<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 March 31, 2000
[ ] 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 814-00132
VENTURE LENDING & LEASING, INC.
(Exact Name of Registrant as specified in its charter)
MARYLAND 13-3775187
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 10, 2000
- ---------------------------------- --------------------------------
Common Stock, $.001 par value 48,318.58
Page 1 of 15
<PAGE>
VENTURE LENDING & LEASING, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Financial Position (Unaudited) 3
March 31, 2000 and June 30, 1999
Statement of Operations (Unaudited) 4
Three Months and Nine Months ended March 31, 2000 and
March 31, 1999
Statement of Changes in Shareholders Equity (Unaudited) 5
Nine Months ended March 31, 2000
and the Year ended June 30, 1999
Statement of Cash Flows (Unaudited) 6
Nine Months ended March 31, 2000 and
March 31, 1999
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. Exhibit 15
SIGNATURES 15
</TABLE>
2
<PAGE>
VENTURE LENDING & LEASING, INC.
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
------------------------- -----------------------
<S> <C> <C>
ASSETS
Loans and leases, at estimated fair value
(Cost of $28,860,442 and $54,069,547) $ 27,365,442 $ 50,068,324
Investments in securities, at estimated fair value
(Cost of $1,268,901 and $1,749,365) 13,266,905 29,767,030
Cash and cash equivalents 7,039,896 1,748,410
Other assets 1,273,304 121,936
------------------------- -----------------------
Total assets 48,945,547 81,705,700
========================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank loans 13,580,472 22,894,335
Accrued management & incentive fees 7,117,942 517,719
Accounts payable and other accrued liabilities 992,374 239,662
------------------------- -----------------------
Total liabilities 21,690,788 23,651,716
------------------------- -----------------------
Shareholders' equity:
Common stock, $.001 par value:
Authorized - 100,000 shares
Issued and outstanding - 48,318.58 Shares 49 49
Capital in excess of par value 46,641,051 46,641,051
Distributions (230,818,078) (43,050,082)
Accumulated earnings 211,431,737 54,462,966
------------------------- -----------------------
Total shareholders' equity 27,254,759 58,053,984
------------------------- -----------------------
Total liabilities and shareholders' equity $ 48,945,547 $ 81,705,700
========================= =======================
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
VENTURE LENDING & LEASING, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest on loans and leases $ 1,342,571 $ 2,570,686 $ 4,705,366 $ 9,088,170
Interest on short-term investments 196,397 60,516 435,344 160,076
-------------------------------------------------------------------------
Total investment income 1,538,968 2,631,202 5,140,710 9,248,246
-------------------------------------------------------------------------
EXPENSES:
Management fees 304,252 412,305 1,811,162 1,388,002
Interest expense 262,230 486,415 948,055 1,681,850
Other operating expenses 143,927 154,945 607,495 458,345
-------------------------------------------------------------------------
Total expenses 710,409 1,053,665 3,366,712 3,528,197
-------------------------------------------------------------------------
Net investment income 828,559 1,577,537 1,773,998 5,720,049
-------------------------------------------------------------------------
Net change in unrealized gain from investment
transactions (23,271,439) (100,672) (13,368,438) (1,821,404)
Net realized gain from investment transactions 33,333,757 (20,000) 219,424,917 2,167,240
Incentive management fee (2,177,969) - (41,559,521) -
-------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle $ 8,712,908 $ 1,456,865 $166,270,956 $ 6,065,885
Cumulative effect on prior years (To June 30, 1999)
of change in accounting principle (Note 5) - - (9,302,185) -
-------------------------------------------------------------------------
Net Income $ 8,712,908 $ 1,456,865 $156,968,771 $ 6,065,885
=========================================================================
Amounts per common share:
Income before cumulative effect of a change in
accounting principle $ 180.32 $ 30.15 $ 3,441.14 $ 125.54
Cumulative effect on prior years (To June 30,
1999) of change in accounting principle (Note 5) - - $ (192.52) -
