<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- --------------
Commission file number 814-00141
VENTURE LENDING & LEASING II, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
MARYLAND 77-0456589
- ------------------------------------ ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or or organization) Identification No.)
2010 NORTH FIRST STREET, SUITE 310, SAN JOSE, CA 95131
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 436-8577
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (i) filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
CLASS OUTSTANDING AS OF OCTOBER 30, 1999
- ----------------------------- ----------------------------------
Common Stock, $.001 par value 52,718
Page 1 of 15; Exhibit Index appears on Page 15
<PAGE>
VENTURE LENDING & LEASING II, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position 3
September 30, 1999 (Unaudited) and June 30, 1999 (Audited)
Statements of Operations (Unaudited) 4
Three months ended September 30, 1999 and September 30, 1998
Statements of Changes in Shareholders' Equity (Unaudited) 5
For the year ended June 30, 1999 and the three months ended September 30, 1999
Statements of Cash Flows (Unaudited) 6
Three months ended September 30, 1999 and September 30, 1998
Notes to Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Financial 12 - 14
Condition and Results of Operations
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits 15
SIGNATURES 15
</TABLE>
2
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, 1999 June 30, 1999
------------------ ----------------
<S> <C> <C>
ASSETS
Loans and leases, at estimated fair value, $ 87,422,060 $ 78,293,229
(Cost of $89,542,935 and $80,414,104)
Investments in securities, at estimated fair value
(Cost of $3,859,803 and $1,525,015) 17,703,078 14,494,863
Cash and cash equivalents 4,339,722 1,869,908
Other assets 3,804,954 189,182
------------------ ----------------
Total assets 113,269,814 94,847,182
------------------ ----------------
------------------ ----------------
LIABILITIES AND SHAREHOLDERS'EQUITY
Liabilities:
Bank loans 37,208,210 37,208,210
Management fees payable 693,151 687,500
Accounts payable and other accrued liabilities 1,492,688 1,487,140
------------------ ----------------
Total liabilities 39,394,049 39,382,850
------------------ ----------------
Shareholders'equity:
Common stock, $.001 par value:
Authorized - 200,000 shares
Issued and outstanding - 52,718 and 44,000 shares 53 44
Capital in excess of par value 54,999,947 43,999,956
Distributions (4,211,350) (3,047,110)
Accumulated earnings 23,087,115 14,511,442
------------------ ----------------
Total shareholders' equity 73,875,765 55,464,332
------------------ ----------------
Total liabilities and shareholders' equity $ 113,269,814 $ 94,847,182
------------------ ----------------
------------------ ----------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest on loans and leases $ 2,996,175 $ 1,013,442
Interest on short-term investments 92,464 72,807
------------------ ------------------
Total investment income 3,088,639 1,086,249
------------------ ------------------
EXPENSES:
Management fees 693,151 687,500
Interest expense 635,281 159,861
Other operating expenses 239,002 66,732
------------------ ------------------
Total expenses 1,567,434 914,093
------------------ ------------------
Net investment income 1,521,205 172,156
------------------ ------------------
Net change in unrealized gain (loss) from 873,427 (336,692)
investment transactions
------------------ ------------------
Net realized gain from investment transactions 6,181,041 -
------------------ ------------------
Net income (loss) $ 8,575,673 $ (164,536)
------------------ ------------------
------------------ ------------------
Basic earnings (loss) per share $ 165.04 $ (7.48)
------------------ ------------------
------------------ ------------------
Weighted average shares outstanding 51,960 22,000
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 1999 AND
THE QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DISTRIBUTIONS EARNINGS TOTAL
(DEFICIT)
------------------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30,1998 22,000 $ 22 $ 21,999,978 $ - $ (485,038) $ 21,514,962
Sales of common stock 22,000 22 21,999,978 - - 22,000,000
Distribution - - - (3,047,110) - (3,047,110)
------------------------- --------------- ------------- ------------- ---------------
Net income - - - - 14,996,480 14,996,480
BALANCE, JUNE 30,1999 44,000 44 43,999,956 (3,047,110) 14,511,442 55,464,332
Sales of common stock 8,718 9 10,999,991 - - 11,000,000
Distribution - - - (1,164,240) - (1,164,240)
Net income - - - - 8,575,673 8,575,673
