1
EXHIBIT 28
OMB Approval No. 3245-0063
Expiration Date
ANNUAL FINANCIAL REPORT
ON SBA FORM 468
(CORPORATE SBICs)
- --------------------------------------------------------------------------------
NAME OF LICENSEE: Allied Investment Corporation II 03/03-0196
- --------------------------------------------------------------------------------
STREET ADDRESS: 1666 K Street, N.W.
- --------------------------------------------------------------------------------
CITY, STATE AND ZIP CODE: Washington DC 20006
- --------------------------------------------------------------------------------
COUNTY:
- --------------------------------------------------------------------------------
EMPLOYER ID NUMBER: 52-1680801
- --------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED: 12/31/96
- --------------------------------------------------------------------------------
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 12/31/96
(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 8,289,525 0 0 8,289,525
------------ ----------- ----------- ------------
2 Debt Securities 19,813,281 2,087,584 2 17,725,699
------------ ----------- ----------- ------------
3 Equity Securities 1,973,996 127,938 1,813,329 3,659,387
------------ ----------- ----------- ------------
4 TOTAL PORTFOLIO SECURITIES 30,076,802 2,215,522 1,813,331 29,674,611
------------ ----------- ----------- ------------
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 443,684 296,107 74,617 222,194
------------ ----------- ----------- ------------
10 TOTAL LOANS AND INVESTMENTS 30,520,486 2,511,629 1,887,948 29,896,805
------------ ----------- ----------- ------------
11 Less Current Maturities 2,217,615
------------
12 Loans and Investments Net of Current Maturities 27,679,190
------------
Investment in 301(d) Licensee (2):
13 Name 0
----------------------------------- ------------
License No.
----------------
CURRENT ASSETS
--------------
14 Cash and Cash Equivalents 561,662
-----------
15 Invested Idle Funds 0 561,662
----------- -----------
16 Interest and Dividends Receivable 477,214
-----------
17 Notes and Accounts Receivable 301,210
-----------
18 Receivables from Parent or Other Associates 0
-----------
19 Less: Allowance for Losses (lines 16, 17 & 18) 17,233 761,191
----------- -----------
20 Current Maturities of Portfolio Securities 2,217,615
-----------
21 Current Maturities of Assets Acquired 0
-----------
22 Current Maturities of Operating
Concerns Acquired 0
-----------
23 Current Maturities of Other Securities 0 2,217,615
----------- -----------
24 Other (specify) 0
-------------------------- -----------
25 Other (specify) 0 3,540,468
------------------------- ----------- ------------
OTHER ASSETS
------------
26 a. Furniture and Equipment 0
-----------
b. Less: Accumulated Depreciation 0 0
------------ -----------
27 Other (specify) Prepaid Expenses 1,751
-------------------------- -----------
28 Other (specify) 0 1,751
-------------------------- ----------- ------------
29 TOTAL ASSETS $31,221,409
------------
(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 12/31/96
(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 164
-----------
33 Due to Parent or Other Associates 16,555,707
-----------
34 Accrued Interest Payable 0
-----------
35 Accrued Taxes Payable 0
-----------
36 a. Current Maturities of Line 30 0
-----------
b. Current Maturities of Line 31 0 0
----------- -----------
37 Distributions Payable 3,927,182
-----------
38 Short-term Notes Payable/Lines of Credit 0
-----------
39 Other(specify) 0
------------------------- -----------
40 Other(specify) 0 20,483,053
------------------------- ----------- ------------
OTHER LIABILITIES
- -----------------
41 Deferred Credits 336,913
-----------
42 Other(specify) 0
------------------------- -----------
43 Other(specify) 0 336,913
------------------------- ----------- ------------
44 TOTAL LIABILITIES 20,819,966
------------
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
------------
CAPITAL
- -------
47 Capital Stock 50
------------
48 Paid-in Surplus 8,213,796 8,213,846
------------ -----------
49 Restricted Contributed Capital Surplus 0
-----------
50 Capital Stock and Surplus 8,213,846
-----------
51 3% Preferred Stock Purchased by SBA 0
-----------
52 Unrealized Gain (Loss) on Securities Held -623,681
-----------
53 Non-Cash Gains/Income 1,327,740
-----------
54 Undistributed Net Realized Earnings:
a. Restricted (Equal to Cost of Treasury Stock) 0
------------
b. Unrestricted 1,483,538
------------
c. Total (54a plus 54b) 1,483,538
-----------
55 Undistributed Realized Earnings (53 plus 54c) 2,811,278
-----------
56 Total 10,401,443
------------
57 Less: Cost of Treasury Stock 0
------------
58 TOTAL CAPITAL 10,401,443
------------
59 TOTAL LIABILITIES, REDEEMABLE SECURITIES
AND CAPITAL (lines 44 plus 46 plus 58) $31,221,409
------------
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 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
INVESTMENT INCOME
- -----------------
1 Interest Income 3,716,521
----------
2 Dividend Income 967
----------
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
----------
6 Processing and Other Fees 13,429
----------
7 Interest on Invested Idle Funds 117,272
----------
8 Income from Assets Acquired in Liquidation of
Loans and Investments (net of 0 Expenses) 0
-------- ----------
9 Other Income 40,900
----------
10 GROSS INVESTMENT INCOME 3,889,089
-----------
EXPENSES
- --------
11 Interest Expense 1,541,670
----------
12 Commitment Fees 0
----------
13 Other Financial Cost 0
----------
14 Officers' Compensation and Benefits 0
----------
15 Employee Compensation and Benefits 0
----------
16 Investment Advisory and Management Services 0
----------
17 Directors' and Stockholders' Meetings 0
----------
18 Advertising and Promotion 0
----------
19 Appraisal and Investigation 0
----------
20 Communication 0
----------
21 Travel 0
----------
22 Cost of Space Occupied 0
----------
23 Depreciation and Amortization 1,362
----------
24 Insurance 2,674
----------
25 Payroll Taxes 0
----------
26 Other Taxes (excluding income taxes) 510
----------
27 Provision for Losses on Receivables (excluding loans receivable) 115,526
----------
28 Legal Fees 15,312
----------
29 Audit and Examination Fees 10,399
----------
30 Miscellaneous Expenses (attach schedule) 3,145
----------
31 TOTAL EXPENSES 1,690,598
-----------
