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, 1997
|_| 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 or (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 April 22, 1997
- ----------------------------- --------------------------------
Common Stock, $.001 par value 29,822.91
Page 1 of 18; Exhibit Index appears on Page 16
<PAGE>
VENTURE LENDING & LEASING, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Financial Position (Unaudited) 3
March 31, 1997 and June 30, 1996
Statement of Operations (Unaudited) 4
Nine Months Ended March 31, 1997 and
March 31, 1996
Statement of Operations (Unaudited) 5
Three Months Ended March 31, 1997 and
March 31, 1996
Statement of Changes in Shareholders Equity (Unaudited) 6
Nine Months Ended March 31, 1997 and
Year Ended June 30, 1996
Statement of Cash Flows (Unaudited) 7
Nine Months Ended March 31, 1997 and
Year Ended June 30, 1996
Notes to Financial Statements 8 - 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
</TABLE>
<PAGE>
VENTURE LENDING & LEASING, INC.
Satement of Financial Position (Unaudited)
================================================================================
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
------------------ -------------------
<S> <C> <C>
Assets
Loans and leases, net of unearned income, fees $ 54,332,885 $ 28,616,626
and reserve for non-performing loans
Cash and cash equivalents 4,783,153 4,683,671
Investments:
Warrants (cost - $910,257 and $464,685) 2,134,168 1,772,701
Common stock (cost - $73,429) 1,383,214 ----
Accounts receivable 109,811 16,545
Deferred organizational expenses 67,600 90,080
Deferred bank loan expenses 13,277 19,808
Other assets 15,956 5,916
------------------ -------------------
Total assets 62,840,064 35,205,347
------------------ -------------------
Liabilities & Shareholders' Equity
Liabilities
Bank loans 30,000,000 14,738,460
Accounts payable 559,655 358,676
Interest payable 384,663 40,113
Commitment fees 149,500 124,735
------------------ -------------------
Total liabilities 31,093,818 15,261,984
------------------ -------------------
Shareholders' Equity
Common stock, $.001 par value; 100,000,000
shares authorized; issued and outstanding,
29,822.91 and 20,594.74 shares 30 20
Capital in excess of par value 27,993,514 18,669,745
Distributions (3,890,303) (1,262,256)
Accumulated earnings 7,643,005 2,535,854
------------------ -------------------
Total shareholders' equity 31,746,246 19,943,363
------------------ -------------------
Total liabilities & shareholders' equity $ 62,840,064 $ 35,205,347
================== ===================
</TABLE>
The accompanying notes are an intergral part of these statements.
3
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Operations (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
March 31, 1997 March 31, 1996
----------------- -----------------
<S> <C> <C>
Investment Income:
Interest on loans and leases $ 5,117,477 $ 2,318,782
Interest on short-term investments 174,921 276,109
----------------- -----------------
Total Investment Income 5,292,398 2,594,891
----------------- -----------------
Expenses:
Management fee 992,561 868,619
Interest expense 1,054,168 607,951
Legal fees 62,939 14,277
Bank loan facility fee 54,989 30,902
Directors' fees and expenses 23,500 22,750
Amortization of organizational expenses 22,480 22,542
Regulatory reporting 18,847 7,176
Custody and accounting fees 13,513 16,200
Audit fees 11,453 16,069
Transfer agency fees 5,182 5,421
Other operating expenses 9,793 11,735
----------------- -----------------
Total Expenses 2,269,425 1,623,642
----------------- -----------------
Net Investment Gain 3,022,973 971,249
Net Unrealized Gain From Investment Transactions 1,125,681 819,933
Net Gain on Sale of Securities 958,497 22,134
----------------- -----------------
Net Income $ 5,107,151 $ 1,813,316
================= =================
Net Income Per Share $ 182 $ 101
================= =================
Average Shares Outstanding 28,105 17,957
================= =================
</TABLE>
The accompanying notes are an intergral part of these statements.
