1
EXHIBIT 28
OMB Approval No. 3245-0063
Expiration Date
ANNUAL FINANCIAL REPORT
ON SBA FORM 468
(CORPORATE SBICs)
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NAME OF LICENSEE: Allied Investment Corporation II 03/03-0196
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STREET ADDRESS: 1666 K Street, NW
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CITY, STATE AND ZIP CODE: Washington DC 20006
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COUNTY:
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EMPLOYER ID NUMBER: 52-1680801
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FOR THE FISCAL YEAR ENDED: 12/31/95
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SUMMARY INFORMATION:
A B C
---------------
5 3 1
A - TOTAL ASSETS AT COST 1 = LESS THAN $1 MILLION
2 = $1 MILLION TO LESS THAN $2 MILLION
3 = $2 MILLION TO LESS THAN $5 MILLION
4 = $5 MILLION TO LESS THAN $10 MILLION
5 = $10 MILLION OR MORE
B - OWNERSHIP OWNED BY BANK OR BANK HOLDING COMPANY ("BHC"):
1 = AT LEAST 50% OWNED BY BANK OR BHC
2 = AT LEAST 10% AND LESS THAN 50% OWNED BY
BANK OR BHC
OWNED BY FINANCIAL CORPORATION (OTHER THAN BANK
OR BHC):
3 = PUBLICLY OWNED
4 = PRIVATELY OWNED
OWNED BY NON-FINANCIAL CORPORATION:
5 = PUBLICLY OWNED
6 = PRIVATELY OWNED
OWNED BY INDIVIDUALS:
7 = PUBLICLY OWNED
8 = PRIVATELY OWNED
OWNED BY PARTNERSHIP
9 = PUBLICLY OWNED
10 = PRIVATELY OWNED
C - INDUSTRY CONCENTRATION 1 = DIVERSIFIED
2 = NON-DIVERSIFIED (SIC CODE____)
NOTE: Public reporting burden for this collection of information is estimated
to average 17 hours per response, including time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the form. Send comments regarding this burden
estimate or any other aspect of this collection of information, including
suggestions for reducing this burden, to: Chief, Administrative Information
Branch, U.S. Small Business Administration, Washington, DC 20416, and to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, DC 20503.
SBA Form 468.1 (1-95) Previous editions obsolete Page 1C
2
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF FINANCIAL POSITION
AS OF 12/31/95
(Amounts rounded to nearest dollar)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
UNREALIZED UNREALIZED
ASSETS COST DEPRECIATION APPRECIATION VALUE(1)
------ -----------------------------------------------------------
LOANS AND INVESTMENTS (Col.1) (Col.2) (Col.3) (Col.4)
- ---------------------
Portfolio Securities:
1 Loans 8,761,096 0 0 8,761,096
------------ ----------- ----------- -----------
2 Debt Securities 20,551,296 748,604 160,704 19,963,316
------------ ----------- ----------- -----------
3 Equity Securities 1,153,877 420,577 1,784,668 2,517,968
------------ ----------- ----------- -----------
4 TOTAL PORTFOLIO SECURITIES 30,466,189 1,169,181 1,945,372 31,242,380
------------ ----------- ----------- -----------
Assets Acquired in Liquidation of Portfolio Securities:
5 Receivables from Sale of Assets Acquired 0 0 0 0
------------ ----------- ----------- -----------
6 Assets Acquired 0 0 0 0
------------ ----------- ----------- -----------
7 TOTAL ASSETS ACQUIRED 0 0 0 0
------------ ----------- ----------- -----------
8 Operating Concerns Acquired 0 0 0 0
------------ ----------- ----------- -----------
9 Notes and Other Securities Received 448,040 67,915 0 380,125
------------ ----------- ----------- -----------
10 TOTAL LOANS AND INVESTMENTS 30,914,229 1,237,096 1,945,372 31,622,505
------------ ----------- ----------- -----------
11 Less Current Maturities 1,564,185
-----------
12 Loans and Investments Net of Current Maturities 30,058,320
-----------
Investment in 301(d) Licensee (2):
13 Name ___________________________________ 0
-----------
License No. ________________
CURRENT ASSETS
--------------
14 Cash and Cash Equivalents 1,484,145
-----------
15 Invested Idle Funds 0 1,484,145
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16 Interest and Dividends Receivable 426,938
-----------
17 Notes and Accounts Receivable 115,116
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18 Receivables from Parent or Other Associates 27,671
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19 Less: Allowance for Losses (lines 16, 17 & 18) 143,508 426,217
----------- -----------
20 Current Maturities of Portfolio Securities 1,564,185
-----------
21 Current Maturities of Assets Acquired 0
-----------
22 Current Maturities of Operating
Concerns Acquired 0
-----------
23 Current Maturities of Other Securities 0 1,564,185
----------- -----------
24 Other (specify) _________________________ 0
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25 Other (specify) _________________________ 0 3,474,547
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OTHER ASSETS
------------
26 a. Furniture and Equipment 0
-----------
b. Less: Accumulated Depreciation 0 0
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27 Other (specify) Deferred organization cst 1,362
------------------------- -----------
28 Other (specify) Prepaid expenses & other 26,681 28,043
------------------------- ----------- -----------
29 TOTAL ASSETS $33,560,910
-----------
(1) Column Headings apply to items 1 through 12 only. (Cost - Unrealized
Depreciation + Unrealized Appreciation = Value)
(2) A note to item 13 should include percent owned, cost basis and changes
resulting from equity method of accounting.
