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 March 31, 1996
[ ] 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 0-22618
Venture Lending & Leasing, Inc.
-------------------------------
(Exact Name of Registrant as specified in its charter)
Maryland 13-3775187
- --------------------------------------------- ------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
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 May 15, 1996
- ---------------------------------- ------------------------------
Common Stock, $.001 par value 20,594.74
Page 1 of 16; Exhibit Index appears on Page 15
1
<PAGE>
VENTURE LENDING & LEASING, INC.
INDEX
Page Number
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Financial Position (Unaudited) 3
March 31, 1996 and June 30, 1995
Schedule of Loans and leases (Unaudited) 4
March 31, 1996
Statement of Operations (Unaudited) 5
Nine Months Ended March 31, 1996 and
Period Ended March 31, 1995
Statement of Operations (Unaudited) 6
Three Months Ended March 31, 1996 and
March 31, 1995
Statement of Changes in Shareholders Equity (Unaudited) 7
Nine Months Ended March 31, 1996 and
Period Ended March 31, 1995
Statement of Cash Flows (Unaudited) 8
Nine Months Ended March 31, 1996 and
Period Ended March 31, 1995
Notes to Financial Statements 9 - 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 16
2
<PAGE>
VENTURE LENDING & LEASING, INC.
Statements of Financial Position (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
---------------- --------------
<S> <C> <C>
Assets
Loans and leases, net of unearned income and fees $25,680,686 $ 12,524,101
Cash and cash equivalents 5,963,255 8,136,350
Investments in warrants, common stock 1,231,118 173,285
at value (Cost - $411,185 & $173,285)
Deferred organizational expenses 97,539 120,081
Deferred bank loan expenses 21,969 28,500
Other assets 8,775 13,535
----------- ------------
Total assets 33,003,342 20,995,852
----------- ------------
Liabilities & Shareholders' Equity
Liabilities
Bank loan 13,201,629 9,577,400
Accounts payable 340,665 271,555
Interest payable 55,526 33,680
Refundable commitment fee 92,235 67,500
----------- ------------
Total Liabilities 13,690,055 9,950,135
----------- ------------
Shareholders' Equity
Common stock, $.001 par value; 100,000,000
shares authorized; issued and outstanding,
20,594.74 and 12,379.43 shares 20 12
Capital in excess of par value 18,507,741 11,426,921
Retained earnings (deficit) 805,526 (381,216)
----------- ------------
Total shareholders' equity $19,313,287 $ 11,045,717
----------- ------------
Total Liabilities & shareholders' Equity $33,003,342 $ 20,995,852
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
VENTURE LENDING & LEASING, INC.
Schedule of Loans and Leases (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding
Amount Principal March 31,
Borrower Commitment Disbursed Amortization 1996
- -------- ---------- --------- ------------ ----
<S> <C> <C> <C> <C>
Advanced Therapies, Inc. $500,000 $503,874 $43,137 $460,737
ATG Cygnet Systems 1,000,000 ---- ---- ----
Bigbook, Inc. 500,000 333,038 28,424 304,614
Biosys, Inc. 2,500,000 2,180,487 570,211 1,610,276
Brocade Comm. Systems 1,100,000 357,320 35,225 322,095
CAPS Software, Inc. 1,000,000 379,203 53,680 325,523
