year in which the goal
of increasing our shareholders value was achieved. Shareholder patience
and foresight were rewarded in 1999 when MACC declared a 30% stock
split effected in the form of a stock dividend.
IN A SECOND CONSECUTIVE YEAR OF STRONG OPERATING RESULTS MACC realized
meaningful gains from five portfolio companies. These gains of
$5,142,177 stand out as a record since MACC became publicly traded in
March 1995. The 1999 Net Increase in Net Assets of $3,866,270 followed
a record of $4,148,036 achieved in 1998. 1999 Net Investment Expense
was $7,459 as investment income returned to a more normal level after
the payment of dividends from one portfolio company pushed 1998 Net
Investment Income to $621,928.
COMPANY VALUE INCREASED FOR A FOURTH CONSECUTIVE YEAR when MACC's fiscal 1999
versus fiscal 1998 year-end market capitalization increased by 49.7% to
$20,287,285 based on the average of the closing bid and asked prices on
September 30, 1999. A second measure of value also increased when Net
Asset Value Per Share rose by 19.8% to $14.45 at September 30, 1999
compared to $12.05 at September 30, 1998 after giving effect to a 30%
stock split effected in the form of a stock dividend paid in March
1999.
OUR LIQUIDITY WAS ENHANCED and our balance sheet strengthened when MACC
retained $10,522,947 in cash received from the proceeds of the
disposition of portfolio investments in fiscal 1999. MACC has cash and
leverage available to meet its targeted year 2000 investment goals.
WE STRENGTHENED MACC'S ABILITY TO COMPETE in an ever expanding industry
when by increasing MorAmerica's Capital Stock and Paid-In Capital from
$11,309,695 to $18,000,000 on September 30, 1999, we increased our
maximum allowable investment size from $2,261,939 to $3,600,000.
GOOD NEWS IS REVEALED in a reduced 1999 investment level. 1999 was a good
time to sell portfolio investments and management invested much of its
time taking advantage of this lucrative opportunity. Good deals became
harder to find calling for buy-side prudence. Fortunately, fiscal 2000
first quarter investment activity is strong, putting MACC on an
$11,000,000 annualized investment rate.
THE FUTURE continues to appear promising. We have increased our size and
liquidity in order to remain competitive in an increasingly crowded
market.
Your management and board are indebted
to the support of our shareholders and
portfolio companies.
/s/ Paul M. Bass, Jr.,
- -------------------------------
Paul M. Bass, Jr.,
Chairman
/s/ David Schroder,
- -------------------------------
David Schroder,
President
2 MACC PRIVATE EQUITIES INC.
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CORPORATE PROFILE
[PHOTO]
MACC'S MISSION IS TO BUILD SUBSTANTIAL SHAREHOLDER
VALUE BY ACHIEVING...CONSISTENT LATER STAGE VENTURE CAPITAL RETURNS
with REDUCED RISK BASED UPON THE GEOGRAPHIC AND INDUSTRY DIVERSITY OF
THE PORTFOLIO AND OUR EXPERIENCED MANAGEMENT TEAM and LONG TERM
CORPORATE GROWTH CAPITALIZED BY RETAINED EARNINGS AND SBIC LEVERAGE IN
ORDER TO CONTINUE TO MAINTAIN A STRONG POSITION IN MACC'S TRADITIONAL
NATIONAL MID-MARKET NICHE.
MACC Private Equities Inc. MACC PRIVATE EQUITIES INC. (Nasdaq NMS: MACC) is
a Delaware corporation and the parent of MorAmerica Capital
Corporation. Additionally, MACC is a business development company
(BDC). MACC's wholly owned subsidiary, MorAmerica Capital Corporation,
conducts all of its venture investing. MACC's primary goal is to create
long term appreciation of shareholder value based upon the successful
management of venture capital activities.
MORAMERICA CAPITAL CORPORATION Founded in 1959, MorAmerica Capital is one of the
nation's oldest and most well-known small business investment
companies (SBIC), federally licensed under the Small Business
Investment Act of 1958. MorAmerica Capital generally invests from
$1,000,000 up to $3,500,000 in growth and later stage manufacturing,
service and distribution businesses with annual sales typically from
$5,000,000 to $50,000,000. These growth and buyout investments are made
in the form of subordinated debt or preferred stock with warrants or
common stock. Since 1980, MorAmerica Capital has provided equity
financing of over $62,000,000 to more than ninety-five companies and
plays a significant role in the syndication of equity fundings for
later stage middle market growth and buyout financings.
INVESTAMERICA INVESTMENT ADVISORS, INC. MACC and MorAmerica Capital are managed
by InvestAmerica, an investment advisor organized in 1985 with more
than $50,000,000 in assets under management. Collectively, the three
InvestAmerica principals have over sixty years of venture capital fund
management experience.
3 MACC PRIVATE EQUITIES INC.
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SUCCESS IN PROVIDING
EQUITY FOR AMERICA'S FUTURE
IN FISCAL 1999, MACC PRIVATE EQUITIES INC., ACHIEVED STRONG GROWTH IN TOTAL
ASSETS, NET ASSET VALUE PER SHARE AND MARKET BID PRICE PER SHARE.
<TABLE>
<S> <C> <C>
............................... ............................... .....................................
TOTAL ASSETS NET ASSET VALUE PER SHARE(1) MARKET BID PRICE PER SHARE(1)
............................... ............................... .....................................
[ A GRAPH ] [ A GRAPH ] [ A GRAPH ]
3/31/95 $25,044,740 3/31/95 $ 8.43 3/31/95 $ 2.92
1995 $28,006,385 9/30/95 $ 10.05 9/30/95 $ 4.29
1996 $27,906,798 9/30/96 $ 10.32 9/30/96 $ 5.54
1997 $25,995,422 9/30/97 $ 9.48 9/30/97 $ 6.17
1998 $31,294,524 9/30/98 $ 12.05 9/30/98 $ 8.27
1999 $38,535,445 9/30/99 $ 14.45 9/30/99 $ 12.25
Total Assets grew by $7,240,921 Net asset growth resulted MACC's 1999 year end Market Bid
for an increase of 23.1% in a 19.8% one-year growth in Price Per Share continued its fourth
Net Asset Value Per Share. consecutive annual rise with a fiscal
1999 increase of 48.1%.
............................... ............................... .....................................
STOCK PRICE AS A PERCENTAGE ANNUAL INVESTMENT
OF NET ASSET VALUE PER SHARE(1) CAPITAL INVESTED INCOME (EXPENSE), NET
............................... ............................... .....................................
[ A GRAPH ] [ A GRAPH ] [ A GRAPH ]
3/31/95 34.6% 1995 $4,082,089 1995 ($168,031)
9/30/95 42.7% 1996 $5,135,249 1996 ($ 89,576)
9/30/96 53.6% 1997 $9,800,370 1997 ($253,367)
9/30/97 65.0% 1998 $7,521,781 1998 $621,928
9/30/98 68.6% 1999 $5,697,574 1999 ($ 7,459)
9/30/99 84.8%
At fiscal year end 1999, MACC Fiscal year 1999 capital Net Investment Income (Expense)
was able to sustain a continued invested of $5,697,574 returned to a small expense of
annual reduction in the gap decreased from 1998; however, ($7,459) in fiscal 1999 which is
between Market Bid Price and recent investment activity down from income of $621,928 in
Net Asset Value Per Share. has been strong. fiscal 1998, a year which included
exceptional one time dividend payments.
</TABLE>
(1) Restated to reflect stock splits effected in the form of stock dividends
paid in March of 1999, 1998 and 1997.
4 MACC PRIVATE EQUITIES INC.
<PAGE> 5
THE FOLLOWING GRAPH COMPARES THE SEMI-ANNUAL PERCENTAGE change in cumulative
stockholder return on MACC's Common Stock since March 3, 1995 (the day on which
shares of MACC's Common Stock commenced public trading), with the cumulative
total return over the same period of (i) the Nasdaq Stock Market Total Return
Index (U.S. Companies), and (ii) a peer group selected in good faith by MACC
composed of the following eight business development companies or other funds
known by MACC to have similar investment objectives to MACC: Allied Capital
Corporation (ALLC), American Capital Strategies (ACAS), Brantley Capital
Corporation (BBDC), Capital Southwest Corporation (CSWC), Harris & Harris Group,
Inc. (HHGP), Rand Capital Corporation (RAND), Waterside Capital Corporation
(WSCC) and Winfield Capital Corporation (WCAP) (the "Peer Group").
