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 March 31, 2002
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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 of incorporation (I.R.S. Employer
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 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 April 30, 2002, the registrant had issued and outstanding 2,329,255
shares of common stock.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance
Sheets at March 31, 2002
and September 30, 2001.................................................. 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2002, and March 31, 2001, and the six
months ended
March 31, 2002 and March 31, 2001........................................ 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
March 31, 2002 and March 31, 2001........................................ 5
Notes to Condensed Consolidated
Financial Statements..................................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results Of Operations......................... 8
Item 3. Quantitative and Qualitative
Disclosure About Market Risk............................................. 13
PART II. OTHER INFORMATION................................................................. 14
Item 4. Submission of Matters to a
Vote of Security Holders................................................. 14
Item 6. Exhibits and Reports on Form 8-K......................................... 15
Signatures............................................................... 16
2
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, September 30,
2002 2001
------------ --------------
Assets
Loans and investments in portfolio securities, at market or fair value:
Unaffiliated companies (cost of $19,102,153 and $17,375,283) $ 17,387,220 16,669,258
Affiliated companies (cost of $19,391,856 and $22,002,764) 17,815,119 17,680,575
Controlled companies (cost of $5,053,001 and $3,005,000) 5,493,001 3,623,000
Cash and money market accounts 2,902,164 795,594
Certificates of deposit 435,303 686,859
Other assets, net 1,753,132 1,940,672
------------ ----------
Total assets $ 45,785,939 41,395,958
============ ==========
Liabilities and net assets
Liabilities:
Debentures payable, net of discount $ 26,975,734 20,972,463
Incentive fees payable 64,085 100,625
Accrued interest 155,306 119,662
Accounts payable and other liabilities 59,861 160,237
------------ ----------
Total liabilities 27,254,986 21,352,987
------------ ----------
Net assets:
Common stock, $.01 par value per share;
authorized 4,000,000 shares;
issued and outstanding 2,329,255 shares 23,293 23,293
Additional paid-in-capital 21,359,330 24,327,176
Unrealized depreciation on investments (2,851,670) (4,307,498)
------------ ----------
Total net assets 18,530,953 20,042,971
------------ ----------
Total liabilities and net assets $ 45,785,939 41,395,958
============ ==========
Net assets per share $ 7.96 8.60
============ ====
See accompanying notes to unaudited condensed consolidated financial statements.
3
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three For the three For the six For the six
months ended months ended months ended months ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
---------- ------------ -------------- -------------
Investment income:
Interest
Unaffiliated companies $ 128,353 248,815 346,858 487,375
Affiliated companies 217,116 195,545 430,646 410,052
Controlled companies 77,112 80,188 150,205 161,158
Other 77,529 60,564 96,238 128,394
Dividends
Unaffiliated companies 63,477 -- 118,733 84,013
Affiliated companies 58,572 63,535 139,147 181,220
Controlled companies 7,004 110,611 7,004 110,611
Processing fees 30,331 35,051 59,591 38,915
Other 33,889 -- 51,321 1,000
---------- ---------- ---------- ----------
Total income 693,383 794,309 1,399,743 1,602,738
---------- ---------- ---------- ----------
Operating expenses:
Interest 464,404 449,967 913,628 894,670
Management fees 278,772 266,143 547,723 532,286
Professional fees 36,009 29,913 78,418 55,018
Other 129,832 107,753 208,735 170,110
---------- ---------- ---------- ----------
Total operating expenses 909,017 853,776 1,748,504 1,652,084
---------- ---------- ---------- ----------
Investment expense, net before tax expense (215,634) (59,467) (348,761) (49,346)
Income tax expense -- (70,000) -- (70,000)
---------- ---------- ---------- ----------
Investment expense, net (215,634) (129,467) (348,761) (119,346)
---------- ---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments
Unaffiliated companies 313,450 2,881,547 337,403 4,308,982
Affiliated companies (717,085) (1,225,015) (2,956,488) (1,225,015)
Net change in unrealized appreciation/
depreciation on investments (263,859) (2,075,413) 1,455,828 (5,491,591)
