(2) Evidence of financial weakness of the purchaser.

(3) Substantial uncertainty as to the amount of costs and expenses to be incurred.

(4) Substantial uncertainty as to the amount of proceeds to be realized because of form of consideration or method of settlement; for example, nonrecourse notes, non-interest-bearing notes, purchaser's stock, and notes with optional settlement provisions, all of interminable value.

(5) Amount and/or time of payment indeterminate, being dependent upon future sales or other action.

(6) Retention of effective control of the asset by the Licensee.

(7) Limitations and restrictions on the purchaser's profit and on development or disposition of the asset.

(8) Simultaneous sale and repurchase by the same or affiliated interest.

(9) Concurrent loan to or other financing of the purchaser.

(10) Small, or no down payment.

(11) Simultaneous sale and leaseback of asset

4. PROCEDURE FOR OBTAINING SBA RECOGNITION OF NONCASH GAIN FOR THE PURPOSE OF CORRECTING CAPITAL IMPAIRMENT The Licensee should submit to SBA, in triplicate, a summary statement identifying each sale transaction involved, giving the following particulars:

a. Portfolio securities, acquired (or successor) assets, or other assets parted with and their cost less allowance for losses, proceeds obtained, and net gain or loss.

b. Name of purchaser and affiliation (if any) with Licensee.

c. Description and value of consideration received, including terms and collateral (if any) of any debt instruments, and

d. Provisions of any rights or privileges obtained or granted by the Licensee.

5. ACCOUNTING REQUIREMENTS

a. Income from operations. Restrictions on the classification of income as realized and procedures to be followed when such amounts are not to be considered as realized are found in the notes to income accounts Nos. 500, 512, 516, 532, in the System of Account Classifications for Small Business Investment Companies (Part 111 of the regulations).

b. Gains from sales of assets. (1) Any profit on the sale of assets which does not qualify as realized gain in accordance with section 2.b of this addendum should be credited to account No. 383. Other Deferred Credits, pending such realization.

(2) SBA recognition of noncash gain on sales of assets shall not constitute approval to transfer the amount involved from account No. 383 to the appropriate gain accounts, as such action shall remain dependent on meeting the qualifications in section 2.b of this addendum.

[Amdt. 8, 37 F.R. 3950, Feb. 24, 1972]

APPENDIX 2-INSTRUCTIONS FOR PREPARATION OF THE FINANCIAL REPORT, SBA FORM 468

GENERAL

There are set forth herein the instructions for preparation of the Financial Report, SBA Form 468, which report is required by Small Business Administration regulations to be filled wtih SBA by each licensed small business investment company at the end of each fiscal year, and at such other times as SBA may request. The Financial Report filed by each Licensee shall present fairly the filnancial position of the Licensee as of the close of the period covered by the report and the results of the Licensee's operations for such period, and shall be prepared in accordance with these instructions. The accounts referred to by account number in these instructions are those prescribed by SBA in the System of Account Classifications for Small Business Investment Companies as set forth in Part 111 of this chapter.

The Financial Report, SBA Form 468, shall be filed in triplicate with the Investment Division, Small Business Administration, 1441 L Street NW., Washington, DC 20416, on or before the last day of the third month following the close of the period covered by the report (in the case of an audited report).

Licensees which are registered investment companies should refer to the rules promulgated by the Securities and Exchange Commission, 500 North Capitol Street, Washington, DC 20549, for the official requirements as to financial reports to be filed with SEC and the time allowed for filing.

The Financial Report, SBA Form 468, requires a statement of financial condition, statement of surplus reconciliations, statement of income and expense, statement of realized gain or loss on investments, statement of changes in financial position and supporting schedules. If any statement or schedule is not applicable, it is still required to be filed but should be marked "N/A" or "Not Applicable."

When the Licensee has a wholly owned subsidiary organized solely for the purpose of rendering management consulting services, financial reports submitted to SBA by the parent Licensee shall reflect consolidated figures covering the activities of both the parent Licensee and its subsidiary corporation.

When the Licensee has one or more branch offices, the data contained in the basic Anancial statements and all supporting schedules shall comprise a combination of the figures for the principal office and all branches. All money amounts required to be shown in the financial statements and schedules shall be expressed in whole dollars. Appropriate adjustments of individual amounts shall be made for the fractional part of a dollar so that the items will add to the totals shown.