In the graph, the comparison assumes $100 was invested on March 3, 1995, in
shares of MACC's Common Stock and in both of the indices. The comparison is
based upon the closing market bid price for shares of MACC's Common Stock, and
assumes the reinvestment of all dividends, if any. The returns of each of the
companies in the Peer Group are weighted according to the respective company's
stock market capitalization at the beginning of each period for which a return
is indicated.
COMPARISON OF CUMULATIVE TOTAL RETURN OF MACC,
PEER GROUP AND BROAD MARKET
[GRAPH]
MACC PRIVATE EQUITIES INC. 5
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INVESTING IN AMERICA'S FUTURE
IN 1999, THE PORTFOLIO CONTINUED TO EARN EXCELLENT GAINS THAT WERE CONSISTENT
WITH MACC'S INVESTMENT STRATEGY.
BUILDING ONE SERVICES CORPORATION
Exemplary of strategically investing in "roll-ups" which in turn are
sold into a consolidating industry, MorAmerica initially invested in a
company with approximately $20,000,000 in sales, earned a significant
realized, non-cash gain only six months from the initial investment
date and at year end owned stock in a company with sales of more than
$1.2 billion. One of MorAmerica's most active Western U.S. partners
asked MorAmerica to co-invest in the company, a management backed
"roll-up" of the fragmented companies that provide cleaning and
maintenance services to regional and national grocery retail chains.
Within two months, a second planned acquisition was made. Within six
months, Consolidation Capital Corporation, a publicly traded industry
consolidator, acquired the company and MorAmerica realized a $882,165
non-cash gain. As of May 1999, MorAmerica had earned a realized IRR of
more than 118%.
MILES MEDIA GROUP,
In April 1990, MorAmerica as the lead investor helped Roger Miles
purchase a Florida publisher of visitor information magazines. By June
of 1999, MorAmerica had realized total proceeds of $3,521,255 for an
IRR of more than 19% over the entire nine year life of the investment.
Early on, a declining tourism economy required MorAmerica to step up
with additional funding. While some funding sources lost faith in the
business, MorAmerica continued to see the intrinsic value which would
be rewarded when Florida's tourism industry inevitably recovered.
MorAmerica's success in this investment was a function of a
fundamentally sound business, strong management, patience, support and
insight into the elements that would eventually create value and
liquidity.
TRU-CIRCLE CORPORATION INC.
Could a group of Midwestern SBICs and a strong management team earn
internet-like returns from an investment in a precision metal machining
job shop? Probably not often but MorAmerica realized an IRR of more
than 111% through July 1999 from its investment in Tru-Circle
Corporation. In December 1996, MorAmerica's investment helped
Tru-Circle acquire a similar machining company to increase Tru-Circle's
capacity to meet the escalating demand of the airframe industry in
general and specifically to meet the dramatically increasing demand of
one of its major customers, Boeing. Management grew the company with
resolve and discipline, fulfilled Boeing's expectations and
consistently exceeded sales and profit goals. Management and the
outside investors used a proven investment banker to orchestrate a
successful exit in July of 1999.
WELD RACING, INC.
MorAmerica and an experienced SBIC co-investor together led a growth
financing for Weld in June 1997. With the addition of stronger
financial management and increased managerial discipline, Weld grew
sales and profitability. Pursuant to an offer from Weld, MorAmerica
divested in June of 1999 with a realized IRR of almost 35%. Weld Racing
is a ten year old manufacturer of high performance and custom
automobile and truck wheel rims. The ingredients that contributed to
this success are typically found in MorAmerica's growth financings.
They include strong management, stable historic profitability, an
opportunity for the business to use additional capital to significantly
improve profitability, a known and experienced co-investor and a viable
exit plan or opportunity. The Weld gain proved once again that
MorAmerica's middle market investment strategy can consistently produce
venture capital returns.
6 MACC PRIVATE EQUITIES INC.
<PAGE> 7
IN 1999, MANAGEMENT SELECTED AND FUNDED HIGH QUALITY NEW PORTFOLIO COMPANY
INVESTMENTS CAPABLE OF EARNING STRONG FUTURE GAINS.
EASY SYSTEMS, INC.
MorAmerica was the lead investor in the syndication of a growth
financing involving three other venture funds and one strategic
industry investor. The transaction provided timely capital to fund both
internal growth and the strategic acquisition of a software company
with synergistic products and customers. Easy Systems is a growth
stage, entrepreneurially driven software developer of state-of-the-art
automated ingredient apportionment and mixing systems. Easy Systems
provides complete feed ingredient selection, batch feed make up and
feed mill accounting and management information systems to animal feed
companies. These systems are now being adapted to fit exciting
industrial ingredient measurement applications which could eventually
eclipse the size of agricultural markets. Easy Systems is poised to
achieve significant growth based on its leading edge software systems.
GREGG MANUFACTURING, INC.
Gregg is a thirty year old, consistently profitable West Coast
manufacturer and distributor of gift products for Christian and secular
retail markets. MorAmerica supported a management buyout which added
key new ingredients for success which included a lead investor who is
an industry founding, forty year old California SBIC capable of
sourcing and analyzing add-on acquisition candidates for Gregg. In
addition, the lead investor brought on a seasoned new CEO who both
invested personal equity and is capable of developing increased
internal growth and managing acquisitions. The investment provided
Gregg with a financial and managerial recapitalization to fund
significant growth in an exciting retail sector.
HANDY INDUSTRIES, LLC
In April of 1999, a Chicago mezzanine fund approached MorAmerica with
the need for a local buyout partner. MorAmerica added value by
responding immediately to facilitate the close and by assisting in the
structuring of more favorable terms for the outside investors.
MorAmerica also was highly recommended by the senior lender. Handy is a
consistently profitable, thirty-five year old metal fabricator that has
developed significant brand recognition in a number of niche repair
shop and truck accessory product areas including lift devices, louvered
tailgates and fuel and tool carriers. With the recapitalization and the
addition of a merchant banking group capable of sourcing acquisitions,
Handy is poised to achieve accelerated growth.
PLANT & PROJECT GROUP, LLC
When an experienced Midwestern investment banker and a twenty-five year
veteran construction industry executive approached MorAmerica to
complete a buyout funding, MorAmerica responded with an offer of equity
to strengthen the balance sheet and subordinated debt to enhance the
return on equity. Plant & Project Group, LLC purchased Big J
Enterprises, a twenty-four year old Albuquerque based specialty
construction contractor focusing on in-plant construction and
maintenance with annual double-digit growth prospects. MorAmerica's
investment includes proven ingredients to assure success, namely, a
business with strong client relationships and earnings, the addition of
an industry experienced owner, an investment banker focused on adding
appropriate acquisition targets and the expectation of future sales
increases from existing and new customers.
WATER CREATIONS, INC.
With one of MorAmerica's long time co-investors as the lead, a
supportive senior lender and a four member founding management group
asked MorAmerica to participate in the buyout and recapitalization of a
five-year old growth stage company. Water Creations is a leading
national distributor of water gardening supplies with three U.S. and
one Canadian distribution center. Water gardening, as one of the
highest growth segments within the burgeoning multi-billion dollar lawn
and garden industry, holds the promise of handsome future earnings for
Water Creations. Without this financing, Water Creations would not have
been able to add the additional management, build the infrastructure
and add the working capital needed to capitalize on the current growth
in this lucrative market.
MACC PRIVATE EQUITIES INC. 7
<PAGE> 8
Q & A
Q: Could you explain the interactions between MACC Private Equities Inc.,
MorAmerica Capital Corporation and InvestAmerica Investment Advisors, Inc.?
A: MACC Private Equities Inc. owns MorAmerica Capital Corporation.
InvestAmerica Investment Advisors, Inc. manages MACC Private Equities
Inc. and its subsidiary MorAmerica Capital.
Q: How would you describe MACC's management team and Board of Directors?
A: InvestAmerica principals have over sixty years of SBIC management
experience, which brings a level of deal flow, co-investor
relationships, and portfolio management capabilities usually only found
in larger funds. InvestAmerica was founded in 1985 and commenced
managing MorAmerica Capital and MACC in 1985 and 1994 respectively.
MACC has been fortunate to attract Board persons experienced in
investment banking, manufacturing, retailing, early stage venture
capital and commercial banking. This breadth and depth of operating and
strategic experience helps to keep MACC competitive in such key areas
as access to capital, deal flow and exit execution. Board members and
management own approximately 9.1% of the company. Of the board members,
the two InvestAmerica principals are the two largest shareholders. It
is important to note that all management and Board shares were
purchased on the open market.