32 NET INVESTMENT INCOME (LOSS) BEFORE INCOME TAXES 2,198,491
-----------
33 NET REALIZED GAIN (LOSS) ON INVESTMENTS BEFORE INCOME TAXES (1) 2,496,029
-----------
34 NET INCOME (LOSS) BEFORE INCOME TAXES AND NONRECURRING ITEMS 4,694,520
-----------
35 Income Tax Expense (Benefit) 0
-----------
36 NET INCOME (LOSS) BEFORE NONRECURRING ITEMS $4,694,520
-----------
37 Extraordinary Item 0
-------------------- -----------
38 Cumulative Effect of Change in Accounting Principle 0
-----------
39 NET INCOME (LOSS) $4,694,520
-----------
(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 12/31/96
(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 2,959,747
----------
2 Dividends Received from Portfolio Concerns 0
----------
3 Other Returns on Capital Received from Portfolio Concerns 0
----------
4 Management Services and Other Fees Received 175,427
----------
5 Interest on Invested Idle Funds 117,272
----------
6 Cash Received from Assets Acquired in Liquidation 0
----------
7 Other Operating Cash Receipts 73,840
----------
CASH OUTFLOWS:
8 Interest Paid 1,937,278
----------
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) 36,596
----------
13 Income Taxes Paid 0
----------
14 Other Operating Cash Disbursements 8,119
----------
15 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,344,293
-----------
INVESTING ACTIVITIES:
- ---------------------
Cash Inflows:
16 Loan Principal Payments Received from Portfolio Concerns 10,845,928
----------
17 Returns of Capital Received from Portfolio Concerns 187,536
----------
18 Net Proceeds from Disposition of Portfolio Securities 2,007,901
----------
19 Liquidation of Idle Funds Investments 0
----------
20 Other (Specify) 0
------------------------- ----------
Cash Outflows:
21 Purchase of Portfolio Securities 1,194,330
----------
22 Loans to Portfolio Concerns 8,888,615
----------
23 Idle Funds Investments 0
----------
24 Other (Specify) 0
-------------------------- ----------
25 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,958,420
-----------
FINANCING ACTIVITIES:
- ---------------------
Cash Inflows:
26 Proceeds from Issuance of SBA-Guaranteed Debentures 0
----------
27 Proceeds from Sale of 4% Preferred Stock 0
----------
28 Proceeds from Non-SBA Borrowing 0
----------
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 1,400,000
----------
33 Redemption of 4% Preferred Stock 0
----------
34 Redemption of 3% Preferred Stock 0
----------
35 Redemption of Stock (excluding 3% and 4% Preferred) 0
----------
36 Dividends Paid 3,825,195
----------
37 Other (Specify) 0
-------------------------- ----------
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 12/31/96
(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 -5,225,195
-----------
39 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -922,482
-----------
40 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,484,145
-----------
41 CASH AND CASH EQUIVALENTS AT END OF PERIOD (line 14, page 2C) $561,663
-----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
- --------------------------------------------------------
BY (USED IN) OPERATING ACTIVITIES:
- ----------------------------------
42 Net Income (Loss) (page 4C, line 39) 4,694,520
----------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
43 Depreciation and Amortization 1,701
----------
44 Provision for Losses on Accounts Receivable 115,526
----------
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 -2,496,029
----------
48 Other (Specify) OID -142,870
------------------------- ----------
Changes in Operating Assets and Liabilities
Net of Noncash Items:
49 (Increase) Decrease in Interest and Dividends Receivable -411,330
----------
50 (Increase) Decrease in Other Current Assets 59,644
----------
51 Increase (Decrease) in Accounts Payable -4,895
----------
52 Increase (Decrease) in Accrued Interest Payable -395,608
----------
53 Increase (Decrease) in Accrued Taxes Payable 0
----------
54 Increase (Decrease) in Dividends Payable 0
----------
55 Increase (Decrease) in Other Current Liabilities -35,790
----------
56 Other (Specify) Deferred Credits -40,576
------------------------ ----------
57 Other (Specify) 0
------------------------ ----------
58 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $1,344,293
----------
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, 1996
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.
Cash and cash equivalents are carried at cost which approximates fair value.
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. Loan fees and
original issue discount are 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 measured by the difference between the
proceeds from the sale and the cost basis of the investment without regard to
unrealized appreciation or depreciation previously recognized, and include
investments written off during the year, net of recoveries. Unrealized
appreciation or depreciation reflects the change in the valuation of the
portfolio.
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.
8
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 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
Loans and debt securities have stated interest rates ranging generally from 9
percent to 16 percent, and are generally payable in installments with final
maturities from 3 years to 8 years from date of issue.
There were no accrued interest reserves at December 31, 1996. The following
loans and debt securities were not accruing interest at December 31, 1996:
AGGREGATE
AMOUNT OF
INTEREST NOT
DATE INTEREST ACCRUED AT
ACCRUAL DECEMBER 31,
PORTFOLIO SECURITY DISCONTINUED NET COST 1996
- -----------------------------------------------------------------------------------------------------------------
INTEREST NOT ACCRUED:
Enviroplan 7/01/96 1,521,941 281,767
Enviroplan 7/01/96 416,402 88,783
Old Mill 9/22/95 393,058 68,857
Old Mill 9/22/95 83,242 13,984
----------------- ---------------------
Total $ 2,414,643 $ 453,391
================= =====================
9
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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
The Company's board of directors declared a dividend of $3,927,182 for the year
ended December 31, 1996, which was paid January 30, 1996. This represented all
of the Company's taxable income. Pursuant to SBA regulations, the Company's 1996
dividend exceeded retained earnings available for distribution by $1,028,091.