CardioGenesis Corporation 1,500,000 ---- ---- ----
Cardiovascular Diagnostics, Inc. 1,000,000 ---- ---- ----
Ciphergen Biosystems 740,000 650,258 39,074 611,184
Datamind Corporation 300,000 101,848 12,021 89,827
Desmos, Inc. 1,000,000 ---- ---- ----
Exponential Technology, Inc. 700,000 703,512 200,926 502,586
Exponential Technology, Inc. 2,500,000 1,797,819 219,180 1,578,639
Fabrik Communications, Inc. 300,000 294,472 50,598 243,874
Fabrik Communications, Inc. 500,000 ---- ---- ----
Fluid Propulsion Technologies, Inc 250,000 137,737 11,802 125,935
IDEC Pharmeceuticals Corp. 5,000,000 5,000,000 1,136,310 3,863,690
Infoseek Corporation 2,500,000 2,572,749 674,748 1,898,001
Infoseek Corporation 1,000,000 962,232 96,575 865,657
Integ, Incorporated 5,000,000 926,418 108,815 817,603
Ipsilon Networks Inc. 1,000,000 967,590 102,959 864,631
Jetstream Communication 300,000 105,928 21,926 84,002
JTS Corporation 4,500,000 4,029,108 446,086 3,583,022
Larex International 2,500,000 288,720 83,135 205,585
Neomagic Corporation 1,000,000 667,700 144,598 523,102
NeTpower, Inc. 500,000 478,544 192,879 285,665
Optimal Networks Corp. 400,000 226,590 48,747 177,843
Oratec Interventions, Inc. 500,000 69,408 13,912 55,496
Persistance Software, Inc. 500,000 148,319 18,647 129,672
Photon Dynamics, Inc. 1,000,000 1,000,000 230,093 769,907
Socket Communications, Inc. 500,000 125,493 20,665 104,828
Solopoint, Inc. 400,000 101,118 12,008 89,110
Starlight Networks, Inc. 1,000,000 901,202 24,677 876,525
Tenth Planet (formerly Media 3) 650,000 638,237 212,031 426,206
Tessera Inc. 2,500,000 572,576 200,902 371,674
Transmeta Corporation 500,000 ---- ---- ----
ULSI Systems, Inc. 500,000 487,650 98,650 389,000
VidaMed, Inc. 3,000,000 3,000,000 623,396 2,376,604
Xatrix Entertainment 1,000,000 999,597 252,024 747,573
----------- ----------- ---------- -----------
Totals $51,140,000 $31,708,747 $6,028,061 $25,680,686
=========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine For the Period from
Months Ended July 5, 1994* to
March 31, 1996 March 31, 1995
---------------- --------------
<S> <C> <C>
Investment Income:
Interest on loans and leases $2,318,782 $ 233,198
Interest on short term investments 276,109 154,970
---------- -----------
Total Investment Income 2,594,891 388,168
---------- -----------
Expenses:
Management fee 868,619 739,567
Interest expense 607,951 120,833
Bank loan facility fee 30,902 38,882
Directors' fees and expenses 22,750 20,773
Amortization of organizational expenses 22,542 22,460
Custody and accounting fees 16,200 40,536
Audit fees 16,069 15,012
Legal fees 14,277 43,988
Regulatory reporting 7,176 751
Transfer agency fees 5,421 4,505
Other operating expenses 11,735 18,206
---------- -----------
Total Expenses 1,623,642 1,065,513
---------- -----------
Net Investment Gain(Loss) 971,249 (677,345)
Net Unrealized Gain From Investment Transactions 819,933 --
Net Realized Gain From Investment Transactions 22,134 --
---------- -----------
Net Income(Loss) $1,813,316 $ (677,345)
========== ===========
Net Gain (Loss) Per Share $ 101 $ (99)
========== ===========
Average Shares Outstanding 17,957 6,835
========== ===========
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of these statements.