Q: What is your industry and where does MACC fit in it?
A: MACC is a venture capital investor. The venture capital industry is
broadly described nationally as including approximately 1000 private
venture capital partnerships and about 350 Small Business Investment
Companies (SBICs). MACC invests through its wholly owned subsidiary,
MorAmerica Capital which is an SBIC. Chronologically, MorAmerica
Capital is the fifth oldest active SBIC.
Q: What differentiates you from your competition?
A: Even though MACC has been publicly traded for only a few years, it is
not a new fund. MorAmerica Capital has been investing since 1959. We
have a 41-year history as a licensed SBIC and are well known and
respected within the industry. Longevity is a real strength. MorAmerica
Capital is a corporation not a limited partnership and has the staying
power of being a corporation. Finally, MACC is one of a select group of
publicly traded venture funds.
Q: How do you select your portfolio investments?
A: MorAmerica Capital is diversified by industry and by geography. We
focus on manufacturing, distribution and service companies. MorAmerica
Capital generally invests in companies with $5 million to $50 million
in sales. We look for companies with strong management and proven track
records. However, we will look at turnaround situations if strong
management is in place. We invest nationally through our extensive
network of co-investors, staying in deals for about five years. Our
five-year plan calls for investing approximately 25% of our total
available assets every year.
Q: What is MACC's investment appeal?
A: MACC is a publicly traded venture capital fund. It represents one of
the few opportunities available to investors who, while they would like
to add venture capital opportunities to their investment portfolios,
are unwilling or unable to make the substantial investment generally
required by private venture capital funds. Also, because MorAmerica
Capital is an SBIC, banks and other depository institutions may receive
certain regulatory benefits from investing in MACC shares.
Keep in mind, that while venture capital investing may offer the
potential for higher returns, it may also involve higher risks based
upon both the nature of MACC's investments and the use of leverage. As
with all of your investment decisions, consult with your investment
professional or other financial advisor to determine whether investing
in MACC is appropriate for your investment needs.
8 MACC PRIVATE EQUITIES INC.
<PAGE> 9
FINANCIAL REPORT
- - CONTENTS
10 SELECTED
FINANCIAL DATA
11 MANAGEMENT'S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
18 AUDITORS' REPORT
32 SHAREHOLDER
INFORMATION
33 OFFICERS
& DIRECTORS
MACC PRIVATE EQUITIES INC. 9
<PAGE> 10
SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDING SEPTEMBER 30
<TABLE>
<CAPTION>
MACC Private Equities Inc. (1)
- ------------------------------------------------------------------------------------------------------------------------------
Seven and One- Four and One-
Half Months Half Months
Ended Sept. 30, Ended Feb. 15,
1999 1998 1997 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment (expense) income ($7,459) 621,928 (253,367) (89,576) 103,653 (17,776)(2)
net of tax
Net realized gain on 3,293,177 981,091 952,102 514,172 1,102,697 4,514,338
investments, net of tax
Net change in unrealized
appreciation/depreciation
on investments (607,771) 2,554,471 (2,200,033) (641,851) 586,458 (948,191)
----------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease)
in net assets or (increase) $2,677,947 4,157,490 (1,501,298) (217,255) 1,792,808 3,548,371
decrease in net deficit =========== ========== =========== ========== ========== ==========
from operations
Net increase (decrease) in net
assets or (increase) decrease
in net deficit from operations
per common share $1.65(6) 2.57(5) (0.93)(4) (0.13)(3) 1.05(3) 2.08(3)
=========== ========== ========== ========== ========== ==========
Total assets $38,535,445 31,294,524 25,995,422 27,906,798 28,006,385 25,775,717
=========== ========== ========== ========== ========== ==========
Total long term debt $13,763,123 11,253,421 10,244,478 10,236,250 10,228,647 10,224,152
=========== ========== ========== ========== ========== ==========
</TABLE>
(1) Four and one-half months ended February 15, 1995 represent selected
financial data of MorAmerica Financial Corporation, the predecessor to MACC.
As of February 15, 1995, MACC adopted fresh-start reporting in accordance
with American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code.
(2) Including $253,908 of reorganization expenses.
(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, a 20% stock split effected
in the form of a stock dividend on March 31, 1998 and a 30% stock split
effected in the form of a stock dividend on March 31, 1999.
(4) Per share data have been restated to reflect a 20% stock split effected in
the form of a stock dividend on March 31, 1998 and a 30% stock split effect
in the form of a stock dividend on March 31, 1999.
(5) Per share data have been restated to reflect a 30% stock split effected in
the form of a stock dividend on March 31, 1999.
(6) Computed using 1,619,097 shares outstanding at September 30, 1999.
10 MACC PRIVATE EQUITIES INC.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Annual Report 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 MACC pursuant to the
safe-harbor provisions of the 1995 Act, and are identified as including terms
such as "may," "will," "should," "expects," "anticipates," "estimates," "plans,"
or similar language. In connection with these safe-harbor provisions, MACC has
identified herein important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of MACC, including, without limitation, the high risk nature of MACC's
portfolio investments, any failure to achieve annual investment level
objectives, changes in prevailing market interest rates, and contractions in the
markets for corporate acquisitions and initial public offerings. MACC further
cautions that such factors are not exhaustive or exclusive. MACC does not
undertake to update any forward-looking statement which may be made from time to
time by or on behalf of MACC.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
MACC's investment income includes income from interest, dividends and fees. Net
investment income 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 and realized
gains in the portfolio. These are not included in net investment income.
However, another one of MACC'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. MACC also earns interest
on short term investments of cash.
For fiscal year ended September 30, 1999, total investment income was
$2,255,120, total operating expenses were $2,412,579, tax benefit equaled
$150,000 and net investment expense was $7,459.
During the fiscal year ended September 30, 1999, investment income decreased
to $2,255,120, a 16% decrease over fiscal 1998 investment income of $2,682,385.
The decrease during the current year was the result of decreases in interest
income, dividend income and other income of 5%, 47%, and 23% respectively. MACC
attributes the decrease in interest income to portfolio investments which are
currently non-income producing. The decrease in dividend income is due to the
receipt from one portfolio company of an exceptional one-time dividend payment
in fiscal 1998. The current dividend income represents dividends received on
seven existing portfolio companies, four of which are distributions from limited
liability companies. The decrease in other income is due to the revaluation in
the prior fiscal year of two other assets which caused other income to be
higher. The timing and amount of some sources of investment income, such as
interest income from prepayment penalties, certain dividend income, and other
income resulting from the revaluation of other assets is difficult to predict.
Due to MACC's receipt of extraordinary dividends during fiscal 1998, MACC
anticipated lower investment income in fiscal 1999 as compared to fiscal 1998.
Operating expenses of MACC increased by 17% in fiscal year 1999 to
$2,412,579 from $2,053,457 in fiscal year 1998. The relative increase in
operating expenses is partially due to increases in financial expense and
management fees. These increases were generated from additional borrowings from
the Small Business Administration and increased assets under management. During
fiscal 1998 MACC received approximately $60,000 in recoveries from prior
receivables which were netted against other operating expenses.
MACC recorded net investment expense of $7,459 in fiscal year 1999, a
decrease from the net investment
[CONTINUED ON PAGE 12.]
MACC PRIVATE EQUITIES INC. 11
<PAGE> 12
MD & A
[CONTINUED FROM PAGE 11.]
income of $621,928 in 1998. The decrease in net investment income is the result
of the 16% decrease in investment income along with the 17% increase in
operating expenses recorded in fiscal 1999. Nevertheless, management is
generally pleased with the overall improvement in net investment income/expense
achieved over the past five fiscal years.
Net realized gain on investments in fiscal year 1999 increased by 228% to
$5,142,177 from $1,566,091 achieved in fiscal year 1998. The significant gains
are mainly due to the sale of two portfolio companies whose valuations at the
prior year end reflected the anticipated gains which were realized in fiscal
1999. MACC had unrealized depreciation of $308,726 at September 30, 1999, a
change of $607,771 from the $299,045 of unrealized appreciation at September 30,
1998. This resulted in a net gain on investments for fiscal year 1999 of
$4,534,406 before income tax expense as compared to net gain on investments of
$4,120,562 for fiscal year 1998. In addition to valuation adjustments, the
change in unrealized appreciation/depreciation is also due to the sale of two
investments with significant gains and the write off of several investments for
tax purposes which had previously been reserved as worthless. Net change in
unrealized appreciation/ depreciation on investments represents the change for
the period in the unrealized appreciation on MACC's total investment portfolio
net of unrealized depreciation on MACC's total portfolio investment. Generally,
when MACC increases the fair value of a portfolio investment above its cost, the
unrealized appreciation item for the portfolio as a whole increases, and when
MACC decreases the fair value of a portfolio investment below its cost, the
unrealized depreciation item for the portfolio as a whole increases. When MACC
sells an appreciated portfolio investment for a gain, unrealized appreciation
for the portfolio as a whole decreases as the gain is realized. Similarly, when
MACC sells a depreciated portfolio investment for a loss, unrealized
depreciation for the portfolio as a whole decreases as the loss is realized.