---------- ---------- ---------- ----------
Net loss on investments before
income tax expense (667,494) (418,881) (1,163,257) (2,407,624)
Income tax expense -- (680,000) -- (680,000)
---------- ---------- ---------- ----------
Net loss on investments (667,494) (1,098,881) (1,163,257) (3,087,624)
---------- ---------- ---------- ----------
Net change in net assets
from operations $ (881,128) (1,228,348) (1,512,018) (3,206,970)
========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
4
MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six For the six
months ended months ended
March 31, March 31,
2002 2001
------------ ------------
Cash flows from operating activities:
Decrease in net assets from operations $(1,512,018) (3,206,970)
----------- ----------
Adjustments to reconcile decrease in net assets from operations to net cash
used in operating activities:
Net realized and unrealized loss on investments 1,163,257 3,087,624
Change in accrued interest, incentive fees payable,
accounts payable and other liabilities (101,272) 96,047
Other 30,169 (116,608)
----------- ----------
Total adjustments 1,092,154 3,067,063
----------- ----------
Net cash used in operating activities (419,864) (139,907)
----------- ----------
Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 2,536,364 4,542,906
Purchases of loans and investments in
portfolio securities (5,835,752) (3,068,542)
Proceeds from disposition of short-term investments 92,500 --
Purchases of short-term investments (116,678) (740,875)
----------- ----------
Net cash (used in) provided by investing activities (3,323,566) 733,489
----------- ----------
Cash flows from financing activities:
Proceeds from debt issuance, net of commitment fees 5,850,000 --
Payments for fractional shares in connection with stock split -- (9,498)
Payments for commitment fees -- (100,000)
----------- ----------
Net cash provided by (used in) financing activities 5,850,000 (109,498)
----------- ----------
Net increase in cash and cash equivalents 2,106,570 484,084
Cash and cash equivalents at beginning of period 795,594 4,167,187
----------- ----------
Cash and cash equivalents at end of period $ 2,902,164 4,651,271
=========== =========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 812,787 792,640
=========== =========
Supplemental disclosure of noncash investing and financing
information -
Debt issuance costs financed with debentures payable $ 150,000 --
Assets received in exchange of securities 115,805 2,141,464
=========== =========
See accompanying notes to unaudited condensed consolidated financial statements.
5
MACC PRIVATE EQUITIES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited condensed 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, 2001. 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,
2001 has been derived from the audited balance sheet as of that date.
(2) Critical Accounting Policy
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. Among the factors considered
in determining the fair value of investments are the cost of the investment;
developments, including recent financing transactions, since the acquisition of
the investment; 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.
Realization of the carrying value of investments is subject to future
developments. Investment transactions are recorded on the trade date and
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.
6
(3) Loss Contingency
MACC has received a notice from a company (Buyer) seeking
indemnification under a Stock Purchase Agreement (the Stock Purchase Agreement)
pursuant to which MACC and certain other individuals and institutional investors
(the Sellers) sold their interest in a former portfolio company investment
(Portfolio Company). Under the Stock Purchase Agreement, the Sellers agreed to
indemnify Buyer for breaches of representations and warranties as to Portfolio
Company made by the Sellers. In its notice of indemnification, Buyer claims that
accounting irregularities at Portfolio Company resulted in a breach of the
Sellers' representations and warranties. MACC and the Sellers have retained
counsel and forensic accountants and are engaged with Buyer in an informal
process of evaluating the strength of the Buyer's claim as well as all available
defenses. If this informal process does not result in a settlement, it is likely
that the indemnification claim will be subject to an arbitration proceeding, in
accordance with the terms of the Stock Purchase Agreement. While Equities
believes that it is reasonably possible that a loss may have been incurred as a
result of the indemnification claim, as of March 31, 2002 the amount of the
possible loss, and therefore its materiality to the financial statements, cannot
be estimated.