5
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
--------------- --------------
<S> <C> <C>
Investment Income:
Interest on loans and leases $ 935,083 $ 202,776
Interest on temporary investments 94,754 94,582
---------- ---------
Total Investment Income 1,029,837 297,358
---------- ---------
Expenses:
Management fee 287,382 285,124
Interest expense 222,394 120,833
Other expenses 52,778 64,911
---------- ---------
Total Expenses 562,554 470,868
---------- ---------
Net Investment Gain 467,283 (173,510)
Net Unrealized Gain From Investment Transactions 333,940 --
Net Realized Gain From Investment Transactions 22,134 --
---------- ---------
Net Income(Loss) $ 823,357 $(173,510)
========== =========
Net Income (Loss) Per Share $ 40 $ (14)
========== =========
Average Shares Outstanding 20,595 12,379
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Changes in Shareholders' Equity (Unaudited)
- --------------------------------------------------------------------------------
For the Period from July 5, 1994 (Commencement of Operations) to June 30, 1995
------------------------------------------------------------------------------
and the Nine Months Ended March 31, 1996
----------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------------- Capital in Retained
Excess of Earnings
Shares Amount Par Value (Deficit) Total
------------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, July 5, 1994 1.00 $-- $ 1,000 $ -- $ 1,000
Shares sold 12,478.43 12 11,504,710 -- 11,504,722
Shares repurchased (100.00) -- (78,789) -- (78,789)
Net loss -- -- -- (381,216) (381,216)
--------- --- ------------ ----------- ------------
Balance, June 30, 1995 12,379.43 12 11,426,921 (381,216) 11,045,717
Shares sold 8,215.31 8 7,242,837 -- 7,242,845
Distributions to shareholders -- -- (162,017) (626,574) (788,591)
Net Income -- -- -- 1,813,316 1,813,316
--------- --- ------------ ----------- ------------
Balance, March 31, 1996 20,594.74 $20 $ 18,507,741 $ 805,526 $ 19,313,287
========= === ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine For the Period
Months Ended From July 5, 1994* to
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss) $ 1,813,316 $ (677,345)
Adjustments to reconcile net investment income (loss)
to net cash provided by (used in) operating activities:
Amortization of organizational expenses 22,542 22,460
Amortization of bank loan expenses 6,531 4,368
Gain on sale of warrants (22,134) --
Decrease in other assets 4,760 2,096
Increase in accounts payable 69,110 353,769
Increase in interest payable 21,846 --
Increase in refundable commitment fees 24,735 87,000
------------ ------------
Net cash provided by (used in) operating activities 1,940,706 (207,652)
------------ ------------
Cash flows from investing activities:
Acquisition of loans and leases (18,133,209) (6,642,573)
Principal payments on loans and leases 4,976,626 716,483
Acquisition of warrants (237,900) (86,050)
Proceeds from sale of warrants 22,134 --
Increase in unrealized appreciation of warrants (819,933) --
Payment for organizational expenses -- (150,000)
------------ ------------
Cash used in investing activities (14,192,282) (6,162,140)
------------ ------------
Cash flows from financing activities:
Sales of common stock, net 7,242,843 11,425,933
Distributions to shareholders (788,591) --
Loan from bank 5,800,000 --
Principal payments on bank loan (2,175,771) --
Payment of bank loans expenses -- (35,052)
------------ ------------
Net cash provided by financing activities 10,078,481 11,390,881
------------ ------------
Net Increase (Decrease) in cash and cash equivalents (2,173,095) 5,021,089
------------ ------------
Cash and Cash Equivalents -- Beginning of period 8,136,350 1,000
------------ ------------
Cash and Cash Equivalents -- End of period $ 5,963,255 $ 5,022,089
============ ============
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of these financial statements. 8
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies:
- ----------------------------------------------------
Venture Lending & Leasing, Inc. (the "Fund") was incorporated in Maryland
on September 29, 1993 as a non-diversified, closed-end management investment
company electing status as a business development company under the Investment
Company Act of 1940. Prior to commencing its operations on July 5, 1994 the Fund
had no operations other than the sale to Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins"), which is an indirect wholly owned
subsidiary of PaineWebber Group Inc., of one share of Common Stock, $.001 par
value ("common stock"), for $1,000. As of March 31, 1996 the Fund meets the
requirements, to qualify as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986.
Costs incurred in connection with the organization of the Fund were paid
initially by Mitchell Hutchins and Westech Investment Advisors, Inc. ("Westech
Advisors"); however, the Fund reimbursed those firms $150,000 of such costs.
This amount has been deferred and is being amortized on the straight-line method
over a period of 60 months from the date the Fund commenced operations.
Valuation of Investments --- The Fund anticipates that substantially all of
its portfolio investments (other than short-term investments) will consist of
securities that at the time of acquisition are subject to restrictions on sale
and for which no ready market will exist. Venture loans and leases are privately
negotiated transactions, and there is no established trading market in which
such loans or leases can be sold. Substantially all the Fund's investments are
restricted securities that cannot be sold publicly without prior agreement with
the issuer to register the securities under the 1933 Act, or by selling the
securities under Rule 144 or other rules under the 1933 Act which permit only
limited sales under specified conditions.