Most of MACC'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. During fiscal years 1995
through 1999, MorAmerica Capital recorded significantly higher levels of new and
follow-on portfolio investments as compared to fiscal years 1988-1994 and MACC
anticipates that MorAmerica Capital will continue these higher portfolio
investment levels over the foreseeable future. As an ordinary element of its
investment cycle, MACC typically experiences unrealized depreciation and/or
realized losses on portfolio investments before it experiences unrealized
appreciation and/or realized gains, if any.
MACC's consolidated investment portfolio as a whole is in the earlier stages
of the five to seven year investment cycle. MACC achieved significant gains in
1999 from one portfolio company held less than three years and another portfolio
company that had been in the portfolio since 1990. MACC anticipates that the
growth in MACC's Net Asset Value Per Share may continue to increase over the
next three to ten year period as MACC's portfolio investments reach maturity and
investment gains, if any, are taken. However, it is difficult to predict the
timing or the amount of gains in the investment portfolio.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
To date, MACC has relied upon several sources to fund its investment activities,
including MACC'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).
MACC, through its wholly-owned subsidiary,
12 MACC PRIVATE EQUITIES INC.
<PAGE> 13
M D & A
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
commitment periods of up to five years through the SBIC capital program and MACC
anticipates that there will be capital available in future periods.
As of September 30, 1999, MACC's U.S. treasury bills, certificates of
deposit and cash totaled $10,748,442. MACC borrowed $2,500,000 in new SBA
Guaranteed Debentures in February 1999 and April 1999 and has a commitment for
an additional $15,790,000 in SBA guaranteed debentures. The additional
commitment of $15,790,000 expires on September 30, 2002. MACC believes that its
existing U.S. treasury bills, certificates of deposit and cash, together with
the $15,790,000 SBA commitment and other anticipated cash flows, will provide
adequate funds for MACC's anticipated cash requirements during fiscal year 2000
and the next two years, including portfolio investment activities, principal and
interest payments on outstanding debentures payable and administrative expenses.
MACC's investment objectives call for MACC to invest $11,000,000 in new and
follow-on investments during fiscal year 2000.
Liquidity for the next several years will be impacted by principal payments
on MACC's debentures payable. Debentures payable are composed of $13,790,000 in
principal amount of SBA-guaranteed debentures issued by MACC's subsidiary,
MorAmerica Capital, which mature as follows: $2,450,000 in 2000, $5,690,000 in
2001, $2,150,000 in 2003, $1,000,000 in 2007, and $2,500,000 in 2009. It is
anticipated MorAmerica Capital will be able to roll over this debt with new ten
year debentures when it matures. MorAmerica Capital has obtained a commitment of
leverage from SBA which includes commitments to refinance the debentures through
2003 for another 10 year term. As indicated above, the total amount of
MorAmerica Capital's commitment from the SBA is $15,790,000.
MACC 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 MACC, to fund growth of MACC, to meet principal payments, if
necessary, as the outstanding SBA-guaranteed debentures become due and payable
and for other corporate purposes.
PORTFOLIO ACTIVITY
MACC's investment objectives for fiscal year 1999 called for total new and
follow-on investments of $8,500,000. During this period, MACC invested
$5,697,574 in nine portfolio companies. Of this amount, $5,246,965 was invested
in six new portfolio companies and $450,609 was invested in follow-on
investments in three existing portfolio companies. MACC's investments for fiscal
year 1999 fell short of MACC's investment objective, however, MACC did exceed
its investment objectives in the prior two fiscal years. Management views
investment objectives for any given year as secondary in importance to MACC's
overriding concern of investing only in those portfolio companies which satisfy
MACC's investment criteria.
MACC has strong co-investment ties with investment partners, a very active
venture financing market and a continued commitment to increase the average size
of new investments. In fiscal 2000, MACC anticipates investing $11,000,000 in
new and follow-on investments.
VALUATION CHANGES
The following table presents investments held at September 30, 1999 for which
the valuation changed from September 30, 1998:
- See table on page 14 -
[CONTINUED ON PAGE 14.]
MACC PRIVATE EQUITIES INC. 13
<PAGE> 14
M D & A
[CONTINUED FROM PAGE 13.]
FAIR VALUE
- --------------------------------------------------------------------------------
PORTFOLIO COMPANY SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
Building One Services Corporation $ 361,690 $ 287,100*
Central Fiber Corporation 733,333 712,812
Cirque Corporation 335,002 502,504
Linton Truss Corporation 447,941 497,941*
Monitronics International, Inc. 838,353 436,848
Murphey Acquisition, LLC 1,037,500 937,500
Portrait Displays, Inc. 500,000 300,000
RSI Holdings, Inc. 1,474,527 974,527
Sight & Sound Distributors, Inc. 1,000,000 1,333,333
Taylor Holdings, Inc. 1,137,278 927,278
- --------------------------------------------------------------------------------
* September 30, 1998 valuations have been adjusted for partial disposition of
the portfolio investment for purposes of comparison.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share of MACC'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 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. MACC's use of SBA valuation procedures did not
result in a material variance as of September 30, 1999, 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 and on such other interim periods as are justified by
material portfolio company events if the Board of Directors determines in good
faith that cost no longer represents fair value.
YEAR 2000 COMPLIANCE
MACC has made the enhancements necessary to prepare its systems for the year
2000. The expense of the year 2000 projects as well as the related potential
effect on MACC's earnings has not had a material effect on MACC's financial
position or results of operations. MACC is aware of potential year 2000 risks
and the possible adverse impact resulting from failures by third parties (such
as banks and vendors) and portfolio companies to adequately address year 2000
problems. MACC could incur losses if portfolio companies incur business losses
related to the year 2000. To date, MACC has been advised by such parties that
they do have plans in place to address and correct the issues associated with
the year 2000; however, no assurance can be given as to the adequacy of such
plans or to the timeliness of their implementation. MACC's computer operations
are not complex and functions can be performed manually for some period of time.
14 MACC PRIVATE EQUITIES INC.
<PAGE> 15
M D & A
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The majority of the MACC consolidated investment portfolio consists of debt and
equity securities which are not publicly traded and are recorded at fair value
in accordance with SBA valuation policies. These policies generally do not
result in increases or decreases in the fair value of debt portfolio investments
based upon changes in market interest rates. Moreover, equity securities that
are not publicly traded are not subject to market price risk. Nevertheless, MACC
is exposed to market risk from changes in market prices of publicly traded
equity securities held in the MACC consolidated investment portfolio.
At September 30, 1999, publicly traded equity securities in the MACC
consolidated investment portfolio were recorded at a fair value of $361,690. In
accordance with MACC's valuation policies and SBA regulations, the fair value of
publicly traded equity securities is determined based upon the average of the
closing prices (or bid price in the case of over-the-counter equity securities)
for the valuation date and the preceding two days. The publicly traded equity
securities in the MACC consolidated investment portfolio thus have exposure to
price risk, which is estimated as the potential loss in fair value due to a
hypothetical 10% adverse change in quoted market prices, and would amount to a
decrease in the recorded value of such publicly traded equity securities of
approximately $36,169. Actual results may differ.
MACC is also exposed to market risk from changes in market interest rates
that affect the fair value of MorAmerica Capital's debentures payable determined
in accordance with Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
of MorAmerica Capital's outstanding debentures payable at September 30, 1999,
was $13,630,000, with a cost of $13,790,000. Fair value of MorAmerica Capital's
outstanding debentures payable is calculated by discounting cash flows through
estimated maturity using the borrowing rate currently available to MorAmerica
Capital for debt of similar original maturity. None of MorAmerica Capital's
outstanding debentures payable are publicly traded. Market risk is estimated as
the potential increase in fair value resulting from a hypothetical 0.5% decrease
in interest rates. Actual results may differ.