HEADING

Set forth in the appropriate spaces the information called for representing the identi

1. Cash. State the total of the balances contained in accounts Nos. 100 through 120. 2. U.S. Government obligations, insured savings, and time certificates of deposit. State the total of the balances contained in accounts Nos. 130 through 137.

3. Notes receivable. State the balance contained in account No. 140.

4. Accounts receivable. State the balance contained in account No. 150.

(a) Less: Allowance for uncollectibles (applicable to items 3 and 4). State the balance contained in account No. 151.

5. Accrued interest receivable. State the balance contained in account No. 160.

(a) Less: Allowance for uncollectibles.

State the balance contained in account No. 161.

6. Due from directors, officers, and employees. State the balance contained in account No. 255.

7. Funds in escrow and other current assets. State the balance contained in account No. 179 and the current portion of account No. 220.

8. Total short-term assets. Enter the total of the appropriate amounts opposite items 1, 2, 4(a), 5(a), 6, and 7.

9. Loans (section 305). State the balance contained in account No. 170.

(a) Less: Amount sold with recourse. State the balance contained in account No. 310.

(b) Less: Allowance for uncollectibles.

State the balance contained in account No. 171.

(c) Less: Unearned discount, fees, etc. State the balance contained in account No. 173.

10. Debt securities of SBCs (section 304). State the total of the balances contained in accounts Nos. 180 and 184.

(a) Less: Amount sold with recourse. State the total of the balances contained in accounts Nos. 312 and 314.

(b) Less: Allowance for losses. State the balance contained in account No. 185.

(c) Unearned discount, fees, etc. State the balance contained in account No. 187.

11. Capital stock of SBCs (section 304). State the total of the balances contained in accounts Nos. 190 and 192.

(a) Less: Allowance for losses. State the balance contained in account No. 193.

12. Warrants, options and other stock rights, acquired from SBCs (section 304). State the balance contained in account No. 196.

(a) Less: Allowance for losses. State the balance contained in account No. 197.

13. Assets acquired in liquidation of loans and debt securities. State the balance contained in account No. 200.

(a) Less: Accumulated depreciation. State the balance contained in account No. 203. (b) Less: Mortgages payable. State the balance contained in account No. 318.

(c) Less: Allowance for losses. State the balance contained in account No. 201.

14. Amounts due from debtors on sale of assets acquired in liquidation of loans and debt securities. State the balance contained in account No. 210.

(a) Less: Allowance for uncollectibles.

State the balance contained in account No. 211.

15. Total loans and investments. Enter the total of the appropriate amounts opposite items 9(c), 10(c), 11(a), 12(a), 13(c), and 14(a).

16. Corporate premises owned and furniture and equipment. State the total of the balances contained in accounts Nos. 230, 240, and 242.

(a) Less: Accumulated depreciation. State the total of the balances contained in accounts Nos. 231 and 241.

17. Organization costs. State the balance contained in account No. 256.

18. Other. State the total of the balances contained in accounts Nos. 140, 220 (noncurrent portions), and 257.

19. Total other assets. Enter the total of the appropriate amounts opposite items 16(a), 17, and 18.

20. Total. Enter the total of items 8, 15, and 19.

Liabilities, Capital Stock, and Surplus 21. Accounts payable. State the balance contained in account No. 340.

22. Accrued interest payable. State the balance contained in account No. 350.

23. Accrued taxes on income. State the total of the balances contained in accounts Nos. 354.1, 354.2, etc.

24. Other accrued expenses. State the balance contained in account No. 358.

25. Dividends payable. State the total of the balances contained in accounts Nos. 360 through 364.

26. Employee taxes withheld. State the balance contained in account No. 370.

27. Unapplied receipts and trust receipts. State the total of the balances contained in accounts Nos. 374 and 378.

28. Other. State the total of the balances contained in accounts Nos. 320, 381, and 383 (portions applicable).

29. Total short-term liabilities. Enter the total of items 21 through 28.

30. Notes payable to SBA. State the balance contained in account No. 300.

31. Notes payable to other than SBA, guaranteed by SBA. State the balance contained in account No. 315.

32. Notes payable to other than SBA, not guaranteed by SBA. State the balance contained in account No. 316.

33. Mortgages payable for funds borrowed. State the balance contained in account No. 317.

34. Other. State the total of the balances contained in accounts Nos. 320, 381, and 383 (portions applicable).

35. Debentures payable issued to SBA. State the balance contained in account No. 301.

36. Total liabilities. Enter the total of the appropriate amounts opposite items 29, 30, 33, 34, and 35.

37. Capital stock. State the total of the balances contained in accounts Nos. 400 through 404 minus the balances contained in accounts Nos. 405 through 409.