------------------------- --------------- ------------- ------------- ---------------
BALANCE, SEPTEMBER 30,1999 52,718 $ 53 $ 54,999,947 $ (4,211,350) $ 23,087,115 $ 73,875,765
------------------------- --------------- ------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 8,575,673 $ (164,536)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of deferred assets 2,707 29,592
Unrealized loss (gain) from investment transactions (873,427) 336,692
Net realized gain on investment transactions (6,181,041) -
Increase in other assets (3,568,480) (910)
Increase (decrease) in accounts payable and other
accrued liabilities (8,801) 47,184
------------------ ------------------
Net cash provided by (used in) operating activities (2,053,369) 248,022
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of loans and leases (23,483,801) (14,347,355)
Principal payments on loans and leases 14,354,971 1,755,766
Proceeds from sale of securities 6,342,216 -
Acquisition of warrants and stock (2,475,963) (287,200)
------------------ ------------------
Net cash used in investing activities (5,262,577) (12,878,789)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net 11,000,000 -
Distributions to shareholders (1,164,240) -
Loans from bank - 11,200,000
Payment of bank loan expenses (50,000) -
------------------ ------------------
Net cash provided by financing activities 9,785,760 11,200,000
------------------ ------------------
Net increase (decrease) in cash and cash
equivalents 2,469,814 (1,430,767)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,869,908 7,091,890
------------------ ------------------
End of period $ 4,339,722 $ 5,661,123
------------------ ------------------
------------------ ------------------
CASH PAID DURING THE PERIOD FOR:
Interest $ 610,918 $ 127,211
Taxes $ 800 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
VENTURE LENDING & LEASING II, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying condensed financial statements in Management's opinion, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of financial position and results of operations for interim
periods. Certain information and note disclosures normally included in audited
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted; however, the Fund believes that the
disclosures made are adequate to make the information presented not misleading.
The interim results for the 3 months ended September 30, 1999 and 1998, are not
necessarily indicative of the results for the full year. It is suggested that
these financial statements be read in conjunction with the financial Statements
and the notes included in the Fund's Annual Report for the year ended June 30,
1999.
2. SUMMARY OF INVESTMENTS:
Loans and leases generally are made to borrowers pursuant to commitments whereby
the Fund commits to finance assets up to a specified amount for the term of the
commitments, upon the terms and subject to the conditions specified by such
commitment. The Fund's investments in loans and leases are entirely within the
United States and are diversified among the industries shown below. The
percentage of shareholders' equity (net assets) that each industry group
represents is shown with the industry totals below. (The sum of the percentages
does not equal 100 percent because the percentages are based on net assets as
opposed to total loans and leases. Also, the sum of the percentages of net
assets is greater than 100 percent due to the Fund's use of leverage (debt) as a
means of financing investments.)
<TABLE>
<CAPTION>
INDUSTRY OUTSTANDING
SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C>
BIOTECH:
Cellgate, Inc. $1,189,668
Ceres, Inc. 2,523,331
Genteric, Inc. 232,602
MetaMorphix, Inc. 436,802
Protein Delivery, Inc. 383,074
Zyomyx, Inc. 958,233
------------------
Total biotech (7.75%) 5,723,710
------------------
COMMUNICATION EQUIPMENT:
Cerent Corporation 3,226,468
Corvis Corporation 4,601,810
Cosine Communications, Inc. 2,661,461
Cyras Systems, Inc. 4,070,195
Jetcell, Inc. 143,776
Magellan Network Systems, Inc. 902,356
Ramp Networks, Inc. 5,626,541
------------------
Total communications (28.74%) 21,232,607
------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS SERVICE PROVIDER:
<S> <C>
Applicast, Inc. $1,271,233
Aunet, Inc. 510,581
Digital Generation Systems, Inc. 3,504,215
Exodus Communications, Inc. 2,436,938
USInternetworking, Inc. 7,573,627
------------------
Total communications service provider (20.71%) 15,296,594
------------------
COMPUTERS AND PERIPHERALS:
Applied Magnetics Corporation 787,108
Intera Systems, Inc. 261,551
New Focus, Inc. 625,850
S-vision 488
------------------
