<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 December 31, 1998
[ ] 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 of (I.R.S. Employer
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:
<TABLE>
<CAPTION>
Class Outstanding as of January 31, 1998
- ------------------------------- ----------------------------------
<S> <C>
Common Stock, $.001 par value 33,000
</TABLE>
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
December 31, 1998 (Unaudited) and June 30, 1998
Statements of Operations (Unaudited) 4
Three months ended December 31, 1998 and
December 31, 1997 and the six months ended
December 31, 1998 and the period from September 15,
1997(commencement of operations) to
December 31, 1997
Statements of Changes in Shareholders' Equity (Unaudited) 5
For the period from September 15, 1997(commencement of
operations) to June 30, 1998 and the six months ended
December 31, 1998
Statements of Cash Flows (Unaudited) 6
Six months ended December 31, 1998 and the period
from September 15, 1997(commencement of operations)
to September 30, 1997
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 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
December 31, 1998 June 30, 1998
------------------------- ----------------------
<S> <C> <C>
Loans and leases, at estimated fair value $49,838,096 $22,768,445
Investments in warrants, at estimated fair value 1,064,050 487,850
Investments in stocks, at estimated fair value - 972,347
Cash and cash equivalents 4,408,795 7,091,890
Other assets 2,258,503 283,192
----------- -----------
Total assets 57,569,444 31,603,724
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank loans 22,208,210 9,008,210
Management fees payable 687,500 687,500
Accounts payable and other accrued liabilities 581,670 393,052
----------- -----------
Total liabilities 23,477,380 10,088,762
----------- -----------
Shareholders' equity:
Common stock, $.001 par value:
Authorized--200,000 shares
Issued and outstanding--33,000 shares 33 22
Capital in excess of par value 32,999,967 21,999,978
Accumulated earnings (deficit) 1,092,064 (485,038)
------------ -----------
Total shareholders' equity 34,092,064 21,514,962
----------- -----------
Total liabilities and shareholders' equity $57,569,444 $31,603,724
=========== ===========
</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 For the Six Months *For the Period
Months Ended Months Ended Ended Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest on loans and leases $ 1,409,361 $ 26,216 $ 2,422,803 $ 30,386
Interest on short-term investments 108,384 99,993 181,192 113,293
------------------- -------------------- -------------------- -------------------
Total investment income 1,517,745 126,209 2,603,995 143,679
------------------- -------------------- -------------------- -------------------
EXPENSES:
Management fees 687,500 730,804 1,375,000 808,048
Interest expense 347,484 - 507,346 -
Bank loan facility fee 36,464 - 79,613 -
Other operating expenses 60,149 39,520 83,731 61,031
------------------- -------------------- -------------------- -------------------
Total expenses 1,131,597 770,324 2,045,690 869,079
------------------- -------------------- -------------------- -------------------
Net investment income (loss) 386,148 (644,115) 558,305 (725,400)
------------------- -------------------- -------------------- -------------------
Net change in unrealized gain
from investment transactions (307,000) - (643,692) -
------------------- -------------------- -------------------- -------------------
Net realized gain from
investment transactions 1,662,489 - 1,662,489 -
------------------- -------------------- -------------------- -------------------
Net Income (loss) $ 1,741,637 $ (644,115) $ 1,577,102 $ (725,400)
=================== ==================== ==================== ===================
Basic earnings (loss) per share $ 56.68 $ (72.76) $ 59.82 $ (84.49)
=================== ==================== ==================== ===================
Weighted average shares outstanding 30,728.26 8,852.40 26,364.13 8,585.19
=================== ==================== ==================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
* From commencement of operations, September 15, 1997
4
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE *PERIOD ENDED JUNE 30, 1998 AND
THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN ACCUMULATED
------------------------ EXCESS OF EARNINGS
SHARES AMOUNT PAR VALUE (DEFICIT) TOTAL
------------ ----------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 15, 1997 50 $ - $ 50,000 $ - $ 50,000
Sales of common stock 21,950 22 21,949,978 - 21,950,000
Net loss - - - (485,038) (485,038)
------------ ----------- ------------------ ----------------- ----------------
BALANCE, JUNE 30, 1998 22,000 22 21,999,978 (485,038) 21,514,962
Sales of common stock 11,000 11 10,999,989 - 11,000,000
Net Income - - - 1,577,102 1,577,102
------------ ----------- ------------------ ----------------- ----------------
BALANCE, DECEMBER 31, 1998 33,000 $33 $ 32,999,967 $ 1,092,064 $ 34,092,064
------------ ----------- ------------------ ----------------- ----------------
</TABLE>
The accompanying notes are an integral part of these statements.