-------------------------------------------------------------------------
Net Income $ 180.32 $ 30.15 $ 3,248.62 $ 125.54
=========================================================================
Weighted average shares outstanding 48,318.58 48,318.58 48,318.58 48,318.58
Pro Forma amounts assuming the new method is applied
retroactively (Note 5)
Net Income $ 8,712,908 $ 1,201,528 $166,270,956 $ 5,065,586
Net Income per common share $ 180.32 $ 24.87 $ 3,441.14 $ 104.84
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
VENTURE LENDING & LEASING, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 1999 AND
THE PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DISTRIBUTIONS EARNINGS TOTAL
------------------------ ----------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1998 48,318.58 $49 $46,641,051 $(16,871,073) $ 21,293,223 $ 51,063,250
Distributions - - (26,179,009) - (26,179,009)
Net income - - - 33,169,743 33,169,743
------------------------ ----------------- ------------------- ------------------ -----------------
BALANCE, JUNE 30, 1999 48,318.58 49 46,641,051 (43,050,082) 54,462,966 58,053,984
------------------------ ----------------- ------------------- ------------------ -----------------
Distributions - - (187,767,996) - (187,767,996)
Net income - - - 156,968,771 156,968,771
------------------------ ----------------- ------------------- ------------------ -----------------
BALANCE, MARCH 31, 2000 48,318.58 $49 $46,641,051 $(230,818,078) $ 211,431,737 $ 27,254,759
======================== ===================================== ================== =================
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
VENTURE LENDING & LEASING, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31, For the Nine Months
2000 Ended March 31, 1999
------------------------- ---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 156,968,771 $ 6,065,885
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred assests, net of additions 59,136 72,250
Net change in unrealized gain from investment transactions 13,513,438 1,821,404
Net realized gain on investment transactions (220,301,140) (2,167,240)
Increase in other assets (1,204,277) 84,814
Increase (Decrease) in accounts payable and other accrued
liabilities and management fees 7,352,935 (318,301)
------------------------- ---------------------------
Net cash provided by (used in) operating activities (43,611,137) 5,558,812
------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of loans and leases (1,114,267) (8,366,718)
Principal payments on loans and leases 22,418,881 27,852,912
Proceeds from sale of securities 226,285,217 4,367,865
Acquisition of warrants and stock (1,605,350) (73,309)
------------------------- ---------------------------
Net cash provided by investing activities 245,984,481 23,780,750
------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (187,767,996) (20,719,975)
Loans from bank - 7,500,000
Repayment of bank loans (9,313,862) (14,620,177)
------------------------- ---------------------------
Net cash used in financing activities (197,081,858) (27,840,152)
------------------------- ---------------------------
Net increase in cash and cash equivalents 5,291,486 1,499,410
CASH AND CASH EQUIVALENTS:
Beginning of period 1,748,410 2,301,753
------------------------- ---------------------------
End of period $ 7,039,896 $ 3,801,163
========================= ===========================
CASH PAID DURING THE PERIOD FOR:
Interest $ 952,452 $ 1,649,570
Taxes $ - $ 800
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
VENTURE LENDING & LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying condensed financial statements in Management's opinion, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of financial position and results of operations for interim
periods. Certain information and note disclosures normally included in audited
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted; however, the Fund believes that the
disclosures made are adequate to make the information presented not misleading.
The interim results for the three months and nine months ended March 31, 2000
and 1999, are not necessarily indicative of the results for the full year. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes included in the Fund's Annual Report for the
year ended June 30, 1999.