Investments in loans and leases are valued at their original purchase price
less amortization of principal unless, pursuant to procedures established by the
Fund's Board of Directors, the Fund's Managers determine that amortized cost
does not represent fair value. Short-term debt instruments with 60 days or less
remaining to maturity are valued by the amortized cost method. The Fund does not
hold any short-term debt instruments that have a period of maturity exceeding 60
days.
Warrants that are received in connection with loan and lease transactions
generally are valued at a nominal value assigned at the time of acquisition,
which generally occurs at the first drawdown under the commitment. As of March
31, 1996 the Fund held warrants in twenty-nine companies to purchase preferred
or common stock of the companies. The warrants are carried at estimated
aggregate fair value. Warrants carried at greater than nominal cost are valued
based on the difference between the exercise price of the warrant and the market
value of the equity securities for which the warrant may be exercised, adjusted
for illiquidity.
Federal Tax Status --- 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.
Cash & Cash Equivalents - Cash & cash equivalents consist of cash on hand,
demand deposits in banks and repurchase agreements with original maturities of
ninety days or less.
9
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Loans & Leases - Unearned income and commitment fees on loans and leases
are recognized using the effective interest method over the term of the loan or
lease. Commitment fees represent fees received for commitments upon which no
drawdowns have yet been made. The fee is included in unearned income and
recognized as described above.
2. Management:
- --------------
Westech Advisors serves as the Fund's Investment Manager and Siguler Guff
Advisers, L.L.C. (collectively, the "Managers") serves as its Fund Manager. As
compensation for their services to the Fund, the Managers receive a management
fee computed and paid at the end of each quarter, at an annual rate of 2.5% of
the Fund's committed equity capital for the first two years following the first
closing of the Fund's initial private offering; and at an annual rate of 2.5% of
the Fund's total assets (including amounts derived from borrowed funds) as of
the last day of each fiscal quarter thereafter.
The Managers will also receive an aggregate annual incentive fee equal to
20% of all amounts available for distribution to investors after investors have
received cash distributions equal to 100% of all amounts paid for the purchase
of shares plus a preferred return calculated at a cumulative non - compounded
annual rate of 8%. The Managers have earned no incentive fee for the current
quarter.
3. Capital Stock:
- -----------------
There are 100,000,000 shares of $.001 par value common stock authorized. As
of March 31,1996, 20,594.74 shares of $.001 par value have been issued and
outstanding at $1,000 per share.
The Fund has subscription agreements in effect with its shareholders under
which shareholders will purchase shares of the Fund, up to their full committed
capital amount, upon capital calls delivered at least fifteen days before
payment is due. As of March 31, 1996, $28.0 million in unfunded and uncalled
capital commitments remained outstanding.
4. Summary of Loans and Leases:
- -------------------------------
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. Commitments, loans and leases outstanding at March 31, 1996 are
summarized on the schedule of loans and leases.
Loans to borrowers that potentially subject the Fund to concentrations of credit
risk are as follows:
<TABLE>
<CAPTION>
Borrower Outstanding March 31, 1996 Percentage of Total Assets
- -------- -------------------------- --------------------------
<S> <C> <C>
Exponential Technology Inc. $2,081,225 6.31%
IDEC Pharmaceuticals Corporation 3,863,690 11.71%
Infoseek Corporation 2,763,658 8.38%
JTS Corporation 3,583,022 10.86%
VidaMed, Inc. 2,376,604 7.21%
</TABLE>
10
<PAGE>
5. Long-Term Debt Facility:
- ---------------------------
The Fund has in place a $15 million bank credit facility to finance the
acquisition of asset-based loans and leases. The credit facility expires
September 30, 1996, and can be drawn on from time to time during the commitment
period. The amortization schedule for each borrowing under the facility is
expected to correspond to the amortization of the loans and leases acquired with
the proceeds of each borrowing, and interest rates will be determined with
reference to the lender's internal cost of funds at the time of each borrowing.
