This section of the Quarterly Report on Form 10-Q for MACC Private Equities Inc. ("MACC" or "we" or "us" or the "Company") contains forward-looking statements. All statements in this Quarterly Report on Form 10-Q, including those made by MACC's management, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on current management expectations that involve substantial risks and uncertainties that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "targets," "potential," and "continue," or the negative of these terms, or other similar words. Examples of forward-looking statements contained in this Quarterly Report on Form 10-Q include statements regarding MACC's:

• future financial and operating results;
• business strategies, prospects and prospects of its portfolio companies;
• ability to operate as a business development company;
• regulatory structure;
• adequacy of cash resources and working capital;
• projected costs;
• competitive positions;
• management's plans and objectives for future operations; and
• industry trends.

These forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, as disclosed in MACC's prior Securities and Exchange Commission ("SEC") filings. These and many other factors could affect MACC's future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by MACC or on its behalf. MACC undertakes no obligation to revise or update any forward-looking statements. The forward-looking statements contained in this Form 10-Q are excluded from the safe harbor protection provided by
Section 27A of the Securities Act of 1933, as amended (the "1933 Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All references to fiscal year apply to MACC's respective fiscal years which end on September 30 of each year.

Results of Operations

Our investment income includes income from interest, dividends and fees. Investment expense, net represents total investment income minus net operating expenses. The main objective of portfolio company investments is to achieve capital appreciation and realized gains in the portfolio. These gains and losses are not included in investment expense, net.

 First Quarter Ended December 31, 2008 Compared to First Quarter Ended December 31, 2007

                                                   For the three months ended
                                                          December 31,
                                              --------------------------------------
                                                      2008               2007               Change
                                              --------------------------------------     --------------
Total investment income                       $        211,379              260,004           (48,625)
Net operating and income tax expense                 (293,399)            (307,563)             14,164
                                                  -------------     ----------------     --------------
Investment expense, net                               (82,020)             (47,559)           (34,461)
                                                  -------------     ----------------     --------------
Net change in unrealized appreciation/

     depreciation on investments and other assets         269,100            (721,354)            990,454
                                                     -------------     ----------------     --------------
Net (loss) gain on investments                            269,100            (721,354)            990,454
                                                     -------------     ----------------     --------------
Net change in net assets from operations         $        187,080            (768,913)            955,993
                                                 =================     ================     ==============

Net asset value per share:
         Beginning of period                     $           4.23                 4.67
                                                 ================     ================
         End of period                           $           4.31                 4.36
                                                 =================     ================
Total Investment Income

During the current fiscal year first quarter, total investment income was $211,379, a decrease of $48,625, or 19%, from total investment income of $260,004 for the prior year first quarter. In the current year first quarter as compared to the prior year first quarter, interest income decreased $72,986, or 42%, and dividend income increased $24,361, or 29%. The decrease in interest income is the net result of (i) repayments of principal on debt portfolio securities issued to us by three portfolio companies, (ii) an increase in interest income due to one debt portfolio security which had been on non-accrual of interest status during the prior year first quarter but which is currently making interest payments and accordingly interest is being accrued as earned, and (iii) a decrease in interest income on four debt portfolio securities which have been placed on non-accrual of interest status. In both the current year first quarter and the prior year first quarter, MACC received a dividend on one existing portfolio investment, however the current year dividend was larger. MACC does not anticipate that its dividend income will continue to increase in future periods.

Net Operating Expenses

Net operating expenses for the first quarter of the current year were $293,399, a decrease of $14,164 or 5%, as compared to net operating expenses for the prior year first quarter of $307,563. Interest expense decreased $55,608, or 43%, in the current year first quarter due a combination of the decrease in the interest rate and principal balance of the Note Payable to Cedar Rapids Bank and Trust Company as discussed below under Financial Condition, Liquidity and Capital Resources.

Management fees increased $7,979, or 12%, in the current year first quarter due to the change of investment advisers and concurrent increase in the management fee from 1.5% to 2.0%. Professional fees increased $1,508, or 3%, in the current year first quarter as compared to the prior year first quarter. Other expenses increased $31,957, or 56%, in the current year first quarter as compared to the prior year first quarter. The increase in other expenses a result of (i) fees accrued for regulatory compliance consulting, and (ii) fees paid for investor related services associated with our proposed rights offering and the preparation of a registration statement.

Investment Expense, Net

For the current year first quarter, MACC recorded investment expense, net of $82,020, as compared to investment expense, net of $47,559 during the prior year first quarter, an increase of $34,461, or 72%. The increase in investment expense, net is primarily the result of the decrease in interest income described above.

