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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission file number 0-24412
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MACC Private Equities Inc.
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(Exact name of registrant as specified in its charter)
Delaware 42-1421406
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
101 Second Street SE, Suite 800, Cedar Rapids, Iowa 52401
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(Address of principal executive offices)
(Zip Code)
(319) 363-8249
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Please indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At January 31, 2001, the registrant had issued and outstanding
1,941,879 shares of common stock.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
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Condensed Consolidated Balance
Sheets at December 31, 2000 (Unaudited),
and September 30, 2000................................................ 3
Condensed Consolidated Statements of
Operations (Unaudited) for the three
months ended December 31, 2000, and
the three months ended December 31, 1999.............................. 4
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the three
months ended December 31, 2000, and
the three months ended December 31, 1999.............................. 5
Notes to Condensed Consolidated
Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results Of Operations...................... 7
Item 3. Quantitative and Qualitative
Disclosure About Market Risk.......................................... 10
PART II. OTHER INFORMATION.............................................................. 12
Signatures............................................................ 13
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2000
(Unaudited)
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Assets
Loans and investments in portfolio securities
at market or fair value, cost of
$37,870,164 and $36,965,143 $38,520,960 41,032,116
Cash and money market accounts 4,329,901 3,767,188
Certificates of deposit 234,375 399,999
Other assets, net 1,452,420 1,408,163
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Total assets $44,537,656 46,607,466
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Liabilities and stockholders' equity
Liabilities:
Debentures payable, net of discount $20,322,558 20,320,922
Incentive fees payable 135,417 118,164
Accrued interest 366,268 242,424
Accounts payable and other liabilities 46,466 280,387
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Total liabilities 20,870,709 20,961,897
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Net assets:
Common stock, $.01 par value per share;
authorized 4,000,000 shares;
issued and outstanding 1,941,879 shares 19,419 19,419
Additional paid-in-capital 16,510,381 16,510,381
Net investment income 426,010 415,889
Net realized gain on investments 5,957,626 4,530,191
Unrealized appreciation on investments 753,511 4,169,689
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Total net assets 23,666,947 25,645,569
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Total liabilities and net assets $44,537,656 46,607,466
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Net assets per share $ 12.19 13.21
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See accompanying notes to unaudited condensed consolidated financial statements.
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MACC PRIVATE EQUITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three For the three
months ended months ended
December 31, December 31,
2000 1999
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Investment income:
Interest $ 601,867 503,677
Dividends 201,698 39,082
Processing fees 3,864 51,873
Other 1,000 1,942
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Total income 808,429 596,574
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Operating expenses:
Interest expenses 444,703 306,076
Management fees 266,143 235,220
Professional fees 25,105 30,302
Other 62,357 56,590
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Total operating expenses 798,308 628,188
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Investment income (expense) 10,121 (31,614)
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Realized and unrealized (loss) gain on investments:
Net realized gain on investments 1,427,435 173,489
Net change in unrealized appreciation
on investments (3,416,178) (90,725)
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Net (loss) gain on investments (1,988,743) 82,764
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Net change in net assets
from operations $(1,978,622) 51,150
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See accompanying notes to unaudited condensed consolidated financial statements.
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MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three For the three
months ended months ended
December 31, December 31,
2000 1999
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Cash flows from operating activities:
(Decrease) increase in net assets from operations $(1,978,622) 51,150
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Adjustments to reconcile (decrease) increase in net assets from operations
to net cash provided by (used in) operating activities:
Net realized and unrealized loss (gain) on investments 1,988,743 (82,764)
Change in accrued interest, incentive fees payable,
accounts payable and other liabilities 84,927 (986,362)
Other (52,634) (28,138)
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Total adjustments 2,021,036 (1,097,264)
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Net cash provided by (used in) operating activities 42,414 (1,046,114)
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Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 894,601 8,928
Purchases of loans and investments in
portfolio securities (539,926) (5,012,422)
Proceeds from disposition of short-term investments -- 2,274,250
Purchases of short-term investments -- (99,000)
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Net cash provided by (used in) investing activities 354,675 (2,828,244)
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Net increase (decrease) in cash and cash equivalents 397,089 (3,874,358)
Cash and cash equivalents at beginning of period 4,167,187 5,065,309
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Cash and cash equivalents at end of period $ 4,564,276 1,190,951
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Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 296,887 411,124
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Supplemental disclosure of noncash investing and financing information -
Assets received in exchange of securities $ 1,887,179 184,860
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See accompanying notes to unaudited condensed consolidated financial statements.