38. Paid-in surplus. State the balance contained in account No. 420.

39. Less:

shares of treasury stock at cost. State the total of the balances contained in accounts Nos. 415 through 419.

40. Total. Enter the total of items 37 and 38 minus item 39.

41. Capital stock subscribed. State the total of the balances contained in accounts Nos. 410 and 411.

(a) Less: Subscriptions receivable. State the total of the balances contained in accounts Nos. 413 and 414.

42. Total stockholders' paid-in capital and paid-in surplus. Enter the total of the appropriate amounts opposite items 40 and 41(a). 43. Retained earnings. State the balance contained in the account No. 425.

44. Appropriated retained earnings. State the balance contained in account No. 427. 45. Total capital stock and surplus. Enter the total of the appropriate amounts opposite items 42 and 44.

46. Total. Enter the total of items 36 and 45.

Memorandum footnote. Show in the space provided the market or fair value of loans and investments (shown at cost less allowance for losses in item 15 of the Statement of Financial Condition). In determining the market or fair value of portfolio securities (including securities which may be readily acquired through exercise of rights), securities for which market quotations are readily available shall be valued at the market bid price, provided the securities are registered, or readily registrable, and salable, and further provided that, in the opinion of the board of directors, the bid price could be realized on immediate liquidation of the investment.

Securities other than those referred to above shall be at cost less allowance for probable losses unless, because of steady progress in the affairs of the portfolio company, an increase above cost to the small business investment company is clearly indicated in the SBIC's equity in the book value of the portfolio company's securities as shown on the portfolio company's books. In the latter case the securities may be valued at fair value as determined in good faith by the board of directors.

be reduced for purposes of this report by the amount of what would be an appropriate provision for taxes in respect of the unrealized appreciation included in the determined value.

In column (10) of Schedules 1 through 4, and column (8) of Schedule 7, identify with an asterisk each security which was valued above cost in arriving at the amount shown as market or fair value of loans and investments.

Footnote on contingent liabilities. Complete the footnote on page 2, at the end of the Statement of Financial Condition, which indicates the total amount of all contingent liabilities of the company. This amount shall be the same as the grand total of Schedule 12 of the report.

STATEMENT OF SURPLUS RECONCILIATIONS

Set forth in this statement all activities in accounts for paid-in surplus, retained earnings, and appropriated retained earnings during the fiscal year to date, showing opening balances, additions and deductions, and balances at close of the period. State separately the various additions and deductions, describing clearly the nature of the transactions out of which the items arose. Net income or loss from page 3 should be labeled "from net income, or (loss)" and realized gain or loss on investments from page 4 should be labeled "from net realized gain or (loss) on investments."

STATEMENT OF INCOME AND EXPENSE FOR THE
FISCAL YEAR TO DATE
Income

Item

1. Commitment income. State the balance contained in account No. 500.

2. Interest on loans. State the balance contained in account. No. 512.

3. Interest on debt securities. State the balance contained in account No. 516.

4. Interest on invested idle funds. State the balance contained in account No. 510. 5. Interest income-other. State the balance contained in account No. 520.

6. Management consulting service fees. State the balance contained in account No. 532..

7. Investigation and service fees charged other lenders. State the balance contained in account No. 534.

8. Application and appraisal fees. State the balance contained in account No. 536.

9. Dividends on capital stock of SBCs. State the balance contained in account No. 540. 10. Sharings in income or revenue of SBCs. State the balance contained in account No. 541.

from

11. Income less expense of $. assets acquired in liquidation of loans and debt securities. State the balance in account No. 582 minus the balance in account No. 710. Show the balance contained in account No. 710 as a separate item in the space pro

12. Other income. State the balance contained in account No. 584.

13. Total income. Enter the total of the appropriate amounts opposite items 1, 5, 8, 10, and 12.

Expenses

14. Commitment expense. State the balance contained in account No. 600.

15. Interest on obligations payable to SBA. State the balance contained in account No. 610.

16. Interest on obligations payable to other than SBA. State the balance contained in account No. 622.

17. Stock record and other financial expenses. State the balance contained in account No. 642.

18. Total financial expenses. Enter the total of items 14 through 17.

19. Advertising and promotional costs. State the balance contained in account No. 650.

20. Appraisal and investigation costs. State the balance contained in account No. 651. 21. Auditing and examination costs. State the balance contained in account No. 652. 22. Communications. State the balance contained in account No. 653.