2. SUMMARY OF INVESTMENTS:
Loans and leases generally are made to borrowers pursuant to commitments whereby
the Fund commits to finance assets up to a specified amount for the term of the
commitments, upon the terms and subject to the conditions specified by such
commitment. The Fund's investments in loans and leases are entirely within the
United States and are diversified among the industries shown below. The
percentage of shareholders' equity (net assets) that each industry group
represents is shown with the industry totals below. (The sum of the percentages
does not equal 100 percent because the percentages are based on net assets as
opposed to total loans and leases. Also, the sum of the percentages of net
assets is greater than 100 percent due to the Fund's use of leverage (debt) as a
means of financing investments.)
<TABLE>
<CAPTION>
OUTSTANDING
INDUSTRY MARCH 31, 2000
- ------------------------------------------------------------------------------------------------------------
<S> <C>
BIOTECH:
Biosys $ 511,463
Ceres 958,222
Desmos 20,844
Gene Logic 456,326
Protein Delivery 143,554
Regen Biologics 249,730
Telik 244,743
--------------------------
Total biotech (9.48%) 2,584,882
--------------------------
COMMUNICATION EQUIPMENT:
Cisco Systems 1,921,835
mDiversity 938,539
Optivision 112,706
Yago Systems 85,935
--------------------------
Total communication equipment (11.22%) 3,059,015
--------------------------
7
<PAGE>
COMMUNICATIONS SERVICE PROVIDER:
Digital Generation Systems 1,501,166
Exodus Communications 1,661,872
iAsiaWorks 273,409
--------------------------
Total communications service provider (12.61%) 3,436,447
--------------------------
COMPUTERS AND PERIPHERALS:
Aptix Corporation 321,786
Brocade Communications 327,338
Das Devices 101,738
Headway Technologies 2,978,368
--------------------------
Total computers and peripherals (13.68%) 3,729,230
--------------------------
INTERNET:
Active Software 78,585
Adforce 818,548
Keynote Systems 223,726
Netratings 124,725
Visual Networks 170,330
--------------------------
Total internet (5.20%) 1,415,914
--------------------------
MEDICAL DEVICES:
Aerogen 120,603
Ciphergen Biosystems 19,972
Encelle 75,010
Heartstent 36,106
Integ 2,479,056
Intratherapeutics 948,654
Myelotec 157,084
Oratec Interventions 32,571
Spinal Concepts 158,970
Survivalink 326,004
Volumetrics Medical Imaging 296,763
--------------------------
Total medical devices (17.06%) 4,650,793
--------------------------
PHOTONICS:
Lightwave Microsystems 251,186
--------------------------
Total photonics (0.92%) 251,186
--------------------------
SEMICONDUCTOR:
Equator Technologies 666,524
HotRail 351,229
Icompression 99,552
8
<PAGE>
I-Cube 407,165
Neomagic 38,053
Quantum3D 55,974
Sirf Technology 419,853
Telecruz Technology 323,314
Transmeta 1,993,318
Zero-In Design Automation 182,681
--------------------------
Total semiconductor (16.65%) 4,537,663
--------------------------
SEMICONDUCTOR EQUIPMENT:
Abpac, Inc. 595,537
--------------------------
Total semiconductor equipment (2.19%) 595,537
--------------------------
SOFTWARE:
Calico Technology 165,729
Commerce One 106,394
Documentum 116,735
Mineshare 219,324
Optimal Networks 134,163
Persistence Software 32,699
Personic Software 336,378
Releasenow.com 64,839
Rightpoint Software 150,332
Solopoint 15,496
Tenth Planet Exploration 73,842
Wink Communications 254,180
--------------------------
Total software (6.13%) 1,670,111
--------------------------
OTHER:
Larex 337,288
Webvan 1,097,376
--------------------------
Total other (5.26%) 1,434,664
--------------------------
--------------------------
Total loans and leases $ 27,365,442
--------------------------
</TABLE>
9
<PAGE>
The Fund provides asset-based financing primarily to start-up and emerging
growth venture-capital-backed companies. As a result, the Fund is subject to
general credit risk associated with such companies. At March 31, 2000, the Fund
has unfunded commitments to borrowers of $38.1 million.