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MACC PRIVATE EQUITIES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of MACC Private Equities Inc. (Equities) and its wholly-owned
subsidiary MorAmerica Capital Corporation (MACC) which have been prepared in
accordance with accounting principles generally accepted in the United States of
America for investment companies. All material intercompany accounts and
transactions have been eliminated in consolidation.
The financial statements included herein have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and instructions to Form 10-Q and Article 6 of
Regulation S-X. The financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of MACC Private Equities
Inc. and its Subsidiary as of and for the year ended September 30, 2000. The
information reflects all adjustments consisting of normal recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim periods. The results of the interim
period reported are not necessarily indicative of results to be expected for the
year. The balance sheet information as of September 30, 2000 has been derived
from the audited balance sheet as of that date.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Such
statements are made in good faith by 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 in its
Annual Report to Shareholders for the fiscal year ended September 30, 2000,
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
Three Months Ended December 31, 2000, Compared to Three Months Ended
December 31, 1999
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 on-going goals is to achieve net investment
income and increased earnings stability. 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.
During the current year, first quarter total investment income of $808,429
was approximately 36% higher than total investment income of $596,574 for the
prior year first quarter. In the current year first quarter as compared to the
prior year first quarter, interest income increased $98,190, dividend income
increased $162,616, processing fees decreased $48,009 and other income decreased
$942. The increase in interest income is primarily due to a $6,830,456, or 44%
increase in MACC's interest-earning portfolio investments that are structured as
subordinated debentures during the prior fiscal year. The receipt of dividend
income is based primarily on the performance of the limited liability companies
in MACC's portfolio and the timing of when these companies make distributions.
In the current year first quarter dividends were received on six portfolio
companies as compared to dividends received on two portfolio companies in the
prior year first quarter. Processing fees decreased due to only one follow-on
portfolio company investment made in the current year first quarter in which
MACC received processing fees at the closing compared to two new portfolio
company investments in the prior year first quarter in which MACC received a
processing fee at closing.
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Total operating expenses for the first quarter of the current year total
$798,308, an increase of approximately 27% as compared to total operating
expenses for the prior year first quarter of $628,188. Interest expense
increased by $138,627 due to additional borrowings of SBA-guaranteed debentures.
Management fees increased by $30,923 in the current year first quarter as
compared to the prior year first quarter due to the increase in assets under
management. Professional fees and other expenses, which include administrative
expenses associated with being a public corporation, were substantially
unchanged in the current year first quarter as compared to the prior year first
quarter.
For the current year first quarter, MACC recorded net investment income of
$10,121 as compared to net investment expense of ($31,614) during the prior year
first quarter.
During the current year first quarter, MACC recorded net realized gain on
investments of $1,427,435 as compared with net realized gain on investments of
$173,489 during the prior year first quarter. In the current year first quarter,
MACC realized a non-cash gain of $1,251,101 from one portfolio investment in
which shares of a privately held company were exchanged for shares in a publicly
traded company. Management does not attempt to maintain a comparable level of
realized gains from year to year or quarter to quarter but instead attempts to
maximize total investment portfolio appreciation through realizing gains in the
disposition of securities and investing in new portfolio investments.
MACC recorded net change in unrealized appreciation/depreciation on
investments of ($3,416,178) during the current year first quarter, as compared
to ($90,725) during the prior year period. The current year net change in
unrealized appreciation/depreciation on investments is the net effect of a
reversal of appreciation of $1,444,689 in one portfolio investment, in which
shares in a privately held company were exchanged for shares in a publicly
traded company for a realized non-cash gain and decreases in the fair value of
three portfolio investments totaling $1,971,489 in the MACC consolidated
investment portfolio, calculated in accordance with MACC's valuation polices. Of
the three portfolio investments that experienced decreases in the fair value
during the current year first quarter, $1,085,653 is attributable to decreases
in the current market price of the publicly traded common stock of two portfolio
companies and $885,836 is attributable to a decrease in fair value of the
securities of one portfolio company, which the Board of Directors determined was
appropriate due to continued operating losses, adverse changes in the portfolio
company's access to funding, and financial condition. Although management
believes that the market prices of MACC's publicly traded portfolio securities
may increase over the course of this year, any or all of these three portfolio
investment may experience additional decreases in fair value in future periods.
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
investment portfolio. 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.