The Company reclassed this amount from paid-in surplus to undistributed retained
earnings in January 1997.
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, 1996,
the Company was paying interest at a rate of 8.5% per annum, and had $3,462,500
available under the note.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company had commitments outstanding to various prospective and existing
portfolio companies totaling $474,583 at December 31, 1996.
10
ALLIED INVESTMENT CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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.
11
OMB Approval No. 3245-0063
Expiration Date
ANALYSIS OF STOCKHOLDERS' EQUITY
AS OF 12/13/96
(page 1 of 2)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
(Amounts rounded to nearest dollar)
Part I. CAPITAL STOCK AND PAID-IN SURPLUS CAPITAL PAID-IN
--------------------------------- STOCK SURPLUS TOTAL
(excluding capital contributed by SBA) ----- ------- -----
(pg 3C, line 47) (pg 3c, line 48)
1 BALANCE AT BEGINNING OF PERIOD 50 9,896,085 9,896,135
------------ ---------- ----------
2 ADDITIONS:
a. Capital stock issued for cash 0 0 0
------------ ---------- ----------
b. Capital stock issued for services rendered 0 0 0
------------ ---------- ----------
c. Capital stock Issued for contributed non-cash assets 0 0 0
------------ ---------- ----------
d. Capitalization of Retained Earnings Available for Distribution 0 0 0
------------ ---------- ----------
e. Gain on sale of Treasury Stock 0 0 0
------------ ---------- ----------
f. Other credits (specify) 0 0 0
---------------- ------------ ---------- ----------
3 Total additions (sum of 2a through 2f) 0 0 0
------------ ---------- ----------
4 Subtotal (line 1 plus line 3) 50 9,896,085 9,896,135
------------ ---------- ----------
5 DEDUCTIONS:
a. Retirement of capital stock 0 0 0
------------ ---------- ----------
b. Distributions in partial liquidation 0 0 0
------------ ---------- ----------
c. Loss on sale of Treasury Stock 0 0 0
------------ ---------- ----------
d. Other debits (specify) excess distributions 0 1,682,289 1,682,289
-------------------- ------------ ---------- ----------
6 Total Deductions (sum of 5a through 5d) 0 1,682,289 1,682,289
------------ ---------- ----------
7 BALANCE AT END OF PERIOD (line 4 minus line 6)--
totals must agree with lines 47 and 48, page 3C $50 $8,213,796 $8,213,846
------------ ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
Part II. UNDISTRIBUTED REALIZED EARNINGS NON-CASH UNDISTRIBUTED UNDISTRIBUTED
------------------------------- GAINS/ NET REALIZED REALIZED
INCOME EARNINGS EARNINGS
------ -------- --------
(1) (2) (1) + (2)
1 BALANCE AT BEGINNING OF PERIOD 806,843 -445,192 361,651
------------ ---------- ----------
2 ADDITIONS:
a. Net investment income 118,759 2,079,732 2,198,491
------------ ---------- ----------
b. Realized gain (loss) on investments 738,929 1,757,100 2,496,029
------------ ---------- ----------
c. Gain on appreciation of securities distributed in kind 0 ////////// 0
------------ ---------- ----------
d. Other (specify) excess distributions 0 1,682,289 1,682,289
-------------------- ------------ ---------- ----------
3 Total additions (sum of 2a through 2d) 857,688 5,519,121 6,376,809
------------ ---------- ----------
4 Subtotal (line 1 plus line 3) 1,664,531 5,073,929 6,738,460
------------ ---------- ----------
5 DEDUCTIONS:
a. Dividends--Cash //////////// 3,927,182 3,927,182
------------ ---------- ----------
b. Dividends--Stock //////////// 0 0
------------ ---------- ----------
c. Dividends--In-kind (at fair value) 0 0 0
------------ ---------- ----------
d. Capitalization of Retained Earnings Available for Distribution //////////// 0 0
------------ ---------- ----------
e. Other (specify) 0 0 0
-------------------- ------------ ---------- ----------
6 Total deductions (sum of 5a through 5e) 0 3,927,182 3,927,182
------------ ---------- ----------
7 Total before collection of non-cash gains/income (line 4 minus
line 6) 1,664,531 1,146,747 2,811,278
------------ ---------- ----------
8 ADJUSTMENT: Collection of non-cash gains/income -336,791 336,791 //////////
------------ ---------- ----------
9 BALANCE AT END OF PERIOD (line 7 plus line 8)--
total must agree with lines 53, 54c, and 55, page 3C $1,327,740 $1,483,538 $2,811,278
------------ ---------- ----------
SBA Form 468.1 (1-95) Previous editions obsolete Page 7C
12
OMB Approval No. 3245-0063
Expiration Date
ANALYSIS OF STOCKHOLDERS' EQUITY
AS OF 12/31/96
(page 2 of 2)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
(Amounts rounded to nearest dollar)
PART III. UNREALIZED GAIN (LOSS) ON SECURITIES HELD
-----------------------------------------
1 NET UNREALIZED APPRECIATION (DEPRECIATION)
AT BEGINNING OF PERIOD 708,276
-----------
2 INCREASE (DECREASE) IN UNREALIZED APPRECIATION
a. Portfolio securities:
(i) Increases 1,051,390
-----------
(ii) Decreases due to revaluation of securities -164,190
-----------
(iii) Decreases due to sale of securities -1,019,243
-----------
(iv) Decreases due to write-off of securities 0 -132,043
----------- -----------
b. Assets acquired in liquidation of portfolio securities 0