The Fund pays a commitment fee of 0.25% annually with respect to this facility,
and is required to maintain compensating balances with the bank of $250,000 or,
in lieu thereof, pay a fee at the rate of Prime + 1% on any deficiencies
therein.
As of March 31, 1996 the Fund had $13,201,629 outstanding under this credit
facility. The loans accrue interest between 8.67% and 9.25% and are due between
September 1996 and June 1998. Principal payments are due in future fiscal years
as follows:
As of March 31, 1996
--------------------
1996 $753,168
1997 8,980,732
1998 3,467,729
--------------------
Total $13,201,629
====================
11
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- ----------------------------------------------------------------------
of Operations
-------------
General
Venture Lending & Leasing, 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 July 5, 1998. 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 40% of committed capital. Total committed capital
as of March 31,1996 was $46.6 million; a total of $18.6 million had been called.
Results of Operations -- Nine Months Ended March 31, 1996 and Period Ended March
31, 1995
Total investment income for the Nine months ending March 31, 1996 and for
the period from July 5, 1994 (Commencement of operations) through March 31, 1995
was $2.6 million and $0.4 million, respectively, of which $2.3 million and $0.2
million, respectively, consisted of interest on venture loans outstanding during
the quarter. Remaining income consisted of interest on the temporary investment
of the proceeds of the Shares sold in the Fund's capital calls, pending
investment in venture loans and leases or application to the Fund's expenses.
The increase in investment income reflects the increase in capital called from
investors from approximately $11.4 million as of March 31, 1995 to approximately
$18.6 million as of March 31, 1996, and the investment of that capital (together
with amounts derived from bank borrowings) in venture loans and leases.
Expenses for the nine months ending March 31, 1996 and for the period from
July 5, 1994 through March 31, 1995 were $1.6 million and $1.1 million,
respectively, resulting in net income of $1.8 million for the nine months ended
March 31, 1996 and a net loss of $0.7 million for the period from July 5, 1994
through March 31, 1995. Net income for the nine months ended March 31, 1996
includes unrealized gain of $0.8 million and a realized gain of $0.02 million.
On a per share basis, for the nine months ending March 31, 1996 net income was
$101, and for the period from July 5, 1994 through March 31, 1995 net loss was
$99.
The primary factor contributing to the Fund's net loss for the period from
July 5, 1994 through March 31, 1995 was the Fund's management fee, which is
imposed at a rate of 2.5% of committed capital. The Fund's total assets
comprised a relatively low percentage of committed capital during the period
ending March 31, 1995, so the management fee for the period constituted
12
<PAGE>
a very high percentage of total assets. Furthermore, a significant portion of
the Fund's assets as of March 31, 1995 consisted of cash and cash equivalents.
The combination of a fee based on assets in excess of total assets and a
significant portion of the Fund's assets being invested in cash and cash
equivalents caused the management fee to substantially exceed income on the
Fund's invested assets for the period from July 5, 1994 through March 31, 1995.
As of March 31, 1996, total assets invested in venture loans increased as a
percentage of committed capital to 55%, from 27% as of March 31, 1995,
reflecting the investment of capital called and additional borrowed funds, and
cash balances as a percentage of total assets were significantly reduced
compared with the corresponding period. Management fees, and certain other
relatively fixed expenses, declined significantly as a percentage of invested
assets for the quarter as compared with the corresponding period. Interest
expense on the Fund's borrowings during the nine months ended March 31, 1996, at
$0.6 million, also impacted net income.
Expenses other than the management fee and interest expense declined from
$0.21 million for the period from July 5, 1994 through March 31, 1995 to $0.15
million for the nine months ended March 31, 1996. Because many of these expenses
are relatively fixed and do not increase significantly as total assets increase,
these other expenses, like the management fee, can be expected to continue to
decrease as a percentage of investment income as the Fund draws and invests
additional capital.
Results of Operations -- Three Months Ended March 31, 1996 and March 31, 1995
Total investment income for the three months ending March 31, 1996 and
March 31, 1995 was $1.0 million and $0.3 million, respectively, of which $0.9
million and $0.2 million, respectively, consisted of interest on venture loans
outstanding during the quarter. The increase in investment income reflects the
same factors as those impacting the nine-month results.