The Fund's investments in warrants and stock are entirely within the United
States and are diversified among the following industries. The percentage of net
assets that each industry group represents is shown with the industry totals:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY WARRANTS AND STOCK SHAREHOLDERS'
VALUE EQUITY (NET ASSETS)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Biotechnology $ 1,048,233 3.85%
Communications equipment 6,233,643 22.87%
Communications service provider 229,625 0.84%
Computer and peripherals 80,000 0.29%
Internet 1,194,474 4.38%
Medical devices 152,800 0.56%
Photonics 9,600 0.04%
Software 3,199,481 11.74%
Semiconductor 120,500 0.44%
Semiconductor equipment 43,000 0.16%
Other 955,549 3.51%
-------------------------------------------------
Total warrants and stock value $13,266,905 48.68%
=================================================
</TABLE>
Within the communications equipment segment, the Fund's holdings in Cisco
Systems represented $6.2 million or 22.76% of net assets. No other security
represented over 5% of net assets.
3. EARNINGS PER SHARE:
The Fund adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," effective December 31, 1997. SFAS No. 128 replaces primary
and fully diluted earnings per share with basic and diluted earnings per share
calculations. Basic earnings per share are computed by dividing net income, less
dividends on preferred stock, by the weighted average common shares outstanding.
Diluted earnings per share are computed by dividing net income, less dividends
on preferred stock, by the weighted average common shares outstanding, including
the dilutive effects of potential common shares (e.g., stock options). The Fund
has no preferred stock or instruments that would be potential common shares;
thus, reported basic and diluted earnings are the same.
4. FUTURE FINANCIAL ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related
10
<PAGE>
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, 2000, and
the Fund plans to adopt its provisions effective July 1, 2000. From time to
time, the Fund enters into interest rate swaps to hedge its interest rate.
Additionally, certain of its investments and long-term borrowings may have
embedded options due to call or put features that would be required to be
accounted for differently under SFAS No. 133 as compared to current accounting
principles. The Fund has not yet quantified the impact of adopting SFAS No. 133
on its financial statements; however, SFAS No. 133 could increase the volatility
of future earnings.
5. CHANGE IN ACCOUNTING PRINCIPLE
In the 2nd quarter of Fiscal Year End June 30, 2000, the Company changed its
method of accounting for its incentive management fee. The previous method
was to record the incentive management fee as the Company became legally
obligated. The new method is to record the fee based on the Company's current
income. According to the management of the Company, this change was made to
more closely match the incentive fee to current performance. The new method
has been applied to management incentive fee calculations of prior years. The
$9,302,185 cumulative effect of the change on prior years is included in
income of the 3 months ended September 30, 1999. The effect of the change on
the 3 months ended March 31, 2000 was to increase income by $13,422,031
($277.78 per share). The effect of the change on the 9 months ended March 31,
2000 was to increase income before cumulative effect of a change in
accounting principle $2,488,495 ($51.50 per share) and decrease net income
$6,813,690 ($141.02 per share). The pro forma amounts reflect the effect of
retroactive application on management incentive fees and the change in
provisions for incentive compensation that would have been made in 1998 had
the provisions for management incentive fees had been made in 1998. The
effect of the change on the quarter ended September 30, 1999 was to decrease
income before cumulative effect of a change in accounting principal
$10,110,957 ($209.26 per share) to 37,000,894 ($765.78 per share) and net
income $19,413,142 ($401.77 per share) to $27,698,709 ($573.26 per share).
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 non-diversified
closed-end management investment company electing status as a "business
development company" ("BDC") under the Investment Company Act of 1940 ("1940
Act") whose investment objective is to achieve a high total return. The Fund
provides 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 receives warrants to acquire equity
securities in connection with its portfolio investments. There can be no
assurance that the Fund will attain its investment objective.
The Fund's shares of Common Stock, $.001 par value ("Shares") were sold
to subscribers pursuant to capital calls made through August 1998. Total
committed capital of $46.6 million has been fully funded as of March 31, 2000.