- --------------------------------------------------------
1999
- --------------------------------------------------------
Fair Value of Debentures $ 13,630,000
Payable
Amount Below Cost $ 160,000
Additional Market Risk $ 196,000
- --------------------------------------------------------
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 MACC's
investment portfolio. Accordingly, MACC states that:
The portfolio securities of MACC consist primarily of securities issued by
small, privately held companies. Generally, little or no public information is
available concerning the companies in which MACC invests and MACC must rely on
the diligence of the Investment Advisor to obtain the information necessary for
MACC's investment decisions. In order to maintain their status as business
development companies, MACC 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 purchase in private
placement transactions from small privately held com-
[CONTINUED ON PAGE 16.]
MACC PRIVATE EQUITIES INC. 15
<PAGE> 16
M D & A
[CONTINUED FROM PAGE 15.]
panies. 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, MACC'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.
MACC's investments primarily consist of securities acquired 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 MACC 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 MACC's investments will produce current yields or capital gains.
- - Operations Risks
MACC 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. MACC 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 MACC'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 MACC's portfolio companies could adversely affect MorAmerica Capital's
ability to achieve increases, if any, in fair value of its portfolio
investments. MACC'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
MACC faces several risks in relation to changes in prevailing market interest
rates. First, at September 30, 1999, MACC had outstanding $13,790,000 in
principal amount of SBA-guaranteed debentures issued by MACC's subsidiary,
MorAmerica Capital, which mature as follows: $2,450,000 in 2000, $5,690,000 in
2001, $2,150,000 in 2003, $1,000,000 in 2007 and $2,500,000 in 2009. 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 MACC
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
16 MACC PRIVATE EQUITIES INC.
<PAGE> 17
M D & A
paid on the maturing debentures, then MACC may incur higher interest expenses
during subsequent periods and MACC's ability during such periods to achieve a
net operating profit, if any, could be adversely affected.
Second, MACC has stated that one of its goals is to structure more portfolio
investments to provide a current yield in order to provide MACC with increased
earnings stability. These investments typically provide for a fixed preferred
dividend or interest rate. Accordingly, MACC'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 rates, which would adversely affect MACC's projected total
income over the foreseeable future.
Third, many of MACC's portfolio companies have or will also issue debt
senior to MACC's investment. The payment of principal and interest due on MACC'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 MACC's investments generally do not. Any increase in market interest
rates may put significant economic pressure on those portfolio companies that
have issued senior debt which bears interest at a floating rate. Accordingly,
MACC's ability to achieve net operating income and generally to realize gains on
its portfolio investments may be adversely affected by an increase in market
interest rates.
- - Effect of New Accounting Standards
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS 137, will be effective for MACC for years beginning after
October 1, 2002. MACC has no derivative or hedging activities, therefore, it is
not anticipated this statement will have a material effect on its results of
operations or financial position.
MACC PRIVATE EQUITIES INC. 17
<PAGE> 18
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, 1999, and the related consolidated statements
of operations and cash flows for the year ended September 30, 1999 and the
consolidated statements of changes in net assets for the years ended September
30, 1999 and 1998. 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 audits 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, 1999. 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 audits provide 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, 1999, 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, 1999 and 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Des Moines, Iowa
November 4, 1999
18 MACC PRIVATE EQUITIES INC.
<PAGE> 19
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
MACC Private Equities Inc. and Subsidiary
ASSETS
Loans and investments in portfolio securities at market
or fair value, cost of $26,770,110 (note 2) $ 26,461,384
U.S. treasury bills, at cost, which approximates market 7,393,765
Cash and money market account 2,261,678
Certificates of deposit 1,092,999
Other assets, net 1,325,619
-------------
Total assets $ 38,535,445
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debentures payable, net of discount (note 3) $ 13,763,123
Incentive fees payable (note 6) 991,980
Accrued interest 291,862
Accounts payable and other liabilities 94,332
-------------
Total liabilities 15,141,297
-------------
Stockholders' equity (notes 3 and 4):
Common stock, $.01 par value per share; authorized
4,000,000 shares; issued 1,619,097 shares 16,191
Additional paid-in-capital (notes 4 and 5) 16,510,381
Net investment gain 365,079
Net realized gain on investments 6,811,223
Unrealized depreciation on investments (308,726)
-------------
Total stockholders' equity 23,394,148
-------------
Commitments (note 6)
Total liabilities and stockholders' equity $ 38,535,445
=============
Net assets per share $ 14.45
=============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
MACC PRIVATE EQUITIES INC. 19
<PAGE> 20
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
MACC Private Equities Inc. and Subsidiary
INVESTMENT INCOME:
Interest $ 1,774,964
Dividends 302,075
Other 178,081
-----------
Total income 2,255,120
-----------
OPERATING EXPENSES:
Financial expenses (note 3) 1,112,550
Management fees (note 6) 811,260
Professional fees 178,217
Other 310,552
-----------
Total operating expenses 2,412,579
-----------
Investment expense, net before tax benefit (157,459)
Income tax benefit (note 5) 150,000
-----------
Investment expense, net (7,459)
-----------
Realized and unrealized gain on investments (note 2):
Net realized gain on investments 5,142,177
Net change in unrealized (depreciation) appreciation
on investments (607,771)
-----------
Net gain on investments before income tax expense 4,534,406
Income tax expense (note 5) (1,849,000)
-----------
Net gain on investments 2,685,406
-----------
Net change in net assets from operations $2,677,947
===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20 MACC PRIVATE EQUITIES INC.
<PAGE> 21
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
MACC Private Equities Inc. and Subsidiary
1999 1998
----------- ----------
OPERATIONS:
Net investment (expense) income $ (7,459) 621,928
Net realized gain on investments, net of tax 3,293,177 981,091
Net change in unrealized (depreciation)
appreciation on investments (607,771) 2,554,471
----------- ----------
Net increase in net assets from operations 2,677,947 4,157,490
Payments for fractional shares in connection
with stock split (note 4) (9,677) (9,454)
Allocation of income tax benefit to additional
paid-in capital (note 5) 1,198,000 --
----------- ----------
Net increase in net assets 3,866,270 4,148,036
NET ASSETS:
Beginning of year 19,527,878 15,379,842
----------- ----------
End of year $23,394,148 19,527,878
=========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
MACC PRIVATE EQUITIES INC. 21
<PAGE> 22
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1999
MACC Private Equities Inc. and Subsidiary
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase in net assets from operations $ 2,677,947
-----------
Adjustments to reconcile increase in net assets from
operations to net cash provided by operating activities:
Net realized and unrealized gain on investments (4,534,406)
Allocation of income tax benefit to additional
paid-in capital 1,198,000
Other 73,127
Change in assets and liabilities:
Receivables and other assets 138,628
Deferred income taxes 501,000
Accrued interest, accounts payable, and other
liabilities 832,295
-----------
Total adjustments (1,791,356)
-----------
Net cash provided by operating activities 886,591
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of and payments on loans and
investments in portfolio securities 10,522,947
Purchases of loans and investments in portfolio securities (5,697,574)
Proceeds from disposition of other investments 721,670
Purchases of other investments (5,683,133)
-----------
Net cash used in investing activities (136,090)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 2,500,000
Payments for fractional shares in connection with stock split (9,677)
Payments for debt issuance and commitment fees (62,500)
-----------
Net cash provided by financing activities 2,427,823
-----------
Net increase in cash and cash equivalents 3,178,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,886,985
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,065,309
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
CASH PAID DURING THE YEAR FOR:
Interest $ 1,031,747
Income taxes 9,812
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
INFORMATION -- ASSETS RECEIVED IN LIEU OF CASH $ 600,719
===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22 MACC PRIVATE EQUITIES INC.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC Private Equities Inc. and Subsidiary
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). 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 consolidated 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 American
Institute of Certified Public Accountants (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 consolidated 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 consolidated 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 the date of purchase and money market deposit accounts to be
cash equivalents. At September 30, 1999, cash and cash equivalents for
purposes of reporting cash flows consisted of $2,261,278 of cash and money
market funds, $2,007,632 of U.S. treasury bills and $795,999 of
certificates of deposit.
- 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.
- Income Taxes
Equities and MACC 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 consolidated
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
[CONTINUED ON PAGE 24.]
MACC PRIVATE EQUITIES INC. 23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC Private Equities Inc. and Subsidiary
[CONTINUED FROM PAGE 23.]
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 $26,461,384 and
$26,770,110, respectively, at September 30, 1999.