[Remainder of page intentionally left blank]
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by 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, 2001, 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
Second Quarter and Six Months Ended March 31, 2002, Compared to Second
Quarter and Six Months Ended March 31, 2001
MACC's investment income includes income from interest, dividends and
fees. Net investment expense represents total investment income minus operating
and interest expenses, net of applicable income taxes. The main objective of
portfolio company investments is to achieve capital appreciation and realized
gains in the portfolio. These are not included in net investment expense.
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 second quarter total investment income of
$693,383 was approximately 13% lower than total investment income of $794,309
for the prior year second quarter. In the current year second quarter as
compared to the prior year second quarter, interest income decreased $85,002,
dividend income decreased $45,093, processing fees decreased $4,720 and other
income increased $33,889. The decrease in interest income is due to five
investments which are on non-accrual of interest status in the current year
second quarter as compared to three investments in the prior year second quarter
and also the lower interest rate earned on cash on hand held in interest earning
investments. 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 second
quarter and in the prior year second quarter dividends were received by MACC on
four portfolio companies. Processing fees decreased due to only one follow-on
portfolio company investment in the current year second quarter in which MACC
received processing fees at the closing and a processing fee received on the
restructuring of an existing portfolio company compared to one new portfolio
investment and two follow-on portfolio investments in the prior year second
quarter in which MACC received a processing fee at closing. The increase in
other income is due to the receipt of advisory fees from one portfolio company
and the increase in valuation of a receivable.
8
During the current year six-month period, total income of $1,399,743
was a decrease of $202,995, or 13%, over total income of $1,602,738 in the prior
year six-month period. For the current year six-month period as compared to the
prior year six-month period, interest income decreased to $1,023,947 from
$1,186,979, dividend income decreased to $264,884 from $375,844, processing fee
income increased to $59,591 from $38,915 and other income increased to $51,321
from $1,000. The decrease in interest income is due to the reasons stated above
for the current year second quarter. In the current year six-month period,
dividend income decreased because dividends were received on five portfolio
companies as compared to dividends received on eight portfolio companies in the
prior year six-month period. Processing fees increased due to one new portfolio
company investment made in the current year, a restructuring of an existing
portfolio company investment and a follow-on investment in which MACC received
processing fees at the closing compared to one new portfolio company investment
and three smaller follow-on portfolio investments made in the prior year
six-month period in which MACC received a processing fee at closing. Other
income increased due to the receipt of advisory fees from one portfolio company,
reimbursement of legal fees expensed in the prior fiscal year and the increase
in valuation of a receivable.
Total operating expenses for the second quarter of the current year
were $909,017, an increase of approximately 6%, as compared to total operating
expenses for the prior year second quarter of $853,776. Interest expense
increased to $464,404 in the current year second quarter as compared to $449,967
in the prior year second quarter due to $6,645,000 of additional borrowings of
SBA-guaranteed debentures since the end of the prior year second quarter.
Management fees increased to $278,772 in the current year second quarter as
compared to $266,143 in the prior year second quarter. Professional fees
increased to $36,009 in the current year second quarter from $29,913 in the
prior year second quarter. Professional fees are expected to be higher for at
least the next three months as a result of the item identified in Note 3 to the
Unaudited Condensed Consolidated Financial Statements. Other expenses increased
to $129,832 from $107,753 in the current year second quarter as compared to the
prior year second quarter mainly due to the increase in stock market listing
fees and the timing of payments for administrative expenses.
For the current year second quarter and six-month period, MACC recorded
a net investment expense of $215,634 and $348,761, respectively, as compared to
net investment expense of $129,467 and $119,346 during the prior year second
quarter and six-month period, respectively.
During the current year second quarter and six-month period, MACC
recorded net realized loss on investments of $403,635 and $2,619,085,
respectively, as compared with net realized gain on investments of $1,656,532
and $3,083,967 during the prior year second quarter and six-month period,
respectively. In the current year second quarter, MACC realized a gain of
$851,308 in two portfolio companies investments and realized a loss of
$1,254,943 from the write-off of one portfolio company of which $1,254,902 was
previously recorded as unrealized depreciation. 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.