4
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Operations (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 1997 March 31, 1996
--------------------- ----------------------
<S> <C> <C>
Investment Income:
Interest on loans and leases $ 1,831,754 $ 935,083
Interest on temporary investments 37,039 94,754
--------------------- ----------------------
Total Investment Income 1,868,793 1,029,837
--------------------- ----------------------
Expenses:
Management fee 400,582 287,382
Interest expense 410,738 222,394
Other expenses 87,540 52,778
--------------------- ----------------------
Total Expenses 898,860 562,554
--------------------- ----------------------
Net Investment Gain 969,933 467,283
Net Unrealized Gain (Loss) From Investment Transactions (638,175) 333,940
Net Realized Gain From Investment Transactions 958,497 22,134
--------------------- ----------------------
Net Income $ 1,290,255 $ 823,357
===================== ======================
Net Income Per Share $ 43 $ 40
===================== ======================
Average Shares Outstanding 29,823 20,595
===================== ======================
</TABLE>
The accompanying notes are an intergral part of these statements.
5
<PAGE>
Statement of Changes in Shareholders' Equity (Unaudited)
===============================================================================
For the Year ended June 30, 1996 and
the Nine Months Ended March 31, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------------- Capital in Retained
Excess of Earnings
Shares Amount Par Value Distributions (Deficit) Total
------------ -------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 12,379.43 $ 12 $11,426,921 $ ---- ($381,216) $11,045,717
Shares sold 8,215.31 8 7,242,824 ---- ---- 7,242,832
Distributions ---- ---- ---- (1,262,256) ---- (1,262,256)
Net Income ---- ---- ---- ---- 2,917,070 2,917,070
------------ -------- -------------- -------------- -------------- --------------
Balance, June 30, 1996 20,594.74 20 18,669,745 (1,262,256) 2,535,854 19,943,363
Shares sold 9,228.17 10 9,323,769 ---- ---- 9,323,779
Distributions ---- ---- ---- (2,628,047) ---- (2,628,047)
Net Income ---- ---- ---- ---- 5,107,151 5,107,151
------------ -------- -------------- -------------- -------------- --------------
Balance, March 31, 1997 29,822.91 $ 30 $27,993,514 ($3,890,303) $7,643,005 $31,746,246
============ ======== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an intergral part of these statements.
6
<PAGE>
VENTURE LENDING & LEASING, INC.
Statement of Cash Flows (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
For the Nine For the year
Months Ended Ended
March 31, 1997 June 30, 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 5,107,151 $ 2,917,070
Adjustments to reconcile net investment income (loss)
to net cash provided by (used in) operating activities:
Amortization of organizational expenses 22,480 30,001
Amortization of bank loan expenses 6,531 8,692
Gain on sale of securities (958,497) (22,134)
Increase in other assets (10,040) (8,927)
Increase in accounts payable 200,979 87,121
Increase in accounts receivable (93,266) ----
Increase in interest payable 344,550 6,433
Increase in refundable commitment fees 24,765 57,235
Increase in unrealized gain from investment transactions (1,125,681) (1,308,016)
---------------- ----------------
Net cash provided by operating activities 3,518,972 1,767,475
---------------- ----------------
Cash flows from investing activities:
Acquisition of loans and leases (39,152,426) (22,678,655)
Principal payments on loans and leases 9,288,213 6,586,130
Proceeds from prepayment of loan 4,047,955 ----
Acquisition of warrants and common stock (519,001) (291,400)
Proceeds from sale of warrants 958,497 22,134
---------------- ----------------
Cash used in investing activities (25,376,762) (16,361,791)
---------------- ----------------
Cash flows from financing activities:
Sales of common stock, net 9,323,779 7,242,824
Return of capital ---- (162,005)
Distributions to shareholders (2,628,047) (1,100,251)
Loan from bank 17,791,403 13,890,000
Principal payments on bank loan (2,529,863) (8,728,931)
---------------- ----------------
Net cash provided by financing activities 21,957,272 11,141,637
---------------- ----------------
Net Increase (Decrease) in cash and cash equivalents 99,482 (3,452,679)
---------------- ----------------
Cash and Cash Equivalents -- Beginning of period 4,683,671 8,136,350
---------------- ----------------
Cash and Cash Equivalents -- End of period $ 4,783,153 $ 4,683,671
================ ================
</TABLE>
The accompanying notes are an intergral part of these statements.