Total computers and peripherals (2.27%) 1,674,957
------------------
INTERNET:
Adforce 210,825
Eletter, Inc. 368,870
Facilitas, Inc. 63,407
Google, Inc. 4,111,487
Keynote Systems Incorporated 398,884
Netratings, Inc. 271,928
------------------
Total internet (7.34%) 5,425,401
------------------
MEDICAL DEVICES:
Aerogen, Inc. 268,977
Heartstent Corporation 257,884
Intratherapeutics, Inc. 965,049
Myelotec, Inc. 288,146
Spinal Concepts, Inc. 281,409
SurVivaLink Corporation 942,249
Volumetrics Medical Imaging, Inc. 741,697
------------------
Total medical devices (5.07%) 3,745,411
------------------
SEMICONDUCTOR:
Abrizio, Inc. 1,231,598
Chameleon Systems, Inc. 1,220,651
Dynachip Corporation 573,938
iCompression, Inc. 1,196,441
Lightwave Microsystems Corporation 310,730
Newport Microsystems, Inc. 684,263
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NuCore Technology, Inc. 604,154
Poseidon Technology, Inc. 1,010,628
Quantum Effect Design, Inc. 1,773,129
Quantum 3D, Inc. 156,905
Sandcraft, Inc. 4,272,384
Telecruz Technology, Inc. 922,099
Transmeta Corporation 1,863,988
Triscend Corporation 892,755
------------------
Total semiconductor (22.62%) 16,713,663
------------------
SEMICONDUCTOR EQUIPMENT:
Abpac, Inc. 2,762,896
Obsidian, Inc. 4,438,937
Smart Machines, Inc. 1,210,468
------------------
Total semiconductor equipment (11.39%) 8,412,301
------------------
SOFTWARE:
Acme Software, Inc. 264,773
CoWare, Inc. 228,052
Mineshare, Inc. 439,502
Nexbase, Inc. 72,200
Octane Software, Inc. 558,897
Open Telephone Network, Inc. 222,880
Optimal Networks, Inc. 245,049
Personics Software, Inc. 744,282
Smart DB Corporation 2,169,385
Sycon Design, Inc. 257,999
0-in Design Automation 227,604
Zone Automation, Inc. 502,344
------------------
Total software (8.03%) 5,933,604
------------------
OTHER:
Offroad Capital Corporation 338,164
Web Van-Bay Area, Inc. 2,925,648
------------------
Total other (4.42%) 3,263,812
------------------
------------------
Total loans and leases (Cost: $89,042,935) 87,422,060
------------------
</TABLE>
9
<PAGE>
The Fund provides asset-based financing primarily to start-up and emerging
growth venture-capital-backed companies. As a result, the Fund is subject to
general credit risk associated with such companies. At September 30, 1999, the
Fund has unfunded commitments to borrowers of $131.7 million.
The Fund's investments in warrants and stock are entirely within the United
States and are diversified among the following industries. The percentage of net
assets that each industry group represents is shown with the industry totals:
<TABLE>
<CAPTION>
WARRANTS AND STOCK PERCENTAGE OF
INDUSTRY VALUE SHAREHOLDERS'EQUITY
(NET ASSETS)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Biotechnology 123,500 0.17%
Communications equipment 8,262,660 11.18%
Communications service provider 7,100,097 9.61%
Computer and peripherals 110,000 0.15%
Internet 785,262 1.06%
Medical devices 92,600 0.13%
Software 231,300 0.31%
Semiconductor 784,659 1.06%
Semiconductor equipment 172,000 0.23%
Other 41,000 0.06%
----------------------------------------------
Total warrants and stock value 17,703,078 23.96%
----------------------------------------------
</TABLE>
3. EARNINGS PER SHARE:
The Fund adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," effective December 31, 1997. SFAS No. 128 replaces primary
and fully diluted earnings per share with basic and diluted earnings per share
calculations. Basic earnings per share are computed by dividing net income, less
dividends on preferred stock, by the weighted average common shares outstanding.
Diluted earnings per share are computed by dividing net income, less dividends
on preferred stock, by the weighted average common shares outstanding, including
the dilutive effects of potential common shares (e.g., stock options). The Fund
has no preferred stock or instruments that would be potential common shares;
thus, reported basic and diluted earnings are the same.
4. FUTURE FINANCIAL ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
10
<PAGE>
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000, and
the Fund plans to adopt its provisions effective July 1, 2000. From time to
time, the Fund enters into interest rate swaps to hedge its interest rate.
Additionally, certain of its investments and long-term borrowings may have
embedded options due to call or put features that would be required to be
accounted for differently under SFAS No. 133 as compared to current accounting
principles. The Fund has not yet quantified the impact of adopting SFAS No. 133
on its financial statements; however, SFAS No. 133 could increase the volatility
of future earnings.