* From commencement of operations, September 15, 1997
5
<PAGE>
VENTURE LENDING & LEASING II, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months *For the Period
Ended Ended
December 31, 1998 December 31, 1997
---------------------- -----------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 1,577,102 $ (725,400)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of deferred assets 67,886 12,509
Unrealized (gain) loss from investment transactions 643,692 -
Gain on sale of securities (1,662,489) -
Increase in other assets (1,996,891) (54,043)
Increase in refundable commitment fees 176,700 41,700
Payment for deferred expenses (46,307) (182,071)
Increase in accounts payable and other accrued liabilities 11,918 1,687,495
---------------------- ----------------------
Net cash provided by operating activities (1,228,389) 780,190
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of loans and leases (33,499,293) (6,493,174)
Principal payments on loans and leases 6,429,643 716,323
Proceeds from sale of securities 1,991,144 -
Acquisition of warrants and stock (576,200) (201,500)
---------------------- ----------------------
Net cash used in investing activities (25,654,706) (5,978,351)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net 11,000,000 11,000,000
Loans from bank 13,200,000 -
---------------------- ----------------------
Net cash provided by financing activities 24,200,000 11,000,000
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (2,683,095) 5,801,839
---------------------- ----------------------
CASH AND CASH EQUIVALENTS:
Beginning of period 7,091,890 -
---------------------- ----------------------
End of period $ 4,408,795 $ 5,801,839
====================== ======================
CASH PAID DURING THE PERIOD FOR:
Interest $ 521,862 $ -
Taxes $ 1,600 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
* From commencement of operations, September 15, 1997
6
<PAGE>
VENTURE LENDING & LEASING II, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results
for such interim periods. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to SEC rules or
regulations; however, the Fund believes that the disclosures made are
adequate to make the information presented not misleading. The interim
results for the six months ended December 31, 1998 and the period ending
December 31, 1997, are not necessarily indicative of 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, 1998.
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 following
industries.
The percentage of net assets that each industry group represents is shown
with the industry totals:
<TABLE>
<CAPTION>
OUTSTANDING
INDUSTRY DECEMBER 31,1998
- -----------------------------------------------------------------------------------------------
<S> <C>
Biotechnology:
Cellgate $ 1,035,431
Ceres, Inc. 1,080,677
Therics Inc. 893,124
-------------------
Total biotechnology (8.83%) 3,009,232
-------------------
Communications:
AUnet, Inc. 641,884
Cerent 2,020,111
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING
INDUSTRY DECEMBER 31,1998
- -----------------------------------------------------------------------------------------------
<S> <C>
CoSine Communications 2,624,525
Digital Generation Systems, Inc. 3,700,994
Exodus Communications, Inc. 3,096,053
Juniper Networks, Inc. 2,244,820
Magellan 402,193
-------------------
Total communications (43.21%) 14,730,580
-------------------
Computers and peripherals:
DAS Devices, Inc. 3,270,237
Quantum3D, Inc. 216,419
sVision, Inc. 1,122,416
-------------------
Total computers and peripherals (13.52%) 4,609,072
-------------------
Internet:
Adforce 269,636
Keynote Systems Incorporated 294,764
Netratings, Inc. 137,187
-------------------
Total internet (2.06%) 701,587
-------------------
Medical devices:
Aerogen, Inc. 388,744
Heartstent Corporation 305,251
Intratherapeutics, Inc. 1,184,043
Myelotec, Inc. 268,851
Protein Delivery Inc. 51,605
Spinal Concepts, Inc. 323,601
Survivalink Corporation 1,190,894
Volumetrics 639,206
-------------------
Total medical devices (12.77%) 4,352,195
-------------------
Other:
ISR (Webvan) 3,461,412
-------------------
Total other (10.15%) 3,461,412
-------------------
Semiconductors and equipment:
Abpac, Inc. 2,083,234
Abrizio 834,540
Chameleon 259,880
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING
INDUSTRY DECEMBER 31,1998
- -----------------------------------------------------------------------------------------------
<S> <C>
DynaChip 206,178
Icompression, Inc. 129,405
Lightwave Microsystems Corporation 390,149
Obsidian 4,887,536
Poseidon Technology, Inc. 877,230
Smart Machine 921,901
Telecruz Technology, Inc. 1,151,936
Transmeta Corporation 1,427,132
O-In Design Automation 280,774
ZSP Corporation 311,054
-------------------
Total semiconductors and equipment (40.36%) 13,760,949
-------------------
Software:
Acme 26,987
Mineshare 292,537
Personics Software 290,960
Sycon 174,681
USInternetworking 4,427,904
-------------------
Total software (15.29%) 5,213,069
-------------------
-------------------
Total $ 49,838,096
===================
</TABLE>
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 December 31, 1998, the
Fund has unfunded commitments to borrowers of $88,237,000.