Expenses for the three months ending March 31, 1996 and March 31, 1995 were
$0.6 million and $0.5 million, respectively, resulting in net income of $0.8
million for the three months ended March 31, 1996 and a net loss of $0.2 million
for the three months ended March 31, 1995. On a per share basis, for the three
months ending March 31, 1996 net income was $40 and, and for the three months
ended March 31, 1995 net loss was $14. Net income for the three months ended
March 31, 1996 includes unrealized gain of $0.33 million. The increase in net
income reflects the same factors as those impacting the nine-month results.
Interest expense on the Fund's borrowings during the three months ended March
31, 1996, at $0.22 million, also impacted net income.
Liquidity and Capital Resources -- March 31, 1996 and June 30, 1995
Total capital committed to the purchase of Shares pursuant to subscription
agreements was approximately $46.6 million at March 31, 1996 and $45.6 million
at June 30, 1995. As of March 31, 1996 and June 30, 1995, 40% and 25%,
respectively, 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 has in place a $15 million bank credit facility to finance the
acquisition of venture loans and leases. The credit facility expires September
30, 1996, and can be drawn on from time to time during the commitment period.
The amortization schedule for each borrowing under the facility is expected to
correspond to the amortization of the loans or leases acquired with the
13
<PAGE>
proceeds of each borrowing, and interest rates will be determined with reference
to the lender's internal cost of funds at the time of each borrowing. As of
March 31, 1996 $13.2 million was outstanding under this facility, compared with
$9.6 million as of June 30, 1995.
As of March 31, 1996, 18% of the Fund's assets consisted of cash and cash
equivalents, compared with 39% as of June 30, 1995. The Fund continued to invest
its assets in venture loans and leases during the quarter. Amounts disbursed
under the Fund's loan commitments increased by approximately $17.8 million
during the nine months ended March 31, 1996, and net loan amounts outstanding
after amortization increased approximately $13.1 million. Amounts committed but
undrawn increased by approximately $7.9 million.
<TABLE>
<CAPTION>
====================================================================================================================
Period Ending Amount Disbursed Principal Net Amount Committed but Undrawn
Amortization
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1996 $31.7 million $6.0 million $25.7 million $19.4 million
- -------------------------------------------------------------------------------------------------------------------
June 30, 1995 $13.9 million $1.3 million $12.6 million $11.5 million
====================================================================================================================
</TABLE>
Because venture loans and leases are privately negotiated transactions,
investments in these assets are relatively illiquid.
The Fund seeks to meet the requirements to qualify for the special
pass-through status available to "regulated investment companies" ("RICs") under
the Internal Revenue Code, and thus to be relieved of federal income tax on that
part of its net investment income and realized capital gains that it distributes
to shareholders. To qualify as a RIC, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain) ("Distribution Requirement"). To the extent that the terms of the
Fund's venture loans provide for the receipt by the Fund of additional interest
at the end of the loan term or the terms of venture leases provide for the
receipt by the Fund of a purchase price for the asset at the end of the lease
term ("residual income"), the Fund would be required to accrue such residual
income over the life of the loan or lease, and to include such accrued income in
its gross income for each taxable year even if it receives no portion of such
residual income in that year. Thus, in order to meet the Distribution
Requirement and avoid payment of income taxes or an excise tax on undistributed
income, the Fund may be required in a particular year to distribute as a
dividend an amount in excess of the total amount of income it actually receives.
Those distributions will be made from the Fund's cash assets, from amounts
received through amortization of loans or leases or from borrowed funds.
14
<PAGE>
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 6. Exhibits
- ------- --------
None.
15
<PAGE>
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, INC.
-------------------------------
Registrant
Date: May 9, 1996 /s/Donald P. Spencer
--------------------
Donald P. Spencer
Vice President [Duly Authorized
Officer]
Date: May 9, 1996 /s/Salvador O. Gutierrez
------------------------
Salvador O. Gutierrez
President and Treasurer
[Chief Financial Officer]
16
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