5. SUBSEQUENT EVENT:
Subsequent to the end of the quarter Cerent Corporation, one of the Fund's
portfolio companies, merged with Cisco Corporation in a transaction that was
accounted for as a pooling of interests. The fund exercised its warrants in
Cerent and held 760,166 shares of Cerent's common stock immediately prior to
the merger. The fund expects to realize a significant gain from this
transaction.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Venture Lending & Leasing II, Inc. ("Fund") is a closed-end,
non-diversified management investment company electing status as a business
development company under the Investment Company Act of 1940 ("1940 Act"). The
Fund's investment objective is to achieve a high total return. The Fund will
provide asset-based financing to carefully selected venture capital-backed
companies, in the form of secured loans, installment sales contracts or
equipment leases. The Fund generally will receive warrants to acquire equity
securities in connection with its portfolio investments.
The Fund's shares of Common Stock, $.001 par value ("Shares") are sold
to subscribers pursuant to one or more capital calls to be made from time to
time until September 15, 2001. The Fund will seek to require payment by
investors pursuant to each capital call of only that portion of the total dollar
amount subscribed for that the Fund expects will be needed to fund commitments
entered into within a reasonable time after such capital call. The Fund has made
five capital calls since inception for a total of 50% of committed capital.
Total committed capital as of December 31, 1998 was $110 million when the Fund
stopped accepting new subscriptions; a total of $55.0 million has been called.
In addition to the historical information contained herein, this
Quarterly Report contains certain forward-looking statements. The reader of this
Quarterly Report should understand that all such forward-looking statements are
subject to various uncertainties and risks that could affect their outcome. The
Fund's actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments and competition effects as
well as other factors. This entire Quarterly Report should be read to put such
forward-looking statements in context and to gain a more complete understanding
of the uncertainties and risks involved in the Fund's business.
RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total investment income for the periods ended September 30, 1999 and
1998 was $3.1 million and $1.1 million, respectively, of which $3.0 million and
$1.0 million, respectively, consisted of interest on venture loans outstanding.
Remaining income consisted of interest on the temporary investment of cash,
pending investment in venture loans and leases, distributions to shareholders or
application to the Fund's expenses. The increase in investment income reflects
the increase in loans & leases outstanding from September 30, 1998 to September
30, 1999, and was partly offset by a decline in the average yield on loans
funded during the period ended September 30, 1999 as compared to those funded in
the prior period.
12
<PAGE>
Expenses for the periods ended September 30, 1999 and 1998 were $1.6
million and $0.9 million, respectively. Management fees were calculated based on
committed capital for the first two years of the Fund's life and remained flat
from the prior period. Interest expense increased to $0.6 million in the period
ended September 30, 1999 from $0.2 million in the prior period. This increase
was almost entirely due to an increase in the average debt outstanding. Other
operating expenses increased to $0.2 million in the period ended September 30,
1999 from $0.1 million in the prior period. This increase was due to increased
legal expenses incurred during the quarter ended September 30, 1999. Expenses
declined as a percentage of investment income for the period ended September 30,
1999 from the period ended September 30, 1998 due to the increase in interest
income on loans outstanding.
The Fund experienced an increase in unrealized gains from investment
transactions of $0.9 million in the period ended September 30, 1999 as opposed
to a decrease of $0.3 million in the prior period. The Fund had $6.2 million of
realized gains during the period ended September 30, 1999 as compared to no
realized gains in the same period in 1998. These gains were largely generated by
sales of stock in two of the Fund's portfolio companies. Warrants with readily
ascertainable market values are assigned a fair value based on the difference,
if any, between the exercise price of the warrant and the fair value of the
equity securities for which the warrant may be exercised, adjusted for
illiquidity.
Net income for the period ended September 30, 1999 increased to $8.6
million compared to a net loss for the period ended September 30, 1998 of $0.2
million. On a per share basis, for the period ended September 30, 1999 and 1998
net income (loss) was $165 and $(7) respectively.
LIQUIDITY AND CAPITAL RESOURCES -- SEPTEMBER 30, 1999 AND JUNE 30, 1999
Total capital committed to the purchase of shares pursuant to
subscription agreements was approximately $110 million at September 30, 1999 and
June 30, 1999. As of September 30, 1999 and June 30, 1999, 50% and 40%
respectively of this committed capital was called to fund investments in venture
loans and leases and to meet the Fund's expenses.