SBA Form 468.1 (1-95) Previous editions obsolete Page 2C
3
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF FINANCIAL POSITION
AS OF 12/31/95
(Amounts rounded to nearest dollar)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
LIABILITIES AND CAPITAL
-----------------------
LONG-TERM DEBT (Net of Current Maturities)
- ------------------------------------------
30 Notes and Debentures Payable to or
Guaranteed by SBA 0
-----------
31 Notes and Debentures Payable to Others 0 0
----------- ------------
CURRENT LIABILITIES
- -------------------
32 Accounts Payable and Accrued Expenses 5,060
-----------
33 Due to Parent or Other Associates 17,991,496
-----------
34 Accrued Interest Payable 395,608
-----------
35 Accrued Taxes Payable 0
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36 a. Current Maturities of Line 30 0
-----------
b. Current Maturities of Line 31 0 0
----------- -----------
37 Distributions Payable 3,825,195
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38 Short-term Notes Payable/Lines of Credit 0
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39 Other(specify) _________________________ 0
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40 Other(specify) _________________________ 0 22,217,359
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OTHER LIABILITIES
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41 Deferred Credits 377,489
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42 Other(specify) _________________________ 0
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43 Other(specify) _________________________ 0 377,489
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44 TOTAL LIABILITIES 22,594,848
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REDEEMABLE SECURITIES (guaranteed or purchased by SBA)
- ------------------------------------------------------
45 a. 4% Redeemable Preferred Stock (301(d) Licensees only) 0
-----------
b. Cumulative Undeclared 4% Dividends 0 0
----------- -----------
46 TOTAL REDEEMABLE SECURITIES 0
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CAPITAL
- -------
47 Capital stock 50
------------
48 Paid-in Surplus 9.896,085 9,896,135
------------ -----------
49 Restricted Contributed Capital Surplus 0
-----------
50 Capital Stock and Surplus 9,896,135
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51 3% Preferred Stock Purchased by SBA 0
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52 Unrealized Gain (Loss) on Securities Held 708,276
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53 Non-Cash Gains/Income 806,843
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54 Undistributed Net Realized Earnings:
a. Restricted (Equal to Cost of Treasury Stock) 0
------------
b. Unrestricted -445,192
------------
c. Total (54a plus 54b) -445,192
-----------
55 Undistributed Realized Earnings (53 plus 54c) 361,651
-----------
56 Total 10,966,062
------------
57 Less: Cost of Treasury Stock 0
------------
58 TOTAL CAPITAL 10,966,062
------------
59 TOTAL LIABILITIES, REDEEMABLE SECURITIES
AND CAPITAL (lines 44 plus 46 plus 58) $33,560,910
------------
SBA Form 468.1 (1-95) Previous editions obsolete Page 3C
4
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF OPERATIONS REALIZED
FOR 12 MONTHS ENDED 12/31/95
(Amounts rounded to nearest dollar)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
INVESTMENT INCOME
- -----------------
1 Interest Income 3,657,233
----------
2 Dividend Income 0
----------
3 Income (Loss) from Investments in Partnerships/Flow-through Entities 0
----------
4 Income (Loss) from Investment in Section 301(d) Licensee 0
----------
5 Fees for Management Services 0
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6 Processing and Other Fees 9,660
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7 Interest on Invested Idle Funds 69,041
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8 Income from Assests Acquired in Liquidation of
Loans and Investments (net of 0 Expenses) 0
-------- ----------
9 Other Income 11,923
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10 GROSS INVESTMENT INCOME 3,747,857
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EXPENSES
- --------
11 Interest Expense 1,627,888
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12 Commitment Fees 0
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13 Other Financial Cost 0
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14 Officers' Compensation and Benefits 0
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15 Employee Compensation and Benefits 0
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16 Investment Advisory and Management Services 0
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17 Directors' and Stockholders' Meetings 0
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18 Advertising and Promotion 0
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19 Appraisal and Investigation 0
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20 Communication 0
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21 Travel 0