The estimated fair value of long-term debt is $13,630,000, with
cost of $13,790,000. 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
No issued, but not-yet-adopted 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 $26,461,384 at September 30, 1999. 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.
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 other than Building
One Services Corporation (acquired on April 27, 1998) are considered to
be restricted in their disposition and illiquid at September 30, 1999.
3 DEBENTURES PAYABLE
Debentures of MACC guaranteed by the Small Business Administration (SBA) of
$13,790,000 at September 30, 1999 are unsecured. In accordance with SOP 90-7,
the debentures were revalued to fair value on February 15, 1995. Debentures
payable at September 30, 1999 are recorded net of discount of $26,877.
Maturities of the debentures are as follows:
- --------------------------------------------------------
YEAR ENDING FIXED
SEPTEMBER 30, DEBENTURES INTEREST RATE
- --------------------------------------------------------
2000 $2,450,000 9.30%
2001 5,690,000 9.08
2003 2,150,000 6.12
2007 1,000,000 7.55
2009 2,500,000 7.83
--------- ====
$13,790,000
===========
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, 1999, $1,009,194 of MACC's undistributed net realized
earnings (computed under SBA guidelines) of $3,501,515 were available for
distribution to Equities.
24 MACC PRIVATE EQUITIES INC.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC Private Equities Inc. and Subsidiary
MACC has a commitment letter with the SBA to issue debentures which expires
on September 30, 2002. At September 30, 1999, $15,790,000 of this commitment
remained unused. MACC paid a commitment fee of $172,900 for this agreement. The
commitment fees are being amortized over the commitment period using the
straight-line method and are included in financial expense on the statement of
operations.
4 STOCKHOLDER'S EQUITY
On February 23, 1999, the Company declared a stock split effected in the form of
a dividend equal to thirteen common shares for every ten common shares
outstanding to shareholders of record on March 15, 1999. As part of this
transaction, the Company made payments to shareholders totaling $9,677,
representing the amount due for fractional shares, and issued 372,705 shares of
common stock. These payments were allocated to net realized gain on investments.
On February 24, 1998, the Company declared a stock split effected in the
form of a dividend equal to twelve common shares for every ten common shares
outstanding to shareholders of record on March 13, 1998. As part of this
transaction, the Company made payments to shareholders totaling $9,454,
representing the amount due for fractional shares, and issued 206,777 shares of
common stock. These payments were allocated to net realized gain on investments.
The Board of Directors approved and amended its agreement with Zions
Bancorporation (Zions) to increase the level of outstanding common stock, which
Zions can purchase without approval of the Board of Directors, from 25% to 35%
on April 29, 1998.
5 INCOME TAXES
Income tax expense differed from the amounts computed by applying the United
States federal income tax rate of 34% to pretax income due to the following:
- --------------------------------------------------------------------------------
Computed "expected" tax expense $ 1,488,000
Increase (reduction) in income taxes resulting from:
State income tax benefit, net of federal tax effect 263,000
Nontaxable dividend income (78,000)
Allocation of income tax benefit to additional
paid-in capital 1,198,000
Change in the beginning of the period
valuation allowance for deferred tax assets (1,138,000)
Other (34,000)
----------
Income tax expense $ 1,699,000
===========
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at September 30, 1999 are as follows:
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 3,647,000
Unrealized depreciation on investments 536,000
Other 208,000
-----------
Total gross deferred tax assets 4,391,000
Less valuation allowance (3,765,000)
-----------
Net deferred tax assets 626,000
Deferred tax liabilities:
Equity investments (545,000)
Other assets received in lieu of cash (81,000)
----------
Net deferred tax assets $ --
===========
- --------------------------------------------------------------------------------
The net change in the total valuation allowance for the year ended September
30, 1999 was a decrease of $1,138,000. 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
[CONTINUED ON PAGE 26.]
MACC PRIVATE EQUITIES INC. 25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC Private Equities Inc. and Subsidiary
[CONTINUED FROM PAGE 25.]
fully realize the gross deferred tax assets, the Company will need to generate
future taxable income of approximately $10.7 million prior to the expiration of
the net operating loss carryforwards in 2008. The Company had taxable income of
$3,403,000 for the year ended September 30, 1999. 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,
1999.
During 1999, a $1,198,000 tax benefit from utilization of pre-confirmation
net operating losses was allocated to additional paid-in capital under the
provisions of SOP 90-7. This allocation does not require any cash payments of
taxes.
At September 30, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $9,118,000, which are available to
offset future federal taxable income, if any, through 2008. Approximately
$1,088,000 of the carryforwards are available for the year ending September 30,
2000, with approximately $1,004,000 additionally 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 management fee is equal to 2.5% 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% 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 sixty days'
written notice. Total management fees under the Agreement amounted to $32,934
for the year ended September 30, 1999. There were no incentive fees accrued or
paid under the Agreement in 1999.
MACC has a separate investment advisory agreement with IAIA. This agreement
may be terminated by either party upon sixty days written notice. The fee is
equal to 2.5% of the Capital Under Management (as defined in the Agreement) on
an annual basis, but in no event more than 2.5% per annum of the Assets Under
Management, or 7.5% of Regulatory Capital (as defined in the Agreement). In
addition, MACC contracted to pay IAIA 13.4% of the net capital gains, before
taxes, on investments in the form of an incentive fee. Net capital gains, as
defined in the agreement, are calculated as gross realized gains, minus the sum
of capital losses, less any unrealized depreciation, including reversals of
previously recorded unrealized depreciation, recorded during the year, and net
investment losses, if any, as reported on line 32 of the SBA Form 468. Capital
losses and realized capital gains are not cumulative under the incentive fee
computation. Payments for incentive fees resulting from noncash gains are
deferred until the assets are sold.
Total management fees under this agreement amounted to $778,326 for the year
ended September 30, 1999. Incentive fees are an expense in determining net
realized gain (loss) on investments in the consolidated statement of operations.
Total incentive fees under this agreement amounted to $1,338,957 in 1999.
Approximately $166,308 of these fees related to noncash gains and will be
deferred as described above.
- - Guarantee
MACC has guaranteed a portion of a line of credit for an investee company.
MACC's portion is limited to $399,999 and is secured by two certificates of
deposit totaling the same amount. The line of credit for the investee company
expires March 31, 2001.
26 MACC PRIVATE EQUITIES INC.
<PAGE> 27
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 . SEPTEMBER 30, 1999
MACC Private Equities Inc. and Subsidiary
MANUFACTURING:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY SECURITY NET ASSETS VALUE COST
- ------- -------- ---------- ----- ----
<S> <C> <C> <C> <C>
CENTRAL FIBER CORPORATION 12% debt security, due December 31, 2005 $ 400,000 400,000
Wellsville, Kansas *Warrant to purchase 1,226.66 common shares 333,333 --
Recycles and manufactures ---------- ----------
cellulose fiber products
733,333 400,000
---------- ----------
CENTRUM INDUSTRIES, INC. 11% debt security, due March 31, 2001 1,254,890 1,254,890
Corry, Pennsylvania *Warrant to purchase 627,445 common shares 13 13
Manufacturing conglomerate *Warrant to purchase 3,732 common shares -- --
with a focus in steel forging *Warrant to purchase 4,547 common shares -- --
*Stock option to purchase 10,756 common shares -- --
*Warrant to purchase 19,679 common shares -- --
*Stock option to purchase 7,171 common shares -- --
---------- ----------
1,254,903 1,254,903
---------- ----------
CIRQUE CORPORATION *100,000 shares Series A preferred 167,499 335,000
Salt Lake City, Utah *55,834 shares Series A preferred 167,503 335,004
Develops, manufactures and ---------- ----------
markets PC pointing devices
335,002 670,004
---------- ----------
GREGG MANUFACTURING, INC. 12% debt security, due March 1, 2004 832,500 832,500
Irvine, California *545,750 units of 8% preferred 166,500 166,500
Manufacturer of Bible covers and *136,438 units of common 37,000 37,000
Christian themed apparel and gifts ---------- ----------
1,036,000 1,036,000
---------- ----------
HANDY INDUSTRIES, LLC 12% debt security, due April 1, 2006 830,280 830,280
Marshalltown, Iowa *Membership interest 262,515 262,515
Manufacturer of lifts for ---------- ----------
motorcycles and small vehicles
1,092,795 1,092,795
---------- ----------
HERITAGE CONSUMER PRODUCTS, LLC *12% debt security, due November 1, 2005 983,913 983,913
Brookfield, Connecticut *Membership interest 147,587 147,587
Distributor of consumer *Stock assignment -- --
over-the-counter pharmaceuticals *Membership interest 80,609 80,609
---------- ----------
1,212,109 1,212,109
---------- ----------
HICKLIN ENGINEERING, L.C. 10% debt security, due June 30, 2003 740,000 740,000
Des Moines, Iowa *Membership interest 127 127
Manufacturer of auto and truck ---------- ----------
transmission and brake dynamometers
740,127 740,127
---------- ----------
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 for ---------- ----------
agricultural, exercise and roofing markets
885,500 885,500
---------- ----------
</TABLE>
MACC PRIVATE EQUITIES INC. 27
<PAGE> 28
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 CONTINUED...