The Fund has in place a $52 million debt facility to finance the
acquisition of asset-based loans and leases. As of September 30, 1999 and June
30, 1999, $37.2 million was outstanding under this facility. The Fund enters
into interest rate swap transactions to hedge its interest rate on the debt
facility. At September 30, 1999, the Fund had interest rate swap transactions
outstanding with a total notional principal amount of $33.2 million. The effect
of these swap transactions is to convert the variable LIBOR rate into a fixed
rate on the contract notional value. The amortization schedule for each
borrowing under the facility is expected to correspond to the amortization of
the loans or leases acquired with the proceeds of each borrowing.
13
<PAGE>
As of September 30, 1999, 4% of the Fund's assets consisted of cash and
cash equivalents, compared with 2% as of June 30, 1999. The Fund continued to
invest its assets in venture loans and leases during the period. Amounts
disbursed under the Fund's loan commitments increased by approximately $23.5
million during the period ended September 30, 1999. Net loan amounts outstanding
after amortization increased by approximately $9.1 million. Unfunded commitments
increased by approximately $17.2 million.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Amount Principal Balance Unfunded
Disbursed Amortization Outstanding Commitments
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1999 $100.2 million $21.9 million $78.3 million $104.4 million
- ------------------------------------------------------------------------------------------------------------
September 30, 1999 $123.7 million $36.3 million $87.4 million $121.6 million
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Because venture loans and leases are privately negotiated transactions,
investments in these assets are relatively illiquid.
YEAR 2000 ISSUE
The Fund utilizes software and related information technologies that
will be affected by the date change in the year 2000. The year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. When the century date change occurs, certain
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may result in a systems
failure or cause systems to process critical financial and operational
information incorrectly. Additionally, many of the Fund's customers and service
providers use software and information technology that could also be affected by
the date change.
Based on ongoing assessments and testing, the Fund believes that there
is no material risk of business interruption as a result of computer errors or
inefficiencies. Consequently, the Fund does not anticipate that the remediation
costs associated with the year 2000 issue will be material. The Fund is also
working with its vendors and customers to obtain reasonable assurances that they
are taking comparable steps with respect to their year 2000 exposures. However,
in the event that significant vendors or customers do not adequately address the
year 2000 issue, it could have a material adverse effect on the Fund's
operations and financial position. The Fund's contingency plan includes
switching to vendors that are year 2000 compliant and utilizing backup systems
that do not rely on computers. The steps the Fund is taking and intends to take
do not guarantee complete success or eliminate the possibility that the Fund
will not be adversely affected by the matters related to the year 2000.
14
<PAGE>
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
VENTURE LENDING & LEASING II, INC.
(Registrant)
By: /s/ Ronald W. Swenson By: /s/ Salvador O. Gutierrez
---------------------------- ---------------------------
Ronald W. Swenson Salvador O. Gutierrez
Chairman and Chief Executive Officer President, Chief Financial Officer
and Chief Accounting Officer
Date: November 15, 1999 Date: November 15, 1999
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 93383
<INVESTMENTS-AT-VALUE> 105125
<RECEIVABLES> 0
<ASSETS-OTHER> 3805
<OTHER-ITEMS-ASSETS> 4340
<TOTAL-ASSETS> 113270
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 37208
<OTHER-ITEMS-LIABILITIES> 2186
<TOTAL-LIABILITIES> 39394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55000
<SHARES-COMMON-STOCK> 53
<SHARES-COMMON-PRIOR> 44
<ACCUMULATED-NII-CURRENT> 7154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11722
<NET-ASSETS> 73876
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3089
<OTHER-INCOME> 0
<EXPENSES-NET> 1567
<NET-INVESTMENT-INCOME> 1521
<REALIZED-GAINS-CURRENT> 6181
<APPREC-INCREASE-CURRENT> 873
<NET-CHANGE-FROM-OPS> 8576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1164
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18412
<ACCUMULATED-NII-PRIOR> 615
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 693
<INTEREST-EXPENSE> 635
<GROSS-EXPENSE> 1567
<AVERAGE-NET-ASSETS> 64670
<PER-SHARE-NAV-BEGIN> 1260.55
<PER-SHARE-NII> 29.28
<PER-SHARE-GAIN-APPREC> 49.15
<PER-SHARE-DIVIDEND> 22.40
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1401.34
<EXPENSE-RATIO> .10
</TABLE>