23. Cost of space occupied. State the balance contained in account No. 654.

24. Depreciation of corporate premises owned, furniture, and equipment. State the balance contained in account No. 655.

25. Directors' and stockholders' meetings costs. State the balance contained in account No. 657.

26. Insurance. State the balance contained in account No. 658.

27. Investment adviser costs. State the balance contained in account No. 660.

28. Legal services. State the balance contained in account No. 661.

29. Salaries of officers. State the balance contained in account No. 663.1.

30. Salaries of employees. State the balance contained in account No. 663.2.

31. Taxes, excluding income taxes. State the balance contained in account No. 664.

32. Travel. State the balance contained in account No. 665.

33. Employee benefits expense. State the balance contained in account No. 670.

34. Organization expense. State the balance contained in account No. 672.

35. Miscellaneous operating expenses. State the balance contained in account No. 679. 36. through 39. (For unclassified items.) 40. Total operating expenses. Enter the total of items 19 through 39.

41. Other expenses. State the balance contained in account No. 715.

42. Total expenses. Enter the total of items 18, 40 and 41.

43. Net operating income before provision for probable losses and income taxes. Enter the balance resulting from the deduction of item 42 from item 13.

44. Provision for probable losses on receivables. State the balance contained in account No. 680.

45. Provision for probable losses on portfolio securities. State the balance contained in account No. 682.

46. Provision for probable losses on assets acquired in liquidation of loans and debt securities. State the balance contained in account No. 684.

47. Provision for probable losses on amounts due from debtors on sale of assets acquired in liquidation of loans and debt securities. State the balance contained in account No. 686.

48. Net operating income before provision for income taxes. Enter the balance resulting from the deduction of the appropriate amount opposite item 47 from item 43.

49. Provision for Federal income taxesNet income. State the balance contained in account No. 720.1.

50. Provision for State and other income taxes. State the balance contained in account No. 720.2.

51. Net income (loss) from operations. Enter the balance resulting from the deduction of the appropriate amount opposite item 50 from item 48.

NOTE: The Statement of Income and Expense provides only for income and expenses from operations.

Extraordinary Income or Loss from transactions not in the ordinary course of operations shall be credited directly to retained earnings.

STATEMENT OF REALIZED GAIN OR LOSS ON
INVESTMENTS

1. U.S. Government securities. Show the aggregate cost, aggregate net proceeds, and net gain or net loss on the sale or other disposition of U.S. Government obligations, direct and fully guaranteed.

2. Debt securities of SBCs. Show the aggregate cost less allowance for losses, aggregate net proceeds, and net gain or loss on the sale or other disposition of debt securities of small business concerns.

3. Capital stock of SBCs. Show the aggregate cost less allowance for losses, aggregate net proceeds, and net gain or loss on the sale or other disposition of capital stock of small business concerns.

4. Warrants, options, and other stock rights acquired from SBCs. Show the aggregate cost less allowance for losses, aggregate net proceeds, and net gain or loss on the sale or other disposition of warrants, options, and other stock rights acquired by the company from small business concerns.

5. Assets acquired in liquidation of loans and debt securities. Show the aggregate cost less allowance for losses and mortgages payable, aggregate net proceeds, and net gain or loss on the sale or other disposition of assets acquired in liquidation of loans and debt securities of small business concerns. The aggregate cost shown for this item shall be the same as that recorded in the books of account on the basis determined by the board of directors from among (1) bid-in price of the property, (2) agreed considera

tion for the property, and (3) fair appraised value of the property, but not to exceed the total amount of the related loan or debt security involved.

6. Other. Show the aggregate cost less allowance for losses, aggregate net proceeds, and net gain or loss on the sale or other disposition of any investments not included in items 1 through 5.