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22 Cost of Space Occupied 0
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23 Depreciation and Amortization 5,449
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24 Insurance 697
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25 Payroll Taxes 0
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26 Other Taxes (excluding income taxes) 1,000
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27 Provision for Losses on Receivables (excluding loans receivable) 143,508
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28 Legal Fees 4,756
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29 Audit and Examination Fees 3,680
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30 Miscellaneous Expenses (attach schedule) 1,813
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31 TOTAL EXPENSES 1,788,791
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32 NET INVESTMENT INCOME (LOSS) BEFORE INCOME TAXES 1,959,066
-----------
33 NET REALIZED GAIN (LOSS) ON INVESTMENTS BEFORE INCOME TAXES (1) 2,123,915
-----------
34 NET INCOME (LOSS) BEFORE INCOME TAXES AND NONRECURRING ITEMS 4,082,981
-----------
35 Income Tax Expense (Benefit) 0
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36 NET INCOME (LOSS) BEFORE NONRECURRING ITEMS $4,082,981
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37 Extraordinary Item ____________________ 0
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38 Cumulative Effect of Change in Accounting Principle 0
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39 NET INCOME (LOSS) $4,082,981
-----------
(1)Include CHARGE-OFFS (full or partial) of loans and investments which
represent realized losses. DO NOT INCLUDE valuation adjustments classified
as unrealized appreciation or depreciation. Provide supporting detail for
all realized gains and losses on page 14C of this form.
SBA Form 468.1 (1-95) Previous editions obsolete Page 4C
5
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF CASH FLOWS
FOR 12 MONTHS ENDED 12/31/95
(page 1 of 2)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
(Amounts rounded to nearest dollar)
OPERATING ACTIVITIES:
- ---------------------
CASH INFLOWS:
1 Interest Received from Portfolio Concerns 3,300,655
----------
2 Dividends Received from Portfolio Concerns 0
----------
3 Other Returns on Capital Received from Portfolio Concerns 0
----------
4 Management Services and Other Fees Received 70,000
----------
5 Interest on Invested Idle Funds 69,041
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6 Cash Received from Assets Acquired in Liquidation 0
----------
7 Other Operating Cash Receipts 0
----------
CASH OUTFLOWS:
8 Interest Paid 1,460,642
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9 Commitment Fees and Other Financial Costs 0
----------
10 Investment Advisory and Management Fees 0
----------
11 Officers, Directors and Employees Compensation and Benefits 0
----------
12 Operating Expenditures (excluding compensation and benefits) 6,887
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13 Income Taxes Paid 0
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14 Other Operating Cash Disbursements 11,993
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15 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,960,174
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INVESTING ACTIVITIES:
- ---------------------
Cash Inflows:
16 Loan Principal Payments Received from Portfolio Concerns 6,542,924
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17 Returns of Capital Received from Portfolio Concerns 0
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18 Net Proceeds from Disposition of Portfolio Securities 1,396,462
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19 Liquidation of Idle Funds Investments 2,722,147
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20 Other (Specify) _________________________ 0
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Cash Outflows:
21 Purchase of Portfolio Securities 326,069
----------
22 Loans to Portfolio Concerns 13,265,207
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23 Idle Funds Investments 0
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24 Other (Specify) __________________________ 0
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25 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -2,929,743
-----------
FINANCING ACTIVITIES:
- ---------------------
Cash Inflows:
26 Proceeds from Issuance of SBA-Guaranteed Debentures 0
----------
27 Proceeds from Sale of 41 Preferred Stock 0
----------
28 Proceeds from Non-SBA Borrowing 2,837,500
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29 Proceeds from Sale of Stock 0
----------
30 Other (Specify) __________________________ 0
----------
Cash Outflows:
31 Principal Payments on SBA-Guaranteed Debentures 0
----------
32 Principal Payments on Non-SBA Borrowing 0
----------
33 Redemption of 4% Preferred Stock 0
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34 Redemption of 3% Preferred Stock 0
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35 Redemption of Stock (excluding 3% and 4% Preferred) 0