9
<PAGE>
The Fund's investments in warrants 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>
PERCENTAGE OF NET
INDUSTRY WARRANT VALUE ASSETS
- ------------------------------------------------ --------------------- --------------------
<S> <C> <C>
Biotechnology $ 88,000 0.26%
Communications 260,500 0.76
Computer and peripherals 99,000 0.30
Internet 17,250 0.05
Medical devices 103,100 0.30
Other 35,000 0.10
Semiconductor 318,400 0.93
Software 142,800 0.42
--------------------- --------------------
Total warrants $ 1,064,050 3.12%
===================== ====================
</TABLE>
At December 31, 1998, the Fund held warrants to purchase 6,241,321 shares of
common and preferred stock in 46 companies, of which one company is publicly
traded. Warrants issued by private companies do not have a readily
ascertainable market value and are assigned a minimal value at the time of
acquisition. These warrants had a value of $1,009,050 at December 31, 1998.
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.
10
<PAGE>
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.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, and
the Fund plans to adopt its provisions effective July 1, 1999. 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 earning
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 three capital calls since inception for a total of 30% of
committed capital. Total committed capital as of December 31, 1998 was $110
million; a total of $33.0 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 AND SIX MONTHS ENDED DECEMBER 31, 1998
AND 1997
Total investment income for the three months ending December 31,
1998 and 1997 was $1.5 million and $126 thousand, respectively, of which $1.4
million and $26 thousand, consisted of interest on venture loans outstanding
during the period. The remaining income consisted of interest on the
temporary investment of cash, pending investment in venture loans and leases
or application to the Fund's expenses. Total investment income for the fiscal
year to date periods ending December 31, 1998 and 1997 was $2.6 million and
$144 thousand, respectively, of which $2.4 million and $30 thousand,
consisted of interest on venture loans outstanding during the period. As the
Fund commenced operations on September 15, 1997, the period ended December
31, 1997 reflects only a nominal amount of income. Investment income should
increase in future periods as the Fund's balance of loans outstanding
continues to grow.
12
<PAGE>
Expenses for the three months ending December 31, 1998 and 1997
were $1.1 million and $770 thousand, respectively. The Fund posted an
unrealized loss on investments of $307 thousand and a realized gain of $1.7
million during the period ending December 31, 1998 resulting in net income of
$1.7 million for the three month period. There were no investment gains or
losses during the period ended December 31, 1997 leaving the Fund with a net
loss of $644 thousand during the period. On a per share basis, the three
months ending December 31, 1998 and 1997 resulted in net income of $56.68 and
a net loss $72.76, respectively.
The primary expense of the Fund for the three months ended December
31, 1998 and 1997 was the management fee of $688 thousand and $731 thousand
incurred during the periods, which is imposed at an annual rate of 2.5% of
committed capital. Because the management fee is imposed on committed capital
for the first two years of the Fund's life, it may represent more than 2.5%
of invested assets (and reduce net income correspondingly).
Interest expense for the three months ended December 31, 1998 was
$347 thousand as the Fund began to borrow against its line of credit. There
was no interest expense in the corresponding period of the prior year as the
Fund had no borrowings at that time. Interest expense is expected to become a
significant portion of the Fund's operating expense as the Fund begins to use
borrowed money in addition to its equity capital to fund loans. Expenses,
other than the management fee and interest expense, are relatively fixed and
should decrease as a percentage of investment income as the Fund's assets
increase.