-----------
c. Operating concerns acquired 0
-----------
d. Notes and other securities received 74,617
-----------
3 TOTAL (sum of 2a through 2d) -57,426
-----------
4 Subtotal (line 1 plus line 3) 650,850
-----------
5 (INCREASE) DECREASE IN UNREALIZED DEPRECIATION
a. Portfolio securities
(i) Increases -1,340,519
-----------
(ii) Decreases due to revaluation of securities 294,180
-----------
(iii) Decreases due to sale of securities/repayment of principal 0
-----------
(iv) Decreases due to write-off of securities 0 -1,046,339
----------- -----------
b. Assets Acquired in liquidation of portfolio securities 0
-----------
c. Operating concerns acquired 0
-----------
d. Notes and other securities received -228,192
-----------
6 TOTAL (sum of 5a through 5d) -1,274,531
-----------
7 NET UNREALIZED APPRECIATION (DEPRECIATION) AT
END OF PERIOD (line 4 plus line 6) -623,681
-----------
8 LESS: Estimated future tax expense (benefit)
on net unrealized appreciation (depreciation) 0
-----------
9 UNREALIZED GAIN (LOSS) ON SECURITIES HELD--
total must agree with line 52, page 3C $-623,681
-----------
SBA Form 468.1 (1-95) Previous editions obsolete
Page 8C
13
OMB Approval No. 3245-0063
Expiration Date
I. RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION
II. REGULATORY AND LEVERAGEABLE CAPITAL
AS OF 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Investment Corporation II License No. 03/03-0196
PART I. RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION OR CAPITALIZATION
--------------------------------------------------------------
1 Undistributed Net Realized Earnings--Unrestricted (line 54b, page 3C) 1,483,538
-------------
2 LESS: Unrealized Depreciation (line 10, column 2, page 2C) 2,511,629
-------------
3 ADD: Cumulative Undeclared Dividends on 4% Redeemable
Preferred Stock--Section 301(d) Licensees only {line 45b, page 3C) 0
-------------
4 RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION OR CAPITALIZATION -1,028,091
-------------
- ---------------------------------------------------------------------------------------------------------------------------
PART II. SCHEDULE OF REGULATORY AND LEVERAGEABLE CAPITAL
-----------------------------------------------
1 Capital Stock and Paid-in Surplus (sum of lines 47 and 48, page 3C) 8,213,846
-------------
2 ADD: Unfunded binding commitments from Institutional Investors 0
-------------
3 LESS: Regulatory Deductions:
a. Organizational Expenses Not Approved by SBA (1) ( 0)
--------------
b. Capital Stock Issued for Services ( 0)
--------------
c. Capital Stock Issued for Non-cash Assests (unless approved by SBA
for inclusion in Regulatory Capital or converted to cash) ( 0)
--------------
d. Investment in 301(d) Licensee ( 0)
--------------
e. Treasury Stock at cost ( 0)
--------------
f. Other (specify) ( 0)
-------------------- --------------
4 Total Regulatory Deductions (Sum of 3a through 3f) ( 0)
--------------
5 REGULATORY CAPITAL (sum of lines 1, 2, and 4) 8,213,846
-------------
6 LESS: Unfunded binding commitments from Institutional Investors ( 0)
--------------
7 LESS: "Qualified non-private funds" invested by Federal agencies ( 0)
--------------
8 LESS: Non-cash assests included in Regulatory Capital, other than ( 0)
eligible investments in Small Concerns --------------
9 LESS: Other deductions (specify) 0
------------------- --------------
10 LEVERAGEABLE CAPITAL (sum of lines 5 through 8) 8,213,846
--------------
PART IIa. ADJUSTMENTS TO REGULATORY CAPITAL FOR CAPITAL IMPAIRMENT AND OVERLINE PURPOSES
------------------------------------------------------------------------------
COMPLETE THIS PART IIa ONLY IF (1) LICENSEE HAS COMPLETED THE REPURCHASE OF ITS
3% PREFERRED STOCK FROM SBA, AND/OR (2) PURSUANT TO 13 CFR 107.303(c), LICENSEE
WISHES TO INCREASE ITS OVERLINE LIMITATION BY THE AMOUNT OF ITS NET UNREALIZED
GAINS ON MARKETABLE SECURITIES (see note (2) below).
11 REGULATORY CAPITAL (Part II, line 5) 8,213,846
-------------
12 ADD: Restricted Contributed Capital Surplus {line 49, page 3C) 0
-------------
13 ADJUSTED REGULATORY CAPITAL FOR IMPAIRMENT PURPOSES (line 11 plus 0
line 12 if line 12 greater than O) -------------
14 ADD: Net Unrealized Gains on Marketable Securities (3) 0
-------------
15 ADJUSTED REGULATORY CAPITAL FOR OVERLINE PURPOSES (line 13 plus line 14 $0
if line 12 or line 14 greater than O) -------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
(1) Deduct only those organizational expenses which were not accepted as
reasonable by SBA and which have not been amortized. See example in
"Instructions for Preparation of SBA Form 468."
(2) Licensee must have positive Retained Earnings Available for Distribution in
order to establish an increased overline limit pursuant to
13 CFR 107.303(c).
(3) As defined in 13 CFR 107,303(c). Attach a schedule showing the following for
each marketable security: name of Small Business Concern, market in which
traded, names of market makers for companies not listed on a stock exchange
or NASDAQ, class of security, cost, valuation, and unrealized gain or loss
in accordance with the requirements of Section 107.303(c).