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36 Dividends Paid 1,984,324
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37 Other (Specify) __________________________ 0
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SBA Form 468.1 (1-95) Previous editions obsolete Page 5C
6
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF CASH FLOWS
FOR 12 MONTHS ENDED 12/31/95
(page 2 of 2)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
(Amounts rounded to nearest dollar)
38 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 853,176
-----------
39 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -116,393
-----------
40 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,600,538
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41 CASH AND CASH EQUIVALENTS AT END OF PERIOD (line 14, page 2C) $1,484,145
-----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
- --------------------------------------------------------
BY (USED IN) OPERATING ACTIVITIES:
- ----------------------------------
42 Net Income (Loss) (page 4C, line 39) 4,082,981
----------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
43 Depreciation and Amortization 5,449
----------
44 Provision for Losses on Accounts Receivable 143,508
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45 Provision for Deferred Income Taxes 0
----------
46 (Income) Loss from Investments in Partnerships/Flow-through
Entities (excluding income received in cash) 0
----------
47 Realized (Gains) Losses on Investments -2,123,915
----------
48 Other (Specify) Amort of OID, Cl Pt, Proc -267,444
------------------------- ----------
Changes in Operating Assets and Liabilities
Net of Noncash Items:
49 (Increase) Decrease in Interest and Dividends Receivable -235,276
----------
50 (Increase) Decrease in Other Current Assets 31,418
----------
51 Increase (Decrease) in Accounts Payable -40,146
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52 Increase (Decrease) in Accrued Interest Payable 167,246
----------
53 Increase (Decrease) in Accrued Taxes Payable 0
----------
54 Increase (Decrease) in Dividends Payable 0
----------
55 Increase (Decrease) in Other Current Liabilities 196,353
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56 Other (Specify) ________________________ 0
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57 Other (Specify) ________________________ 0
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58 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $1,960,174
----------
Supplemental disclosure of non-cash financing and investing activities is
required. See FASB Statement No. 95, paragraph 32.
SBA Form 468.1 (1-95) Previous editions obsolete Page 6C
7
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. Allied Investment Corporation II (the Company), a wholly owned
subsidiary of Allied Capital Corporation II (Parent), is a closed-end
management investment company under the Investment Company Act of 1940. The
Company is licensed under the Small Business Investment Act of 1958 as a Small
Business Investment Company (SBIC). The Company seeks to achieve a high level
of current income by providing debt, mezzanine and equity financing for small
privately owned growth companies, and through long-term growth on the value of
its net assets.
Valuation of Investments. Investments are carried at value, as determined by
the board of directors. Loans and debt securities, which are not publicly
traded, and warrants and stocks for which there is no public market are valued
based on collateral, the ability to make payments, the earnings of the investee
and other pertinent factors. The values assigned are considered to be amounts
which could be realized in the normal course of business or from an orderly
sale or other disposition of the investments. In the normal course of
business, loans and debt securities are held to maturity, and the amount
realized, in addition to interest, is the face value, which may equal or exceed
cost.
Equity securities which are publicly traded are generally valued at their
quoted market price, less a discount to reflect the effects of restrictions on
the sale of such securities.
Interest Income. Interest income is recorded on the accrual basis to the
extent that such amounts are expected to be collected. When collection of
interest is in doubt, interest is not accrued or a reserve is established.
Original issue discount is amortized into interest income using the effective
interest method.
Realized Gains or Losses and Unrealized Appreciation or Depreciation on
Investments. Realized gains or losses are accounted for on the trade date and
are measured by the difference between the proceeds of sale and the cost basis
of the investment without regard to unrealized appreciation or depreciation
previously recognized, and includes investments written off during the year,
net of recoveries. Unrealized appreciation or depreciation reflects the
difference between cost and value.
Distributions to the Parent. Distributions to the Parent are recorded on the
ex-dividend date.