9
MACC recorded net change in unrealized appreciation/depreciation on
investments of ($263,859) during the current year second quarter, as compared to
($2,075,413) during the prior year period. This net change in unrealized
appreciation/depreciation on investments of ($263,859) is the net effect of
increases in fair value of seven portfolio companies totaling $803,078,
decreases in fair value of six portfolio companies totaling $1,475,689, the
reversal of appreciation of $538,000 in one portfolio investment in which the
portfolio company was a part of a recapitalization resulting in a realized gain,
the reversal of appreciation of $308,150 in one portfolio investment in which an
outstanding cash escrow was received, and the reversal of $1,254,902 of
depreciation on the write-off of the investment in one portfolio company
referenced above. For the current year six-month period the net change in
unrealized appreciation/depreciation on investments was $1,455,828, as compared
to ($5,491,591) during the prior year six-month period. The current year
six-month net change in unrealized appreciation/depreciation on investments of
$1,455,828 is the net effect of increases of fair value of nine portfolio
companies totaling $1,094,952, decreases in fair value of five portfolio
companies totaling $2,503,309, the reversal of appreciation of $538,000 in one
portfolio investment in which the portfolio company was a part of a
recapitalization resulting in a realized gain, the reversal of appreciation of
$102,716 in one portfolio investment in which an outstanding cash escrow was
received, and the reversal of $3,504,901 of depreciation on the write-off of the
investment in two portfolio companies.
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.
MACC experienced a decrease of $1,512,018 in net assets at the end of
the second quarter of fiscal year 2002, and the resulting net asset value per
share was $7.96 as of March 31, 2002, as compared to $8.60 as of September 30,
2001. Through the second quarter of fiscal year 2002, MACC's operating results
have been adversely affected by challenging economic conditions. These economic
factors have adversely impacted the operating performance and financial
condition of a number of companies in MACC's investment portfolio. For example,
three of MACC's portfolio companies are in the aerospace and travel industries,
both of which have been adversely affected following the events of September 11.
In addition, management believes that recent economic conditions, coupled with
market uncertainty regarding hostilities involving the United States, have
resulted in a contraction in the availability of capital generally, and from
senior lenders in particular. However, management is encouraged by the
performance of the portfolio as a whole and the improvement in the US economy in
the first quarter of calendar year 2002. Several companies in the portfolio
could be sold or could repurchase MACC's position in 2002 and an improved
economy may increase these liquidity opportunities. It is uncertain, however,
when any of these dispositions may occur or the prices at which these
transactions may occur.
10
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, it appears that there is availability of capital for the next five
years through the SBIC capital program.
As of March 31, 2002, MACC's cash totaled $2,902,164. MACC has a
commitment for an additional $4,455,000 in SBA guaranteed debentures, which
expires September 30, 2005 and has submitted an application for an additional
$6,500,000 in SBA guaranteed debentures. MACC believes that its existing cash,
together with the $4,455,000 SBA commitment which expires September 30, 2005,
additional commitments anticipated through the SBIC capital program and other
anticipated cash flows, will provide adequate funds for MACC's anticipated cash
requirements during the current fiscal year, including portfolio investment
activities, interest payments on outstanding debentures payable and
administrative expenses. MACC's investment objective has been revised to invest
$8,500,000 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
$26,985,000 in principal amount of SBA-guaranteed debentures issued by MACC's
subsidiary, MorAmerica Capital, which mature as follows: $2,150,000 in 2003,
$1,000,000 in 2007, $2,500,000 in 2009, $9,000,000 in 2010, $6,335,000 in 2011,
and $6,000,000 in 2012. It is anticipated MorAmerica Capital will be able to
roll over these debenture with new ten year debentures when they mature.
During the current year second quarter, MACC has not repurchased any
shares of stock through the stock repurchase program which was implemented in
the current year first quarter. MACC has not repurchased any shares of stock due
to the lack of consistent trading activity. The stock repurchase program will
run through April 15, 2002 and will not be extended.