SBA Form 468.1 (1-95) Previous editions obsolete Page 9C
14
OMB Approval No. 3245-0063
Expiration Date
ANNUAL FINANCIAL REPORT
ON SBA FORM 468
(CORPORATE SBICs)
- --------------------------------------------------------------------------------
NAME OF LICENSEE: Allied Financial Corporation II 03/03-5207
- --------------------------------------------------------------------------------
STREET ADDRESS: 1666 K Street, NW 9th Floor
- --------------------------------------------------------------------------------
CITY, STATE AND ZIP CODE: Washington DC 20006
- --------------------------------------------------------------------------------
COUNTY:
- --------------------------------------------------------------------------------
EMPLOYER ID NUMBER: 52-1689359
- --------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED: 12/31/96
- --------------------------------------------------------------------------------
SUMMARY INFORMATION:
---------------
A B C
---------------
3 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
15
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF FINANCIAL POSITION
AS OF 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
UNREALIZED UNREALIZED
ASSETS COST DEPRECIATION APPRECIATION VALUE(1)
------ -----------------------------------------------------------
LOANS AND INVESTMENTS (Col.1) (Col.2) (Col.3) (Col.4)
- ---------------------
Portfolio Securities:
1 Loans 491,092 0 0 491,092
------------ ----------- ----------- ------------
2 Debt Securities 326,297 0 0 326,297
------------ ----------- ----------- ------------
3 Equity Securities 395 0 0 395
------------ ----------- ----------- ------------
4 TOTAL PORTFOLIO SECURITIES 817,784 0 0 817,784
------------ ----------- ----------- ------------
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 0 0 0 0
------------ ----------- ----------- ------------
10 TOTAL LOANS AND INVESTMENTS 817,784 0 0 817,784
------------ ----------- ----------- ------------
11 Less Current Maturities 100,000
------------
12 Loans and Investments Net of Current Maturities 717,784
------------
Investment in 301(d) Licensee (2):
13 Name 0
----------------------------------- ------------
License No.
----------------
CURRENT ASSETS
--------------
14 Cash and Cash Equivalents 2,661,597
-----------
15 Invested Idle Funds 0 2,661,597
----------- -----------
16 Interest and Dividends Receivable 24,469
-----------
17 Notes and Accounts Receivable 59,813
-----------
18 Receivables from Parent or Other Associates 0
-----------
19 Less: Allowance for Losses (lines 16, 17 & 18) 0 84,282
----------- -----------
20 Current Maturities of Portfolio Securities 100,000
-----------
21 Current Maturities of Assets Acquired 0
-----------
22 Current Maturities of Operating
Concerns Acquired 0
-----------
23 Current Maturities of Other Securities 0 100,000
----------- -----------
24 Other (specify) 0
-------------------------- -----------
25 Other (specify) 0 2,845,879
------------------------- ----------- ------------
OTHER ASSETS
------------
26 a. Furniture and Equipment 0
-----------
b. Less: Accumulated Depreciation 0 0
------------ -----------
27 Other (specify) DEFERRED ORGANIZA'L COSTS 2,101
-------------------------- -----------
28 Other (specify) PREPAID EXPENSES 204 2,305
-------------------------- ----------- ------------
29 TOTAL ASSETS $3,565,968
------------
(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
16
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF FINANCIAL POSITION
AS OF 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
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 0
-----------
33 Due to Parent or Other Associates 2,792
-----------
34 Accrued Interest Payable 0
-----------
35 Accrued Taxes Payable 0
-----------
36 a. Current Maturities of Line 30 0
-----------
b. Current Maturities of Line 31 0 0
----------- -----------
37 Distributions Payable 947,457
-----------
38 Short-term Notes Payable/Lines of Credit 0
-----------
39 Other(specify) 0
------------------------- -----------
40 Other(specify) 0 950,249
------------------------- ----------- ------------
OTHER LIABILITIES
- -----------------
41 Deferred Credits 9,161
-----------
42 Other(specify) 0
------------------------- -----------
43 Other(specify) 0 9,161
------------------------- ----------- ------------
44 TOTAL LIABILITIES 959,410
------------
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
------------
CAPITAL
- -------
47 Capital Stock 10
------------
48 Paid-in Surplus 2,509,990 2,510,000
------------ -----------
49 Restricted Contributed Capital Surplus 0
-----------
50 Capital Stock and Surplus 2,510,000
-----------
51 3% Preferred Stock Purchased by SBA 0
-----------
52 Unrealized Gain (Loss) on Securities Held 0
-----------
53 Non-Cash Gains/Income 84,369
-----------
54 Undistributed Net Realized Earnings:
a. Restricted (Equal to Cost of Treasury Stock) 0
------------
b. Unrestricted 12,189
------------
c. Total (54a plus 54b) 12,189
-----------
55 Undistributed Realized Earnings (53 plus 54c) 96,558
-----------
56 Total 2,606,558
------------
57 Less: Cost of Treasury Stock 0
------------
58 TOTAL CAPITAL 2,606,558
------------
59 TOTAL LIABILITIES, REDEEMABLE SECURITIES
AND CAPITAL (lines 44 plus 46 plus 58) $3,565,968
------------
SBA Form 468.1 (1-95) Previous editions obsolete Page 3C
17
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF OPERATIONS REALIZED
FOR 12 MONTHS ENDED 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
INVESTMENT INCOME
- -----------------
1 Interest Income 139,092
----------
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
----------
6 Processing and Other Fees 1,286
----------
7 Interest on Invested Idle Funds 111,438
----------
8 Income from Assets Acquired in Liquidation of
Loans and Investments (net of 0 Expenses) 0
-------- ----------
9 Other Income 3,082
----------
10 GROSS INVESTMENT INCOME 254,898
-----------