7
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
================================================================================
1. Organization and Operations of the Company:
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 September 30, 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") (collectively, the Managers); however, the Fund reimbursed the
Managers $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. During the prior year, the management contract of
the Fund was assigned from Mitchell Hutchins to Siguler Guff Advisers, L.L.C.
2. Summary of Significant Accounting Policies:
Basis of Accounting --- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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. Thereafter,
warrants with readily ascertainable market values will be assigned a fair value
based on the difference, if any, 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.
8
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
================================================================================
2. Summary of Significant Accounting Policies (continued):
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.
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.
Reserves for Losses on Loans --- Reserves for losses on loans are maintained at
levels that, in the opinion of management, are adequate to absorb losses
incurred in the loan portfolio. The Fund has created a reserve for
non-performing loans of $0.1 million. As of March 31, 1997 the Fund has a
bankruptcy claim on a non-performing asset-backed secured loan outstanding to
the Company. The book value of this claim is $1.4 million.
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.
3. 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, 1997 are
summarized on the schedule of loans and leases.
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.
4. Warrants:
At March 31, 1997, the Fund held 4.5 million warrants to purchase shares of
common and preferred stock in 64 companies, of which 9 companies are publicly
traded. The quoted market value of the stock underlying the 0.5 million warrants
issued by the publicly traded companies is $4.3 million. The exercise cost of
these warrants is $2.2 million, with a potential gain of $2.5 million. Because
of the illiquid nature of these warrants, the Fund is carrying the public
companies at a discounted value of $1.4 million.
The 3.9 million warrants issued by private companies did not have a readily
ascertainable market value and were assigned a minimal value at the time of
acquisition. These warrants had a value of $0.7 million at March 31, 1997.
9
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
================================================================================
5. Common Stock:
As of March 31, 1997 the Fund held 0.4 million shares of common stock of
companies which were received when the Fund exercised its warrants in the
companies which cost $73 thousand. The market value adjusted for illiquidity is
$1.4 million.
Restricted equity securities for which a public market exists are valued with
reference to the market price for unrestricted equity securities of the same
issuers, taking into consideration various factors as applicable, including the
nature of the market in which the securities are traded, the amount of the
public float, the existence and terms of any registration rights, the proportion
of the issuer's securities held by the Fund, the price at which the securities
in question were acquired relative to the market price for unrestricted
securities at the time of issuance, changes in the issuer's financial conditions
or prospects, and other factors that may affect their fair value. Restricted
securities for which an established market exists are valued at a discount from
their value determined by the foregoing methods, with the amount of the discount
decreasing as the restriction period decreases.
6. Long - Term Debt Facility:
The Fund has in place a $30 million bank credit facility to finance the
acquisition of asset-based loans and leases. Drawdowns under the credit facility
are allowed until September, 1997. 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. The Fund pays a
commitment fee of 0.25% annually on the total average amount of unused
commitment with respect to this facility.
Borrowings under the facility are collateralized by the equipment financed by
the Fund under loans and leases with assignment to the financial institution,
plus other assets of the Fund.
As of March 31, 1997 the Fund had $30 million outstanding under this credit
facility. The loans accrue interest at the LIBOR rate plus 2.50% per annum. In
April, 1997 the Fund entered into an interest rate swap agreement on $25
million. The effect of the swap 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 and leases acquired with the proceeds of each borrowing.
7. Capital Stock:
There are 100,000,000 shares of $.001 par value common stock authorized. As of
March 31,1997, 29,822.91 shares are issued and outstanding.
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, 1997, $18.6 million in unfunded and uncalled
capital commitments remained outstanding.
10
<PAGE>
VENTURE LENDING & LEASING, INC.
Notes to Financial Statements (Unaudited)
================================================================================
8. Management:
Westech Advisors serves as the Fund's Investment Manager and Siguler Guff
Advisers, L.L.C. 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%. To date, the Managers have earned no incentive fee.
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 four
capital calls since inception for a total of 60% of committed capital. Total
committed capital as of March 31, 1997 was $46.6 million; a total of $28.0
million has been called.