MACC anticipates that it will rely primarily on the SBIC capital
program and its cash flows from operations to fund its investment activities and
other cash requirements during fiscal year 2002. Although management believes
these sources will provide sufficient funds for MACC to meet its revised fiscal
2002 investment level objective and other anticipated cash requirements, there
can be no assurances that the SBIC capital program will continue to be available
to MACC or that MACC's cash flows from operations will be as projected. MACC's
cash flow could also be reduced by the contingent liabilities discussed in Note
3 to the Unaudited Condensed Consolidated Financial Statements. MACC intends to
draw $1,000,000 of its existing $4,445,000 SBA commitment to fund its investment
activities during the second half of fiscal year 2002.
11
PORTFOLIO ACTIVITY
During the six months ended March 31, 2002, MACC invested $5,835,752 in
eight portfolio companies, consisting of $4,714,251 invested in five new
portfolio companies and $1,121,501 invested in follow-on investments in three
existing portfolio companies. MACC frequently co-invests with other funds
managed by MACC's investment advisor and with funds affiliated with MACC's
largest shareholder, Zions First National Bank. When it makes any co-investment
with these related funds, MACC follows certain procedures consistent with orders
of the Securities and Exchange Commission for related party co-investments to
reduce or eliminate conflict of interest issues. Of the $5,946,264 invested
during the six months ended March 31, 2002, $4,451,750 represented
co-investments with funds managed by MACC's investment advisor and $400,000
represented co-investments with funds affiliated with Zions First National Bank.
MACC's revised investment level objectives for fiscal year 2002 call for total
new and follow-on investments of $8,500,000. The timing of new and follow-on
portfolio investments is somewhat uncertain and given current economic
conditions, MACC 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.
CRITICAL ACCOUNTING POLICY
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. Among the factors considered
in determining the fair value of investments are the cost of the investment;
developments, including recent financing transactions, since the acquisition of
the investment; 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.
Realization of the carrying value of investments is subject to future
developments. Investment transactions are recorded on the trade date and
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.
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.
12
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 March 31, 2002, publicly traded equity securities in the MACC
consolidated investment portfolio were recorded at a fair value of $2,450,406.
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 $245,041. 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 March 31, 2002,
was $27,650,000, with a cost of $26,985,000. 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.
-----------------------------------------------------
March 31,
2002
-----------------------------------------------------
Fair Value of Debentures Payable $27,650,000
Amount Above Cost $665,000
Additional Market Risk $ 777,000
------------------------------------------------------
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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
On February 26, 2002, MACC's 2002 Annual Meeting of Shareholders (the
"Meeting") was held in Cedar Rapids, Iowa. A quorum of 1,744,798 shares, or
approximately 74.91% of issued and outstanding shares as of December 31, 2001,
were represented in person or by proxy at the Meeting. The shareholders
considered two proposals at the Meeting.
With respect to the first proposal, the shareholders elected three
directors to serve until 2005 Annual Meeting of Shareholders or until their
respective successors shall be elected and qualified. These directors and the
votes cast in favor of and withheld with respect to each are as follows:
Director For Withheld
-------- --- --------
Paul M. Bass, Jr. 1,726,981 17,817
David R Schroder 1,729,850 14,948
Robert A. Comey 1,729,708 15,090
The term of office of each of the following directors of MACC continued
beyond the date of the Meeting: Michael W. Dunn; Jeri J. Harman; Henry T.
Madden; Gordon J Roth; Todd J. Stevens; and John D. Wolfe.
With regard to the second proposal, the shareholders voted to ratify
the appointment of KPMG LLP as independent auditors for MACC for Fiscal year
2002 by a vote of 1,714,209 in favor of ratification and 4,313 against
ratification, with 26,276 shares abstaining.
ITEM 5. OTHER INFORMATION
There are no items to report.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
No exhibits are applicable.
(b) Reports on Form 8-K
MACC filed no current reports on Form 8-K during the quarter ended
March 31, 2002.
15
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: 5/13/02 By: /s/ David Schroder
------------------- --------------------------------
David Schroder, President
Date: 5/13/02 By: /s/ Robert A. Comey
------------------- --------------------------------
Robert A. Comey, Treasurer
16