The Fund has completed its investment period and will now focus on efficiently
managing the Fund's portfolio. As of March 31, 2000, the Fund has distributed
$230.8 million to its investors.
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 NINE MONTHS ENDED MARCH 31, 2000 AND
1999
Total investment income for the three months ending March 31, 2000 and
1999 was $1.5 million and $2.6 million, respectively, of which $1.3 million and
$2.6 million, 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 nine month periods ending March
31, 2000 and 1999 was $5.1 million and $9.2 million, respectively, of which $4.7
million and $9.1 million, consisted of interest on venture loans outstanding
during the period. The decrease in investment income reflects the decrease in
loans & leases outstanding from March 31, 1999 to March 31, 2000.
Expenses for the nine months ended March 31, 2000 and 1999 were $3.4
million and $3.5 million, respectively, resulting in net investment income of
$1.8 million and $5.7 million, respectively. Interest expense declined during
the nine months ended March 31, 2000 primarily reflecting the decrease in bank
loans from $29.0 million on March 31, 1999 to $13.6 million on March 31, 2000.
Management fees increased from $1.4 million for the nine months ended March 31,
1999 to $1.8 million for the nine months ended March 31, 2000 reflecting the
increased asset base throughout the year upon which fees are calculated. The
increase in the asset base reflected the increased value of the Fund's publicly
traded securities. Expenses for the three months ended March 31, 2000 declined
from the corresponding period in 1999 due to a decrease in ending assets and a
decline in debt outstanding during the periods.
12
<PAGE>
The Fund experienced a reduction in unrealized gain from investment
transactions of $13.4 million in the period ended March 31, 2000 as compared to
a reduction of $1.8 million in the prior year. The Fund had $219.4 million of
realized gains during the nine months ended March 31, 2000 as compared to $2.2
million in the same period in 1999. These gains were generated by sales and
distributions of stock in several of the Fund's portfolio companies. Warrants
with readily ascertainable market values are assigned a fair value based on the
difference, if any, between the exercise price of the warrant and the fair value
of the equity securities for which the warrant may be exercised, adjusted for
illiquidity.
Net income for the nine months ended March 31, 2000 increased to $157.0
million compared to $6.1 million for the period ended March 31, 1999. Year to
date income before the cumulative effect on prior years of a change in
accounting principle was $166.3 million as compared to $6.1 million in the
previous year. On a per share basis, for the nine month period ended March 31,
2000 and 1999, net income before cumulative effect of a change in accounting
principle was $3,441.14 and $125.54 respectively.
In the 2nd quarter of Fiscal Year End June 30, 2000, the Company
changed its method of accounting for its incentive management fee. The
previous method was to record the incentive management fee as the Company
became legally obligated. The new method is to record the fee based on the
Company's current income. According to the management of the Company, this
change was made to more closely match the incentive fee to current
performance. The new method has been applied to management incentive fee
calculations of prior years. The $9.3 million cumulative effect of the change
on prior years is included in income of the 3 months ended September 30,
1999. The effect of the change on the 3 months ended March 31, 2000 was to
increase income by $13.4 million ($277.78 per share). The effect of the
change on the 9 months ended March 31, 2000 was to increase income before
cumulative effect of a change in accounting principle $2.5 million ($51.50
per share) and decrease net income $6.8 million ($141.02 per share). The pro
forma amounts reflect the effect of retroactive application on management
incentive fees and the change in provisions for incentive compensation that
would have been made in 1998 had the provisions for management incentive fees
had been made in 1998. The effect of the change on the quarter ended
September 30, 1999 was to decrease income before cumulative effect of a
change in accounting principle $10.1 million ($209.26 per share) to $37
million ($765.78 per share) and net income $19.4 million ($401.77 per share)
to $27.7 million ($573.26 per share).