7. Net gain and/or loss on investments. Enter the net total of items 1 through 6.

8. Combined net gain (loss) on investments. Enter the balance resulting from the deduction of item 7, column (5) from item 7, column (4).

9. Add realized gain for current year from prior sales of investments (deferred credits). State the amount of deferred gain of prior years transferred to gain accounts in the current year.

10. Less portion of gain not realized in cash, demand certificates of deposit issued by FDIC-member banks, and/or negotiable direct obligations of the U.S. Government. State the amount of the above gain represented by proceeds other than cash, demand certificates of deposit issued by FDIC-member banks, and/or negotiable direct obligations of the U.S. Government.

11. Net realized gain (loss) on investments before provision for income taxes. Enter the balance resulting from the addition of item 9 and deduction of item 10 from item 8.

12. Federal income taxes-Net realized gain on investments. State the amount of estimated Federal income taxes applicable to net realized gain on investments for the fiscal year to date.

13. State and other income taxes-Net realized gain on investments. Show the amount of estimated State and other nonFederal income taxes applicable to net realized gain on investments for the fiscal year to date.

14. Total provision for income taxes. Enter the total of items 12 and 13.

15. Net realized gain (loss) on investments. Enter the balance resulting from the deduction of item 14 from item 11.

NOTE: Describe the transactions in this statement in accordance with the instructions set forth in the note at bottom of the form.

STATEMENT OF CHANGES IN FINANCIAL POSITION Part 1-Source of Funds

Item

1. Net income (loss) from operations. Enter the amount of Item 51 shown in the Statement of Income and Expense.

2. Net realized gain (loss) on investments. Enter the amount of Item 15 shown on the Statement of Realized Gain or Loss on Investments (page 4 of SBA Form 468).

3. Total net income. Enter the total of Items 1 and 2.

4. Provision for probable losses. Enter the total amount of Items 45, 46, and 47 shown in the Statement of Income and Expense. (Excludes Item 44-Provision for Probable Losses on Receivables.)

5. Depreciation and amortization. Enter the amount of Item 24 and any other amounts of depreciation or amortization contained in the Statement of Income and Expense.

6. Total funds provided by net income. Enter the total of Items 3, 4, and 5 of this statement.

7. Extraordinary income. Enter amount of income from transactions not in the ordinary course of operations. Attach explanation

sheet.

8. From repayments and sales of loans. Enter the total of column 7 (cash deductions) of Schedule 1.

9. From repayments and sales of debt securities. Enter the total of column 7 (cash deductions) of Schedule 2.

10. From repayments and sales of capital stock. Enter the total of column 7 (cash deductions) of Schedule 3.

11. From repayments and sales of warrants, options and other stock rights. Enter the total of column 7 (cash deductions) of Schedule 4.

12. From repayments and sales of assets acquired in liquidation and amounts due from debtors on sale of assets acquired in liquidation. Enter the total principal reduction for the period resulting from repayments and sales.

13. From sale of licensees capital stock. Enter the capital stock increase for the period resulting from sales for cash and capital stock subscriptions paid for in cash.

14. Paid-in surplus. Enter the increase for the period resulting from cash donations. 15. Funds borrowed from SBA. Enter the amount borrowed during the period.

16. Funds borrowed from banks. Enter the amount borrowed during the period. Do not include any borrowings reflected in ShortTerm Liabilities-Items numbered 21 through 28 in SBA Form 468 Page 2.

17. Other funds borrowed. Identify and enter the amount borrowed during the period on mortgages and other long term borrowings not accounted for elsewhere.

18. Total source of funds. Enter the total of Items 6 through 17.

19. Funds disbursed for loans. Enter the total of column 5 (cash additions) of Schedule 1.

20. Funds disbursed for debt securities. Enter the total of column 5 (cash additions) of Schedule 2.

21. Funds disbursed for capital stock of SBCs. Enter the total of column 5 (cash additions) of Schedule 3.

22. Funds disbursed for warrants, options and other stock rights. Enter the total of column 5 (cash additions) of Schedule 4.

23. Funds disbursed for other asset acquisitions. Identify and enter the total increase in other asset acquisitions for the period involving cash transactions.

24. Repayment of borrowed funds to SBA. Enter the total principal paid during the period.