MACC Private Equities Inc. and Subsidiary
MANUFACTURING CONTINUED...
<TABLE>
<CAPTION>
PERCENT OF
COMPANY SECURITY NET ASSETS VALUE COST
- ------- -------- ---------- ----- ----
<S> <C> <C> <C> <C>
KW PRODUCTS, INC. Variable rate debt security, due January 1, 2001 $ 275,035 275,035
Marion, Iowa (11.625% at September 30, 1999) 92,910 92,910
Manufacturer of automobile engine *29,340 common shares ----------- -----------
and brake repair machinery
367,945 367,945
----------- -----------
LINTON TRUSS CORPORATION *10% debt security, due March 1, 2001 327,926 377,926
Delray Beach, Florida *542.8 common shares -- --
Markets and manufactures residential *400 shares Series 1 preferred 40,000 40,000
roof and floor truss systems *11% debt security, due October 31, 2001 80,000 80,000
*Warrant to purchase common shares 15 15
*Warrant to purchase common shares -- --
*Warrant to purchase common shares -- --
----------- -----------
447,941 497,941
----------- -----------
MIDWESTERN ELECTRONICS, INC. 12% debt security, due July 31, 2003 838,666 838,666
Olathe, Kansas *Warrant to purchase 262,857 common shares -- --
Manufacturer of outsourced ----------- -----------
electronic assemblies 838,666 838,666
----------- -----------
MURPHEY ACQUISITION, LLC 12% debt security, due November 1, 2001 937,500 937,500
Mishawaka, Indiana *Membership interest 100,000 --
Manufacturer of custom plastic ----------- -----------
injection molded products for the
RV and other industries 1,037,500 937,500
----------- -----------
PPC ACQUISITION COMPANY 12% debt security, due January 3, 2003 350,000 350,000
Kansas City, Kansas *Warrant to purchase common shares 40 40
Manufacturer and printer of ----------- -----------
plastic packaging
350,040 350,040
----------- -----------
SIMONIZ USA, INC. 12% debt security, due January 2, 2002 750,000 750,000
Bolton, Connecticut *Warrant to purchase common shares -- --
Producer of cleaning and wax ----------- -----------
products under both the Simoniz
brand and private label brand names 750,000 750,000
----------- -----------
TALARIA HOLDINGS, LLC 12% debt security, due November 15, 2004 730,000 730,000
Boston, Massachusetts 2.5% debt security, due March 16, 2009 182,500 182,500
Custom and semi-custom *Warrant to purchase 1,703 LLC units -- --
sail and power boat builder ----------- -----------
912,500 912,500
----------- -----------
TAYLOR HOLDINGS, INC. 11% debt security, due May 31, 2003 574,163 574,163
Parsons, Kansas *48,038 common shares 48,038 48,038
Manufacturer of industrial *292,800 shares preferred 304,512 304,512
bagging equipment *Warrant to purchase 56,529 common shares 210,565 565
----------- -----------
1,137,278 927,278
----------- -----------
Total Manufacturing 56.13% $13,131,639 12,873,308
====== ----------- -----------
</TABLE>
28 MACC PRIVATE EQUITIES INC.
<PAGE> 29
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 CONTINUED...
MACC Private Equities Inc. and Subsidiary
SERVICE:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY SECURITY NET ASSETS VALUE COST
- ------- -------- ---------- ----- ----
<S> <C> <C> <C> <C>
BUILDING ONE SERVICES *29,032 common shares $ 361,690 530,502
CORPORATION ---------- ----------
Washington, D.C.
Commercial facilities management
services provider
CONCENTRIX CORPORATION 3,758,750 shares Series A preferred 2,255,250 2,255,250
Pittsford, New York ---------- ----------
Provides media outsourcing solutions
including telemarketing, fulfillment
and creative communications
MONITRONICS INTERNATIONAL, INC. *73,214 common shares 838,353 54,703
Dallas, Texas ---------- ----------
Provides home security systems
monitoring services
ORGANIZED LIVING, INC. 400,000 shares Series A preferred 400,000 400,000
Lenexa, Kansas 130,435 shares Series B preferred 150,000 150,000
Retail specialty store for storage 43,478 shares Series B preferred 50,001 50,001
and organizational products 94,241 shares Series C preferred 120,029 120,029
71,428.5714 shares Series C preferred 100,000 100,000
---------- ----------
820,030 820,030
---------- ----------
PLANT & PROJECT GROUP, LLC 12% debt security, due August 20, 2004 562,500 562,500
Albuquerque, New Mexico *Membership interest 263,250 263,250
High-end electrical-mechanical ---------- ----------
specialty contractor
825,750 825,750
---------- ----------
SIGHT & SOUND DISTRIBUTORS, INC 13,333 shares preferred 1,000,000 1,333,333
St. Louis, Missouri *Warrant to purchase 2 common shares -- --
National video products distributor ---------- ----------
1,000,000 1,333,333
---------- ----------
VIASTAR SERVICES CORPORATION 13% debt security, due July 17, 2003 740,000 740,000
Dallas, Texas *Warrant to purchase 4,359 common shares -- --
Legal, audit and logistical services ---------- ----------
for the trucking industry
740,000 740,000
---------- ----------
WATER CREATIONS, INC. 2.25 common shares 1,125,000 1,125,000
Des Moines, Iowa ---------- ----------
Distributor of pond and
water garden products
Total Service 34.05% 7,966,073 7,684,568
====== ---------- ----------
</TABLE>
MACC PRIVATE EQUITIES INC. 29
<PAGE> 30
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 CONTINUED...
MACC Private Equities Inc. and Subsidiary
COMMUNICATIONS AND SOFTWARE:
<TABLE>
<CAPTION>
PERCENT OF
COMPANY SECURITY NET ASSETS VALUE COST
- ------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C>
EAGLE WEST, L.L.C. 12% debt security, due July 31, 2003 $434,134 434,134
Hays, Kansas *Membership interest 128,827 128,827
Consolidator of cable TV systems *Membership interest 93 93
----------- -----------
563,054 563,054
----------- -----------
EASY SYSTEMS, INC. 11% debt security, due March 1, 2004 703,000 703,000
Welcome, Minnesota *Warrant to purchase 291,304 common shares -- --
Batch feed software and systems *Warrant to purchase 1,339 common shares -- --
----------- -----------
703,000 703,000
----------- -----------
MILES MEDIA GROUP, INC.
Sarasota, Florida 1,000 common shares 440,000 440,000
Tourist magazine publisher ----------- -----------
NEWPATH COMMUNICATIONS, LC *10% debt security, due April 16, 2002 847,000 847,000
Des Moines, Iowa *Membership interest 385 385
Rural cable TV network provider ----------- -----------
847,385 847,385
----------- -----------
PORTRAIT DISPLAYS, INC. *535,715 shares Series B preferred 249,999 750,001
Pleasanton, California *Warrant to purchase 16,071 common shares -- --
Designs and markets pivot enabling *71,429 shares Series C preferred 100,001 100,001
software for LCD computer monitors *Warrant to purchase 13,570 Series C preferred -- --
*Warrant to purchase 12,240 Series C preferred -- --
*Warrant to purchase 27,160 Series C preferred -- --
*911,300 shares Series D preferred 150,000 150,000
----------- -----------
500,000 1,000,002
----------- -----------
PROGRESSIVE SOLUTIONS, INC. *4,609,406 shares Class A preferred 326,440 1,175,000
Salt Lake City, Utah *6,141,515 shares Class B preferred 87,218 87,218
Develops court automation and *500,575 common shares 152,048 152,048
public records management software *Warrant to purchase 10,000 common shares -- --
*Warrant to purchase 300 common shares -- --
*4,929,122 shares Class B preferred 70,000 70,000
*14% debt security, due December 31, 1999 200,000 200,000
----------- -----------
835,706 1,684,266
----------- -----------
RSI HOLDINGS, INC. 11% debt security, due August 22, 2002 654,970 654,970
Fargo, North Dakota *Warrant to purchase 1,188 common shares 340,000 --
Satellite simulcast communications 11% debt security, due August 22, 2002 319,557 319,557
and services to the gaming industry *Warrant to purchase 562 common shares 160,000 --
----------- -----------
1,474,527 974,527
----------- -----------
Total Communications and Software 22.93% $ 5,363,672 6,212,234
======= ----------- -----------
$26,461,384 26,770,110
=========== ===========
</TABLE>
*Presently non-income producing
See accompanying notes to consolidated schedule of investments.