EXPENSES
- --------
11 Interest Expense 0
----------
12 Commitment Fees 0
----------
13 Other Financial Cost 0
----------
14 Officers' Compensation and Benefits 0
----------
15 Employee Compensation and Benefits 0
----------
16 Investment Advisory and Management Services 0
----------
17 Directors' and Stockholders' Meetings 0
----------
18 Advertising and Promotion 0
----------
19 Appraisal and Investigation 0
----------
20 Communication 0
----------
21 Travel 0
----------
22 Cost of Space Occupied 0
----------
23 Depreciation and Amortization 1,575
----------
24 Insurance 251
----------
25 Payroll Taxes 0
----------
26 Other Taxes (excluding income taxes) 1,250
----------
27 Provision for Losses on Receivables (excluding loans receivable) 0
----------
28 Legal Fees 5,161
----------
29 Audit and Examination Fees 0
----------
30 Miscellaneous Expenses (attach schedule) 455
----------
31 TOTAL EXPENSES 8,692
-----------
32 NET INVESTMENT INCOME (LOSS) BEFORE INCOME TAXES 246,206
-----------
33 NET REALIZED GAIN (LOSS) ON INVESTMENTS BEFORE INCOME TAXES (1) 779,177
-----------
34 NET INCOME (LOSS) BEFORE INCOME TAXES AND NONRECURRING ITEMS 1,025,383
-----------
35 Income Tax Expense (Benefit) 0
-----------
36 NET INCOME (LOSS) BEFORE NONRECURRING ITEMS $1,025,383
-----------
37 Extraordinary Item 0
-------------------- -----------
38 Cumulative Effect of Change in Accounting Principle 0
-----------
39 NET INCOME (LOSS) $1,025,383
-----------
(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
18
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF CASH FLOWS
FOR 12 MONTHS ENDED 12/31/96
(page 1 of 2)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
(Amounts rounded to nearest dollar)
OPERATING ACTIVITIES:
- ---------------------
CASH INFLOWS:
1 Interest Received from Portfolio Concerns 113,563
----------
2 Dividends Received from Portfolio Concerns 0
----------
3 Other Returns on Capital Received from Portfolio Concerns 0
----------
4 Management Services and Other Fees Received 253
----------
5 Interest on Invested Idle Funds 111,438
----------
6 Cash Received from Assets Acquired in Liquidation 0
----------
7 Other Operating Cash Receipts 4,976
----------
CASH OUTFLOWS:
8 Interest Paid 0
----------
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) 7,511
----------
13 Income Taxes Paid 0
----------
14 Other Operating Cash Disbursements 0
----------
15 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 222,719
-----------
INVESTING ACTIVITIES:
- ---------------------
Cash Inflows:
16 Loan Principal Payments Received from Portfolio Concerns 272,240
----------
17 Returns of Capital Received from Portfolio Concerns 4,375
----------
18 Net Proceeds from Disposition of Portfolio Securities 719,918
----------
19 Liquidation of Idle Funds Investments 0
----------
20 Other (Specify) 0
------------------------- ----------
Cash Outflows:
21 Purchase of Portfolio Securities 200
----------
22 Loans to Portfolio Concerns 2,411
----------
23 Idle Funds Investments 0
----------
24 Other (Specify) 0
-------------------------- ----------
25 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 993,922
-----------
FINANCING ACTIVITIES:
- ---------------------
Cash Inflows:
26 Proceeds from Issuance of SBA-Guaranteed Debentures 0
----------
27 Proceeds from Sale of 4% Preferred Stock 0
----------
28 Proceeds from Non-SBA Borrowing 0
----------
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
----------
34 Redemption of 3% Preferred Stock 0
----------
35 Redemption of Stock (excluding 3% and 4% Preferred) 0
----------
36 Dividends Paid 226,921
----------
37 Other (Specify) 0
-------------------------- ----------
SBA Form 468.1 (1-95) Previous editions obsolete Page 5C
19
OMB Approval No. 3245-0063
Expiration Date
STATEMENT OF CASH FLOWS
FOR 12 MONTHS ENDED 12/31/96
(page 2 of 2)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
(Amounts rounded to nearest dollar)
38 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -226,921
-----------
39 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 989,720
-----------
40 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,671,877
-----------
41 CASH AND CASH EQUIVALENTS AT END OF PERIOD (line 14, page 2C) $2,661,597
-----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
- --------------------------------------------------------
BY (USED IN) OPERATING ACTIVITIES:
- ----------------------------------
42 Net Income (Loss) (page 4C, line 39) 1,025,383
----------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
43 Depreciation and Amortization 1,580
----------
44 Provision for Losses on Accounts Receivable 0
----------
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 -779,177
----------
48 Other (Specify) OID -3,621
------------------------- ----------
Changes in Operating Assets and Liabilities
Net of Noncash Items:
49 (Increase) Decrease in Interest and Dividends Receivable -16,500
----------
50 (Increase) Decrease in Other Current Assets 4,000
----------
51 Increase (Decrease) in Accounts Payable -395
----------
52 Increase (Decrease) in Accrued Interest Payable 0
----------
53 Increase (Decrease) in Accrued Taxes Payable 0
----------
54 Increase (Decrease) in Dividends Payable 0
----------
55 Increase (Decrease) in Other Current Liabilities -2,107
----------
56 Other (Specify) Deferred Credits -6,444
------------------------ ----------
57 Other (Specify) 0
------------------------ ----------
58 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $222,719
----------
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
20
ALLIED FINANCIAL CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. Allied Financial Corporation II (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 Specialized Small
Business Investment Company (SSBIC). 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.
Cash and cash equivalents are carried at cost which approximates fair value.