Federal Income Taxes. The Company's objective is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies. The Company annually distributes all of its taxable
income to the Parent; therefore, a federal income tax provision is not
required.
In addition, no provision for deferred income taxes has been made for the
unrealized appreciation on investments since the Company intends to continue to
annually distribute all of
8
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
its taxable income.
Dividends declared by the Company in December, but paid during January of the
following year, are treated as if the dividends were received by the Parent on
December 31 of the year declared.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with insignificant interest rate risk and original maturities of
three months or less at the acquisition date.
NOTE 2. INVESTMENTS
The loans and debt securities included in investments are at annual stated
interest rates ranging from approximately six percent to 17 percent, and are
generally payable in installments with final maturities from six months to
eight years from date of issue. The following loans and debt securities had
accrued interest that was fully reserved, or were not accruing interest at
December 31, 1995:
AGGREGATE AMOUNT OF
DATE INTEREST INTEREST RESERVED AT
ACCRUAL DECEMBER 31, 1995 OR
PORTFOLIO SECURITY DISCONTINUED(1) NET COST NOT ACCRUED (2)
- ---------------------------------------------------------------------------------------
C>
ACCRUED INTEREST FULLY
RESERVED:
Enviroplan, Inc. 407,308 29,730
Enviroplan, Inc. 1,516,469 96,545
---------- ----------
Total $ 1,923,777 $ 126,275
========== ==========
INTEREST NOT ACCRUED:
Old Mill 9/22/95 393,009 22,750
Old Mill 9/22/95 83,198 4,745
---------- ----------
Total $ 476,207 $ 27,495
========== ==========
(1) Date shown only for loans and debt securities not accruing interest.
(2) From date interest accrual discontinued.
9
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 3. INVESTMENT ADVISORY SERVICES
The Company's investments are managed by Allied Capital Advisers, Inc.
("Advisers"), an independent publicly traded registered investment adviser.
Certain officers of the Company are also officers in Advisers. Pursuant to an
advisory agreement with the Parent, Advisers manages the day-to-day activities
of the Parent and its wholly owned subsidiaries. The Company pays all
operating expenses, except those specifically required to be borne by Advisers.
The expenses paid by Advisers include the compensation of the Company's
officers and the cost of office space, equipment and other personnel required
for the Company's day-to-day operations. In exchange, Advisers is reimbursed
for its costs incurred in connection with the above through an investment
advisory fee paid by the Parent. The expenses that are paid by the Company
include the Company's share of transaction costs incident to the acquisition
and disposition of investments and legal and accounting fees. The Company is
required to pay expenses associated with litigation and other extraordinary or
non-recurring expenses, as well as expenses of required and optional insurance
and bonding. All fees paid by or for the account of an actual or prospective
portfolio company in connection with an investment transaction in which the
Company participates are treated as commitment fees or management fees and are
received by the Company, pro rata to its participation in such transaction,
rather than by Advisers. Advisers is entitled to retain for its own account
any fees paid by or for the account of a company, including a portfolio
company, for special investment banking or consulting work performed for that
company which is not related to such investment transaction or management
assistance.
NOTE 4. DIVIDENDS AND DISTRIBUTIONS
The Company's board of directors declared a dividend of $3,825,195 for the year
ended December 31, 1995, which was paid January 29, 1996. This represented all
of the Company's taxable income. Pursuant to SBA regulations, retained
earnings available for distribution at December 31, 1995 were insufficient to
pay this dividend, which resulted in an excess distribution of $1,682,288 which
was charged against paid-in-surplus in January 1996.
NOTE 5. DEBT
Demand Note. The Company has a note from the Parent under which the Company
may borrow up to $20,000,000. The note is payable on demand, and bears
interest at the prime rate as published in the Wall Street Journal. As of
December 31, 1995, the Company was paying interest at a rate of 8.5% per annum,
and had $2,008,500 available under the note.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company had commitments outstanding to various prospective and existing
portfolio companies totaling $119,444 at December 31, 1995.
The Company is party to certain lawsuits in connection with investments it has
made to small
10
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
businesses. While the outcome of these legal proceedings cannot at this time
be predicted with certainty, management does not expect that these actions will
have a material effect upon the financial position of the Company.
NOTE 7. CONCENTRATIONS OF CREDIT RISK
The Company places its cash in financial institutions and, at times, cash held
in checking accounts may be in excess of the FDIC insurance limit.