30 MACC PRIVATE EQUITIES INC.
<PAGE> 31
NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS
MACC Private Equities Inc. and Subsidiary
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, 1999, all securities except for Building One Services are
considered to be restricted in their disposition and are stated at what the
Board of Directors considers to be fair market value.
C At September 30, 1999, the cost of securities for federal income tax
purposes was $26,437,696, and the aggregate unrealized
appreciation/depreciation (including other basis differences) based on that
cost was:
-------------------------------------------------------
Unrealized appreciation $ 1,451,136
Unrealized depreciation $ 1,427,448
-----------
Net unrealized appreciation $ (23,688)
===========
-------------------------------------------------------
D The Company owns a portfolio which includes investments in restricted
securities of small businesses. Within this portfolio, twenty-four of these
restricted securities include registration rights and seven of these
restricted securities do not include registration rights. Within the
twenty-four 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% 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 Company expects that, in general, the securities that they will
acquire in the future will include demand and piggyback rights.
PORTFOLIO CHANGES DURING THE YEAR
- ----------------------------------------------------------------------
NEW INVESTMENTS AND ADDITIONS TO PREVIOUS INVESTMENTS
- ----------------------------------------------------------------------
Amount
Invested
------------
Easy Systems, Inc. $ 703,000
Gregg Manufacturing, Inc. 1,036,000
Handy Industries, LLC 1,117,215
Heritage Consumer Products, LLC 80,609
Miles Media Group, Inc. 440,000
Organized Living, Inc. 100,000
Plant & Project Group, LLC 825,750
Progressive Solutions, Inc. 270,000
Water Creations, Inc. 1,125,000
------------
$ 5,697,574
============
- ----------------------------------------------------------------------
DISPOSITIONS
- ----------------------------------------------------------------------
Amount
Cost Received
------------ ------------
Building One Services Corporation $ 530,484 $ 653,197
Carleton Corporation 250,537 8,732
Central Fiber Corporation -- 230,934
Miles Media Group, Inc. 600,003 1,884,326
Tru-Circle Corporation 1,218,872 6,403,673
Weld Racing, Inc. 700,032 975,549
------------ ------------
$ 3,299,928 $ 10,156,411
============ ============
- ----------------------------------------------------------------------
REPAYMENTS RECEIVED $ 366,536
============
- ----------------------------------------------------------------------
MACC PRIVATE EQUITIES INC. 31
<PAGE> 32
SHAREHOLDER INFORMATION
- - Stock Transfer Agent
ChaseMellon Shareholder Services, L.L.C., P.O. Box 3315, South Hackensack, New
Jersey 07606-1915 (telephone (800) 288-9541, (800) 231-5469 (TDD), and
www.chasemellon.com) serves as transfer agent and registrar for MACC's common
stock. Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.
- - Shareholders
MACC had approximately 2,662 record holders of its common stock at November 30,
1999.
- - Annual Meeting
The Annual Meeting of Shareholders of MACC will be held on Tuesday, February 22,
2000, at 10:00 a.m. at the Crowne Plaza Five Seasons Hotel, 350 First Avenue
N.E., Cedar Rapids, Iowa.
- - Dividends
MACC has no history of paying cash dividends and does not anticipate declaring
any cash dividends in the foreseeable future, but intends to retain all
earnings, if any, for use in MACC's business. During fiscal year 1999, however,
MACC declared and paid a 30% 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 MACC's earnings,
capital requirements, financial condition and other relevant factors. MACC does
not presently have any type of dividend reinvestment plan.
- - Market Prices
The common stock of MACC is traded on 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
30, 1999, the bid price for shares of MACC's common stock was $13.63. The
following high and low bid quotations for the shares during each quarterly
period ended on the date shown below of MACC's fiscal years 1999 and 1998 were
taken from quotations provided to MACC by the National Association of Securities
Dealers, Inc:
- --------------------------------------------------------
HIGH LOW
- --------------------------------------------------------
December 31, 1997 $6.61 $5.69
March 31, 1998 6.09 5.13
June 30, 1998 7.31 6.83
September 30, 1998 8.46 6.92
December 31, 1998 8.27 7.02
March 31, 1999 8.08 7.60
June 30, 1999 9.38 7.53
September 30, 1999 12.44 9.25
- --------------------------------------------------------
High and low bid quotations have been adjusted to reflect the payment of a 30%
stock split effected in the form of a stock dividend on March 31, 1999 and a 20%
stock split effected in the form of a stock dividend on March 31, 1998.
Such over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission and may not represent actual
transactions.
32 MACC PRIVATE EQUITIES INC.
<PAGE> 33
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS
FUND MANAGER
.............................................................
InvestAmerica Investment Advisors, Inc.
OFFICERS
.............................................................
DAVID R. SCHRODER
President and Secretary
ROBERT A. COMEY
Executive Vice President and Treasurer
KEVIN F. MULLANE
Senior Vice President
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.
STOCK TRANSFER AGENT
MICHAEL W. DUNN . MANCHESTER, IOWA
President, Farmers and Merchants Savings Bank ChaseMellon Shareholder Services, L.L.C.
HENRY T. MADDEN . IOWA CITY, IOWA P.O. Box 3315 . South Hackensack, NJ 07606-1915
Adjunct Professor, School of Management,
University of Iowa and Management Consultant T: (800) 288-9541 & (800) 231-5469 (TDD)
JAMES L. MILLER . CEDAR RAPIDS, IOWA Web site: www.chasemellon.com
Self-employed, with background in retail management
DAVID R. SCHRODER . CEDAR RAPIDS, IOWA
President of the Company, President of
InvestAmerica Investment Advisors, Inc.
TODD J. STEVENS . SALT LAKE CITY, UTAH
Managing Director, Wasatch Venture Fund, Manager of
the Venture Capital Department of Zions First National Bank
JOHN D. WOLFE . MOUNT VERNON, IOWA
Retired from career in retail banking and mortgage lending
Design/Illustration: Lisa M. Syverson/Syverson Studios, Chicago IL . Cover Photography: Copyright (C) 1999 Allen Prier, Panoramic
Images, Chicago, All Rights Reserved . Executive Photography: Rick McKibben Photography, Kansas City, MO.
</TABLE>
33
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF MACC PRIVATE EQUITIES INC.
1. MorAmerica Capital Corporation, an Iowa corporation, is a wholly-owned
subsidiary of MACC Private Equities Inc.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 34,163,875
<INVESTMENTS-AT-VALUE> 33,855,149
<RECEIVABLES> 0
<ASSETS-OTHER> 1,325,619
<OTHER-ITEMS-ASSETS> 3,354,677
<TOTAL-ASSETS> 38,535,445
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 13,763,123
<OTHER-ITEMS-LIABILITIES> 1,378,174
<TOTAL-LIABILITIES> 15,141,297
<SENIOR-EQUITY> 16,191
<PAID-IN-CAPITAL-COMMON> 16,510,381
<SHARES-COMMON-STOCK> 1,619,097
<SHARES-COMMON-PRIOR> 1,246,392
<ACCUMULATED-NII-CURRENT> 365,079
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,811,223
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (308,726)
<NET-ASSETS> 23,394,148
<DIVIDEND-INCOME> 302,075
<INTEREST-INCOME> 1,774,964
<OTHER-INCOME> 178,081
<EXPENSES-NET> 2,262,579
<NET-INVESTMENT-INCOME> (7,459)
<REALIZED-GAINS-CURRENT> 3,293,177
<APPREC-INCREASE-CURRENT> (607,771)
<NET-CHANGE-FROM-OPS> 2,677,947
<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> 372,705
<NET-CHANGE-IN-ASSETS> 3,866,270
<ACCUMULATED-NII-PRIOR> 372,538
<ACCUMULATED-GAINS-PRIOR> 3,531,450
<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
</TABLE>