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. Loan fees and
original issue discount are 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 measured by the difference between the
proceeds from the sale and the cost basis of the investment without regard to
unrealized appreciation or depreciation previously recognized, and include
investments written off during the year, net of recoveries. Unrealized
appreciation or depreciation reflects the change in the valuation of the
portfolio.
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.
21
ALLIED FINANCIAL CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 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
Loans and debt securities have stated interest rates ranging generally from 12
percent to 15 percent, and are generally payable in installments with final
maturities from 5 years to 8 years from date of issue.
There were no loans or debt securities that had accrued interest reserves, or
were not accruing interest at December 31, 1996.
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
22
ALLIED FINANCIAL CORPORATION II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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
The Company's board of directors declared a dividend of $947,457 for the year
ended December 31, 1996, which was paid January 30, 1997. This represented all
of the Company's taxable income. Pursuant to SBA regulations, retained earnings
available for distribution at December 31, 1996 were sufficient to pay this
dividend.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company had commitments outstanding to an existing portfolio company
totaling $50,000 at December 31, 1996.
NOTE 6. 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.
23
OMB Approval No. 3245-0063
Expiration Date
ANALYSIS OF STOCKHOLDERS' EQUITY
AS OF 12/31/96
(page 1 of 2)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
(Amounts rounded to nearest dollar)
PART I. CAPITAL STOCK AND PAID IN SURPLUS CAPITAL PAID-IN
--------------------------------- STOCK SURPLUS TOTAL
(excluding capital contributed by SBA) ----- ------- -----
(pg 3C, line 47) (pg 3C, line 48)
1 BALANCE AT BEGINNING OF PERIOD 10 2,509,990 2,510,000
------------ ---------- ----------
2 ADDITIONS:
a. Capital stock issued for cash 0 0 0
------------ ---------- ----------
b. Capital stock issued for services rendered 0 0 0
------------ ---------- ----------
c. Capital stock Issued for contributed non-cash assets 0 0 0
------------ ---------- ----------
d. Capitalization of Retained Earnings Available for Distribution 0 0 0
------------ ---------- ----------
e. Gain on sale of Treasury Stock 0 0 0
------------ ---------- ----------
f. Other credits (specify) 0 0 0
----------------- ------------ ---------- ----------
3 Total additions (sum of 2a through 2f) 0 0 0
------------ ---------- ----------
4 Subtotal (line 1 plus line 3) 10 2,509,990 $2,510,000
------------ ---------- ----------
5 DEDUCTIONS:
a. Retirement of capital stock 0 0 0
------------ ---------- ----------
b. Distributions in partial liquidation 0 0 0
------------ ---------- ----------
c. Loss on sale of Treasury Stock 0 0 0
------------ ---------- ----------
d. Other debits (specify) 0 0 0
---------------- ------------ ---------- ----------
6 Total Deductions (sum of 5a through 5d) 0 0 0
------------ ---------- ----------
7 BALANCE AT END OF PERIOD (line 4 minus line 6)--
totals must agree with lines 47 and 48, page 3C $10 $2,509,990 $2,510,000
------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------
PART II. UNDISTRIBUTED REALIZED EARNINGS NON-CASH UNDISTRIBUTED UNDISTRIBUTED
------------------------------- GAINS/ NET REALIZED REALIZED
INCOME EARNINGS EARNINGS
------ -------- --------
(1) (2) (1) + (2)
1 BALANCE AT BEGINNING OF PERIOD 0 18,632 18,632
------------ ---------- ----------
2 ADDITIONS:
a. Net investment income 6,443 239,763 246,206
------------ ---------- ----------
b. Realized gain (loss) on investments 77,926 701,251 779,177
------------ ---------- ----------
c. Gain on appreciation of securities distributed in kind 0 ////////// 0
------------ ---------- ----------
d. Other (specify) 0 0 0
-------------------- ------------ ---------- ----------
3 Total additions (sum of 2a through 2d) 84,369 941,014 1,025,383
------------ ---------- ----------
4 Subtotal (line 1 plus line 3) 84,369 959,646 1,044,015
------------ ---------- ----------
5 DEDUCTIONS:
a. Dividends--Cash //////////// 947,457 947,457
------------ ---------- ----------
b. Dividends--Stock //////////// 0 0
------------ ---------- ----------
c. Dividends--In-kind (at fair value) 0 0 0
------------ ---------- ----------
d. Capitalization of Retained Earnings Available for Distribution //////////// 0 0
------------ ---------- ----------
e. Other (specify) 0 0 0
--------------------- ------------ ---------- ----------
6 Total deductions (sum of 5a through 5e) 0 947,457 947,457
------------ ---------- ----------
7 Total before collection of non-cash gains/income (line 4 minus
line 6) 84,369 12,189 96,558
------------ ---------- ----------
8 ADJUSTMENT: Collection of non-cash gains/income 0 0 //////////
------------ ---------- ----------
9 BALANCE AT END OF PERIOD (line 7 plus line 8)--
total must agree with lines 53, 54c, and 55, page 3C $84,369 $12,189 $96,558
------------ ---------- ----------
SBA Form 468.1 (1-95) Previous editions obsolete Page 7C
24
OMB Approval No. 3245-0063
Expiration Date
ANALYSIS OF STOCKHOLDERS' EQUITY
AS OF 12/31/96
(page 2 of 2)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
(Amounts rounded to nearest dollar)