Results of Operations -- Nine Months Ended March 31, 1997 and March 31, 1996
Total investment income for the nine months ending March 31, 1997 and
March 31, 1996 was $5.3 million and $2.6 million, respectively, of which $5.1
million and $2.3 million, respectively, consisted of interest on venture loans
outstanding during the period. 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 $18.7 million as of March 31,
1996 to approximately $28.0 million as of March 31, 1997, 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, 1997 and March 31, 1996
were $2.3 million and $1.6 million, respectively, resulting in net income of
$5.1 million and $1.8 million respectively. Net income for the nine months ended
March 31, 1997 and March 31, 1996 includes unrealized gains of $1.1 million and
$0.8 million. On a per share basis, for the nine months ending March 31, 1997
and March 31, 1996 net income was $182 and $101.
There were several factors which contributed to the increase in net
income for the nine months ending March 31, 1997 over the corresponding prior
year period. As of March 31, 1997, total assets invested in venture loans
increased as a percentage of committed capital to 117% from
12
<PAGE>
55% as of March 31, 1996, 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 expenses, declined significantly as a percentage of
invested assets for the quarter as compared with the corresponding period. From
and after the quarter ended September 30, 1996, management fees are computed as
a percentage of total assets, rather than as a percentage of committed capital.
The most significant factor effecting net income for the nine months ending
March 31, 1997 was the increase in the net unrealized appreciation of $1.1
million in the quoted market value of the stock underlying the warrants issued
by the publicly traded companies and investments in common stock adjusted for
illiquidity. The Fund realized $1.0 million on the sale of securities during the
period. Also impacting net income was interest expense on the Fund's borrowings
during the nine months ended March 31, 1997, at $1.1 million.
The Fund has created a reserve for non-performing loans of $0.1
million. The reserve is included in the net unrealized gain section of the
statement of operations. Biosys, Inc. has completed its bankruptcy proceedings
and was subsequently sold. Management expects to fully recover on the Fund's
loans to the Company. As of March 31, 1997 the Fund has a bankruptcy claim on
asset-backed secured loans outstanding to the Company. The book value of this
claim is $1.4 million.
Expenses other than the management fee, bad debt expense and interest
expense declined as a percentage of investment income for the nine months ended
March 31, 1997 from 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.
Liquidity and Capital Resources -- March 31, 1997 and June 30, 1996
Total capital committed to the purchase of Shares pursuant to
subscription agreements was approximately $46.6 million at March 31, 1997 and
June 30, 1996. As of March 31, 1997 and June 30, 1996, 60% and 40%,
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 $30 million bank credit facility to finance the
acquisition of asset-based loans and leases. Advances under this facility can be
made through September, 1997, and can be drawn on from time to time during the
commitment period. In April, 1997 the Fund entered into an interest rate swap
agreement on $25 million. The effect of the swap 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. As of March 31, 1997, $30.0 million was outstanding under this
facility, compared with $14.7 million as of June 30, 1996.
13
<PAGE>
As of March 31, 1997, 8% of the Fund's assets consisted of cash and
cash equivalents, compared with 13% as of June 30, 1996. 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 $39.1
million during the nine months ended March 31, 1997, and net loan amounts
outstanding after amortization increased approximately $25.8 million. Amounts
committed but undrawn increased by approximately $38.6 million.
================================================================================
Amount Principal Net Amount Committed but
Disbursed Amortization Undrawn
- --------------------------------------------------------------------------------
March 31, 1997 $75.9 million $21.5 million $54.4 million $62.1 million
- --------------------------------------------------------------------------------
June 30, 1996 $36.8 million $8.2 million $28.6 million $23.5 million
================================================================================
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
/s/ Donald P. Spencer
Date: May 15, 1997 --------------------------------
Donald P. Spencer
Vice President
[Duly Authorized Officer]
/s/ Ronald W. Swenson
Date: May 15, 1997 --------------------------------
Ronald W. Swenson
Chairman
[Chief Executive Officer]
16
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000913570
<NAME> Venture Lending & Leasing, Inc.
<SERIES>
<NUMBER> 01
<NAME> Venture Lending & Leasing, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 55,417
<INVESTMENTS-AT-VALUE> 57,850
<RECEIVABLES> 110
<ASSETS-OTHER> 4,880
<OTHER-ITEMS-ASSETS> 0
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</TABLE>