Expenses for the fiscal year to date periods ending December 31,
1998 and 1997 were $2.0 million and $869 thousand, respectively. The Fund
posted an unrealized loss on investments of $644 thousand and a realized
gain of $1.7 million during the period ending December 31, 1998 resulting in
net income of $1.6 million for the period. There were no gains or losses
during the period ended December 31, 1997 leaving the Fund with a net loss of
$725 thousand during the period. On a per share basis, the periods ending
December 31, 1998 and 1997 resulted in net income of $59.82 and a net loss
$84.49, respectively.
LIQUIDITY AND CAPITAL RESOURCES -- DECEMBER 31, 1998 AND DECEMBER 31, 1997
Total capital committed to the purchase of shares pursuant to
subscription agreements stood at $110 million at December 31, 1997 when the
Fund stopped accepting new subscriptions. As of December 31, 1998, $33
million representing 30% of this committed capital, was called to fund
investments in venture loans and leases and to meet the Fund's expenses.
Additional capital may be drawn from subscribers upon 15 days' notice.
The Fund increased its credit facility with a syndicate of major
banks to finance the acquisition of asset-based loans and leases to $42
million. As of December 31, 1998 there was $22.2 million outstanding under
this facility. Outstanding balances bear interest at either the financial
institution's prime rate or 1.25 percent above LIBOR, at the Fund's option.
As of December 31, 1998, 8% of the Fund's assets consisted of cash
and cash equivalents. The Fund invested $33.5 million in venture loans and
leases during this fiscal year, and net loan
13
<PAGE>
amounts outstanding after amortization stand at approximately $49.8 million.
Amounts committed but undrawn increased to approximately $88.2 million.
Because venture loans and leases are privately negotiated transactions,
investments in these assets are relatively illiquid.
As long as the Fund qualifies as a RIC, it will not pay any federal
or state corporate income tax on income that is distributed to shareholders
(pass-through status). Should the Fund lose its qualification as a RIC, it
could be taxed as an ordinary corporation on its taxable income for that year
(even if that income is distributed to its shareholders), and all
distributions out of its earnings and profits will be taxable to shareholders
as ordinary income.
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
On November 11, 1998, the Fund held its Annual Meeting of Shareholders. The
incumbent board of directors was elected, with all of the 21,383.384 votes
cast in favor of each nominee. At the meeting, the selection of Arthur
Andersen LLP as the Fund's independent auditors was ratified, with all of the
21,383.384 votes cast voting in favor of such ratification.
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)
<TABLE>
<S> <C>
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: February 15, 1999 Date: February 15, 1999
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 50,902
<INVESTMENTS-AT-VALUE> 50,902
<RECEIVABLES> 0
<ASSETS-OTHER> 2,259
<OTHER-ITEMS-ASSETS> 4,409
<TOTAL-ASSETS> 57,569
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 22,208
<OTHER-ITEMS-LIABILITIES> 1,269
<TOTAL-LIABILITIES> 23,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,000
<SHARES-COMMON-STOCK> 33
<SHARES-COMMON-PRIOR> 22
<ACCUMULATED-NII-CURRENT> 2,220
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,092
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,604
<OTHER-INCOME> 0
<EXPENSES-NET> 2,046
<NET-INVESTMENT-INCOME> 558
<REALIZED-GAINS-CURRENT> 1,662
<APPREC-INCREASE-CURRENT> (644)
<NET-CHANGE-FROM-OPS> 1,577
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,966
<ACCUMULATED-NII-PRIOR> (1,129)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,375
<INTEREST-EXPENSE> 507
<GROSS-EXPENSE> 2,046
<AVERAGE-NET-ASSETS> 27,803
<PER-SHARE-NAV-BEGIN> 978
<PER-SHARE-NII> 21.18
<PER-SHARE-GAIN-APPREC> 38.64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1033.09
<EXPENSE-RATIO> .07
<AVG-DEBT-OUTSTANDING> 15,608
<AVG-DEBT-PER-SHARE> 472.97
</TABLE>