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At the end of the current year first quarter, MACC's net asset value per
share was $12.19 as compared to the net asset value per share on September 30,
2000 of $13.21.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
To date, MACC has relied upon several sources to fund its investment
activities, including MACC's 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, MorAmerica Capital, from time to
time may seek to procure additional capital through the SBIC capital program to
provide a portion of its future investment capital requirements. At present,
there is availability of capital through the SBIC capital program and MACC
anticipates that there will be capital available in future periods.
As of December 31, 2000, MACC's certificates of deposit and cash totaled
$4,564,276. MACC has commitments for $6,790,000 and $10,000,000 in SBA
guaranteed debentures which expire September 30, 2002 and September 30, 2005,
respectively. MACC believes that its existing certificates of deposit and cash,
together with the $16,790,000 SBA commitment, and other anticipated cash flows,
will provide adequate funds for MACC's anticipated cash requirements during the
current fiscal year, including portfolio investment activities, principal and
interest payments on outstanding debentures payable and administrative expenses.
MACC's investment objective is to invest $13,000,000 in new and follow-on
investments during the current fiscal year.
Liquidity for the next several years will be impacted by principal payments
on MACC's debentures payable. Debentures payable are composed of $20,340,000 in
principal amount of SBA-guaranteed debentures issued by MACC's subsidiary,
MorAmerica Capital, which mature as follows: $5,690,000 in 2001, $2,150,000 in
2003, $1,000,000 in 2007, $2,500,000 in 2009, and $9,000,000 in 2010. It is
anticipated MorAmerica Capital would be able to roll over these debentures with
new ten year debentures when they mature. As indicated above, the total amount
of MorAmerica Capital's commitment from the SBA is $16,790,000.
Management believes that current economic conditions in the U.S. are less
favorable to MACC than those experienced in fiscal year 2000. The general
increase in fuel and energy costs over the past several months may adversely
affect the operations or financial condition of MACC's portfolio companies,
particularly those involved in manufacturing. In addition, the recent declines
in market capitalization of many companies in the technology industry may have
the effect of reducing the availability of capital to technology companies in
MACC's investment portfolio. These and other factors may have an adverse effect
on the fair value of MACC's portfolio investments and the markets for corporate
acquisitions and initial public offerings generally, and, as a result, may
adversely affect the rate of growth, if any, in MACC's net asset value over the
next twelve months. However, management does not anticipate that these factors
will have a significant adverse effect on MACC's liquidity over the next twelve
months.
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PORTFOLIO ACTIVITY
During the three months ended December 31, 2000, MACC invested $344,921 in
follow-on investments in two existing portfolio companies. MACC's investment
level objectives for fiscal year 2001 call for total new and follow-on
investments of $13,000,000. With the timing of new and follow-on portfolio
investments being somewhat uncertain and a current slowing of the economy which
may restrict the supply of good investment opportunities, MACC anticipates that
it may not meet its investment level objectives for the current fiscal year.
However, management views investment level objectives for any given year as
secondary in importance to MACC's overriding concern of investing in only those
portfolio companies which satisfy MACC's investment criteria.
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 December 31, 2000, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MACC is exposed to market risk from changes in market prices of publicly
traded equity securities held in the MACC consolidated investment portfolio. At
December 31, 2000, publicly traded equity securities in the MACC consolidated
investment portfolio were recorded at a fair value of $1,058,653. 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
$105,865. Actual results may differ.
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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 December 31, 2000, was
$20,117,000, with a cost of $20,340,000. 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.
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2001
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Fair Value of Debentures Payable $20,117,000
Amount Below Cost $223,000
Additional Market Risk $434,000
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EFFECT OF NEW ACCOUNTING STANDARDS
The company adopted SFAS 133, as amended by SFAS 137 and SFAS 138, on
October 1, 2000 as required. Adoption of this pronouncement had no material
effect on the financial statements of the company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no items to report.
ITEM 2. CHANGES IN SECURITIES
There are no items to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no items to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There are no items to report.
ITEM 5. OTHER INFORMATION
There are no items to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
No exhibits are applicable.
(b) Reports on Form 8-K
MACC filed no reports on Form 8-K during the three months ended
December 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACC PRIVATE EQUITIES INC.
Date: 2/13/01 By: /s/ DAVID SCHRODER
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David Schroder, President
Date: 2/13/01 By: /s/ ROBERT A. COMEY
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Robert A. Comey, Treasurer
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