Net Realized Gain on Investments

During the current year first quarter and the prior year first quarter, we had no net realized gain or loss on investments. Management does not attempt to maintain a comparable level of realized gains quarter to quarter but instead attempts to maximize total investment portfolio appreciation through realizing gains in the disposition of securities. Under the Investment Advisory Agreements between us and our prior sole investment adviser, InvestAmerica Investment Advisors, Inc. ("InvestAmerica"), and between MorAm and InvestAmerica (together, the "InvestAmerica Advisory Agreements"), both of which were in effect prior to their termination during the third quarter of fiscal 2008, InvestAmerica earned an incentive fee calculated as a percentage of the excess of our realized gains in a particular period, over the sum of net realized losses and unrealized depreciation during the same period.

As a result, the timing of realized gains, realized losses and unrealized depreciation can have an effect on the amount of the incentive fee payable to InvestAmerica under the InvestAmerica Advisory Agreements.

Effective April 29, 2008, the InvestAmerica Advisory Agreements were terminated and we entered into an Investment Advisory Agreement (the "EAM Advisory Agreement") with Eudaimonia Asset Management, LLC ("EAM"). Under the EAM Advisory Agreement, EAM earns an incentive fee which is calculated as percentage of the excess of our realized gains in a particular period, over the sum of net realized losses and unrealized depreciation during the same period. As a result, the timing of realized gains, realized losses and unrealized depreciation can have an effect on the amount of the incentive fee payable to EAM under the EAM Advisory Agreement.

Also Effective April, 29, 2008, we entered into an Investment Subadvisory Agreement (the "Subadvisory Agreement") with EAM and InvestAmerica, pursuant to which InvestAmerica will continue to manage our portfolio of investment which existed on the effective date of the Subadvisory Agreement (the "Existing Portfolio"). Under the terms of the Subadvisory Agreement, EAM pays InvestAmerica an incentive fee based on a portion of the incentive fees paid to EAM by us under the EAM Advisory Agreement attributable to the Existing Portfolio.

Net Change in Unrealized Appreciation/Depreciation of Investments and Other Assets

Net change in unrealized appreciation/depreciation on investments represents the change for the period in the unrealized appreciation, net of unrealized depreciation, on our total investment portfolio based on the valuation method described under "Critical Accounting Policy".

We recorded a net change in unrealized appreciation/depreciation on investments of $269,100 during the current year first quarter, as compared to ($721,354) during the prior year first quarter. This net change resulted from:

• Unrealized appreciation in the fair value of two portfolio companies totaling $334,050 during the current year first quarter, as compared to unrealized appreciation in the fair value of one portfolio company totaling $175,869 during the prior year first quarter. The balance of unrealized appreciation during the quarter was primarily the result of the write-up to cost of a note receivable due from a portfolio company whose prospects for repayment of the note in full have become favorable.

• Unrealized depreciation in the fair value of two portfolio companies totaling $64,950 during the current year first quarter, as compared to unrealized depreciation in the fair value of five portfolio companies of $897,223 during the prior year first quarter.

Net Change in Net Assets from Operations

We experienced an increase of $187,080 in net assets for the first quarter of fiscal year 2009, and the resulting net asset value per share was $4.31 as of December 31, 2008, as compared to $4.23 as of September 30, 2008. The increase in net asset value during the current year first quarter was primarily the result of the net change in unrealized appreciation/depreciation on investments, as described above.

As of December 31, 2008, we had seven portfolio investments valued at cost, had recorded unrealized appreciation on five portfolio investments, and have recorded unrealized depreciation on seven portfolio investments. Quarterly valuations can be affected by a portfolio company's short term performance that results in increases or decreases in unrealized depreciation and unrealized appreciation for the quarter. Changes in the fair value of a portfolio security may or may not be indicative of the long term performance of the portfolio company.

Although we are not currently making investments in new portfolio companies (but may periodically make follow-on investments in Existing Portfolio companies), as previously announced, our investment strategy under the EAM Advisory Agreement going forward is to make new equity investments in small-cap and micro-cap companies which qualify for investment by business development companies ("BDCs") under the Investment Company Act of 1940, as amended (the "1940 Act"). Under the Subadvisory Agreement, InvestAmerica will continue to oversee the Existing Portfolio. We will continue to prudently sell Existing Portfolio investments and use the resulting proceeds to pay down the Note Payable, as further described below. The ability to exit the Existing Portfolio investments is

affected by company performance and external factors unrelated to the portfolio companies. These factors include sub prime lending, credit contraction, inflationary pressures, high commodity prices, recessional pressures, and a slowing economy.

We have initiated the process of raising additional capital by filing a registration statement to effect a rights offering, which was approved by shareholder vote on April 28, 2008, but which we would not anticipate effecting until our stock price increases sufficiently enough to yield at least $1 million in new capital. We further believe that future capital raises will be necessary and that they should be done at prices that are not dilutive to current shareholders.