PART III. UNREALIZED GAIN (LOSS) ON SECURITIES HELD
-----------------------------------------
1 NET UNREALIZED APPRECIATION (DEPRECIATION) 838,939
AT BEGINNING OF PERIOD ----------
2 INCREASE (DECREASE) IN UNREALIZED APPRECIATION
a. Portfolio securities
(i) Increases 0
------------
(ii) Decreases due to revaluation of securities 0
------------
(iii) Decreases due to sale of securities -838,939
------------
(iv) Decreases due to write-off of securities 0 -838,939
------------ ----------
b. Assets Acquired in liquidation of portfolio securities 0
----------
c. Operating concerns acquired 0
----------
d. Notes and other securities received 0
----------
3 TOTAL (sum of 2a through 2d) -838,939
----------
4 Subtotal (line 1 plus line 3) 0
----------
5 (INCREASE) DECREASE IN UNREALIZED DEPRECIATION
a. Portfolio securities
(i) Increases 0
------------
(ii) Decreases due to revaluation of securities 0
------------
(iii) Decreases due to sale of securities/repayment of principal 0
------------
(iv) Decreases due to write-off of securities 0 0
------------ ----------
b. Assets Acquired in liquidation of portfolio securities 0
----------
c. Operating concerns acquired 0
----------
d. Notes and other securities received 0
----------
6 TOTAL (sum of 5a through 5d) 0
----------
7 NET UNREALIZED APPRECIATION (DEPRECIATION) AT
END OF PERIOD (line 4 plus line 6) 0
----------
8 LESS: Estimated future tax expense (benefit) on
net unrealized appreciation (depreciation) 0
----------
9. UNREALIZED GAIN (LOSS) ON SECURITIES HELD--
total must agree with line 52, page 3C $0
----------
SBA Form 468.1 (1-95) Previous editions obsolete Page 8C
25
OMB Approval No. 3245-0063
Expiration Date
I. RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION
II. REGULATORY AND LEVERAGEABLE CAPITAL
AS OF 12/31/96
(Amounts rounded to nearest dollar)
Name of Licensee Allied Financial Corporation II License No. 03/03-5207
PART I. RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION OR CAPITALIZATION
--------------------------------------------------------------
1 Undistributed Net Realized Earnings--Unrestricted (line 54b, page 3C) 12,189
-------------
2 LESS: Unrealized Depreciation (line 10, column 2, page 2C) 0
-------------
3 ADD: Cumulative Undeclared Dividends on 4% Redeemable
Preferred Stock--Section 301(d) Licensees only {line 45b, page 3C) 0
-------------
4 RETAINED EARNINGS AVAILABLE FOR DISTRIBUTION OR CAPITALIZATION 12,189
-------------
- ---------------------------------------------------------------------------------------------------------------------------
PART II. SCHEDULE OF REGULATORY AND LEVERAGEABLE CAPITAL
-----------------------------------------------
1 Capital Stock and Paid-in Surplus (sum of lines 47 and 48, page 3C) 2,510,000
-------------
2 ADD: Unfunded binding commitments from Institutional Investors 0
-------------
3 LESS: Regulatory Deductions:
a. Organizational Expenses Not Approved by SBA (1) ( 0)
--------------
b. Capital Stock Issued for Services ( 0)
--------------
c. Capital Stock Issued for Non-cash Assests (unless approved by SBA
for inclusion in Regulatory Capital or converted to cash) ( 0)
--------------
d. Investment in 301(d) Licensee ( 0)
--------------
e. Treasury Stock at cost ( 0)
--------------
f. Other (specify) ( 0)
-------------------- --------------
4 Total Regulatory Deductions (Sum of 3a through 3f) ( 0)
--------------
5 REGULATORY CAPITAL (sum of lines 1, 2, and 4) 2,510,000
-------------
6 LESS: Unfunded binding commitments from Institutional Investors ( 0)
--------------
7 LESS: "Qualified non-private funds" invested by Federal agencies ( 0)
--------------
8 LESS: Non-cash assests included in Regulatory Capital, other than ( 0)
eligible investments in Small Concerns --------------
9 LESS: Other deductions (specify) ( 0)
------------------------------- --------------
10 LEVERAGEABLE CAPITAL (sum of lines 5 through 8) 2,510,000
--------------
PART IIa. ADJUSTMENTS TO REGULATORY CAPITAL FOR CAPITAL IMPAIRMENT AND OVERLINE PURPOSES
------------------------------------------------------------------------------
COMPLETE THIS PART IIa ONLY IF (1) LICENSEE HAS COMPLETED THE REPURCHASE OF ITS
3% PREFERRED STOCK FROM SBA, AND/OR (2) PURSUANT TO 13 CFR 107.303(c),
LICENSEE WISHES TO INCREASE ITS OVERLINE LIMITATION BY THE AMOUNT OF ITS NET
UNREALIZED GAINS ON MARKETABLE SECURITIES (see note (2) below).
11 REGULATORY CAPITAL (Part II, line 5) 2,510,000
-------------
12 ADD: Restricted Contributed Capital Surplus {line 49, page 3C) 0
-------------
13 ADJUSTED REGULATORY CAPITAL FOR IMPAIRMENT PURPOSES (line 11 plus line 12) 0
-------------
14 ADD: Net Unrealized Gains on Marketable Securities (3) 0
-------------
15 ADJUSTED REGULATORY CAPITAL FOR OVERLINE PURPOSES (line 13 plus line 14) $0
-------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
(1) Deduct only those organizational expenses which were not accepted as
reasonable by SBA and which have not been amortized. See example in
"Instructions for Preparation of SBA Form 468."
(2) Licensee must have positive Retained Earnings Available for Distribution in
order to establish an increased overline limit pursuant to
13 CFR 107.303(c).
(3) As defined in 13 CFR 107.303(c). Attach a schedule showing the following for
each marketable security: name of Small Business Concern, market in which
traded, names of market makers for companies not listed on a stock exchange
or NASDAQ, class of security, cost, valuation, and unrealized gain or loss
in accordance with the requirements of Section 107.303(c).
SBA Form 468.1 (1-95) Previous editions obsolete Page 9C