Financial Condition, Liquidity and Capital Resources

We believe global capital markets entered into a period of significant disruption in 2008 as evidenced by a lack of liquidity in debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk and the failure of certain major financial institutions. Despite actions of the United States federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting the broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole and financial services firms in particular. These conditions could continue for a prolonged period of time or worsen in the future. While these conditions persist, we and other companies in the financial services sector may need to, or may choose to access alternative markets for debt and equity capital which may only be available at a higher cost, and or on less favorable terms and conditions. In addition, equity capital may be difficult to raise because, subject to some limited exceptions, we are not generally able to issue and sell our common stock at a price below net asset value per share. Conversely, our portfolio companies may not be able to service or refinance their debt which could materially and adversely affect our financial condition as we would experience reduced income or even losses. The inability to raise capital and the risk of portfolio company defaults may have a negative effect on our business, financial condition and results of operations.

As of December 31, 2008, our cash and money market accounts totaled $143,836. As reported elsewhere, MorAm had entered into (i) a term loan to refinance the outstanding debt under the Small Business Administration debenture program ("SBA Debentures"), which was assumed by us on April 30, 2008 as a result of the Merger, and which now has a balance of $4,702,084 (the "Note Payable"), and (ii) a revolving loan permitting MorAm (now us) to borrow up to $500,000, with Cedar Rapids Bank & Trust Company ("CRB&T"). The Note Payable has a stated maturity of August 28, 2009. The revolving loan will terminate on August 29, 2009. We have not begun negotiations to refinance the Note Payable or line of credit with CRB&T.

Although, we currently believe we will be able refinance the Note Payable and line of credit with CRB&T during the year, failure to do so or find alternative financing could pose significant financial risks to the company given the relatively illiquid nature of the Existing Portfolio. Assuming the successful refinancing of the Note Payable, and the line of credit with CRB&T, we believe, as of December 31, 2008, that our existing cash, money market accounts, and other anticipated cash flows will provide adequate funds for our anticipated cash requirements during fiscal year 2009.

The following table shows our significant contractual obligations for the repayment of the Note Payable and other contractual obligations as of December 31, 2008:

                                Payments due by period
                                ----------------------

Contractual Obligations
                                                Less than         1-3          3-5          More than
                                 Total           1 Year          Years        Years          5 Years
                             --------------    ------------    ---------    ---------     ------------
Note Payable             $       4,702,084       4,702,084          ---          ---              ---

Incentive Fees Payable   $          16,361          16,361          ---          ---              ---

With respect to the Existing Portfolio, we are not making new investments, are prudently disposing of Existing Portfolio assets and are using the resulting proceeds to pay down the Note Payable.

With respect to our investment strategy under the EAM Advisory Agreement, our Board of Directors sought and received approval by the shareholders for a proposal to issue rights to acquire shares of our Common Stock as a means by which we may raise additional equity capital. We anticipate commencing our new investment strategy under the EAM Advisory Agreement when we raise additional capital. In light of challenging market conditions as previously discussed however, the Board of Directors is continuing to review alternatives, including seeking shareholder approval to liquidate should additional capital raising prospects prove unlikely or inadequate to effectively execute on the new strategy.

Portfolio Activity

With respect to the Existing Portfolio, we have invested in and lended to businesses through investments in subordinated debt (generally with detachable equity warrants), preferred stock and common stock. We, however, are not currently making investments in new portfolio companies. As of December 31, 2008, certain debt investments have or were near expiration. Since the quarter end, we have either restructured or continue to work toward restructuring these investments. The total portfolio value of our investments in non-publicly traded securities was $14,732,690 at December 31, 2008 and $14,501,851 at September 30, 2008. During the three months ended December 31, 2008, we made one follow-on investment in the amount of $40,127 in one Existing Portfolio company. This follow-on investment also represented a co-investment with other funds managed by our Sub-adviser InvestAmerica. As noted above, we intend to pursue an investment strategy consisting of new equity investments in very small public companies that qualify for investment by BDCs under the 1940 Act, and may continue to make follow-on investments in our Existing Portfolio.

With respect to the Existing Portfolio, we have frequently co-invested with other funds managed by InvestAmerica. When we make any co-investment with these related funds, we follow certain procedures consistent with orders of the SEC for related party co-investments to reduce or eliminate conflict of interest issues. During the current year first quarter, we made no such co-investments with another fund managed by InvestAmerica.

Critical Accounting Policy

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of the first fiscal year that begins after November 15, 2007. MACC adopted SFAS No. 157 effective October 1, 2008.

Investments in securities that are traded in the over-the-counter market or on a stock exchange 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. 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; market interest rates for similar debt securities; overall market conditions and other factors generally pertinent to the valuation of investments. 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.

In the valuation process, we use financial information received monthly, quarterly, and annually from our portfolio companies which includes both audited and unaudited financial statements. This information is used to determine financial condition, performance, and valuation of the portfolio investments.

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.

The preparation of financial statements in conformity with GAAP requires management to estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.