LIQUIDITY AND CAPITAL RESOURCES -- MARCH 31, 2000 AND JUNE 30, 1999
Total capital committed to the purchase of shares pursuant to
subscription agreements was approximately $46.6 million at March 31, 2000. As of
March 31, 2000, 100% of committed capital was called to fund investments in
venture loans and leases and to meet the Fund's expenses.
The Fund has in place a securitization debt facility to finance the
acquisition of asset-based loans and leases. The principal balance is a 47-month
term loan. Additional amounts can be drawn on the credit facility by a minimum
of $5 million and in $1 million increments in excess thereof. As of March 31,
2000, $13.6 million was outstanding under this facility, compared with $22.9
million as of June 30, 1999. The Fund enters into interest rate swap
transactions to hedge its interest rate on the debt facility. At March 31, 2000,
the Fund had interest rate swap transactions outstanding with a total notional
principal amount of $15.1 million. The effect of these swap transactions is to
convert the variable LIBOR rate into a fixed rate on the contract notional
value. The amortization schedule for each borrowing under the facility is
expected to correspond to the amortization of the loans or leases acquired with
the proceeds of each borrowing. As of March 31, 2000, 14.4% of the Fund's assets
consisted of cash and cash equivalents, compared with 2% as of June 30, 1999.
Cumulative amounts disbursed under the Fund's loan commitments increased by
approximately $1.1 million as of March 31, 2000 compared to June 30, 1999. Net
loan amounts outstanding after amortization decreased by approximately $22.7
million. Unfunded commitments decreased by approximately $1.1 million.
13
<PAGE>
<TABLE>
<CAPTION>
============================== ==================== ===================== =================== ======================
Amount Principal Balance Unfunded
As of: Disbursed Reduction Outstanding Commitments
- ------------------------------ -------------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
March 31, 2000 $144.1 million $116.7 million $27.4 million $37.0 million
- ------------------------------ -------------------- --------------------- ------------------- ----------------------
June 30, 1999 $143.0 million $ 92.9 million $50.1 million $38.1 million
============================== ==================== ===================== =================== ======================
</TABLE>
Because venture loans and leases are privately negotiated transactions,
investments in these assets are relatively illiquid.
YEAR 2000 ISSUE
The Fund utilizes software and related information technologies that
will be affected by the date change in the year 2000. The year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. When the century date change occurs, certain
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may result in a systems
failure or cause systems to process critical financial and operational
information incorrectly. Additionally, many of the Fund's customers and service
providers use software and information technology that could also be affected by
the date change.
Although we have not, as yet, suffered material adverse consequences,
we cannot assure you we are fully year 2000 compliant. Effects of the year 2000
problem may not yet have surfaced and could result in material adverse
consequences in the future. We depend on third-party equipment and services that
may not be year 2000 compliant. If year 2000 issues prevent transaction
processing, our operations may be adversely affected by unanticipated expenses
and exposure to litigation risks. Further, the spending and purchasing patterns
of customers or potential customers may be affected by the year 2000 issue as
individuals, corporations and government agencies expend significant resources
to correct or update their current system for year 2000 compliance. We currently
have no formal year 2000 contingency plan. Accordingly, our failure to provide
year 2000 compliant solutions could result in financial loss, harm to our
reputation and legal liability. The Fund's contingency plan includes switching
to vendors that are year 2000 compliant and utilizing backup systems that do not
rely on computers. The steps the Fund is taking and intends to take do not
guarantee complete success or eliminate the possibility that the Fund will not
be adversely affected by the matters related to the year 2000.
14
<PAGE>
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
VENTURE LENDING & LEASING, INC.
(Registrant)
By: /S/ RONALD W. SWENSON By: /S/ SALVADOR O. GUTIERREZ
---------------------------- ----------------------------
Ronald W. Swenson Salvador O. Gutierrez
Chairman and Chief Executive Officer President
Date: May 15, 2000 Date: May 15, 2000
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000913570
<NAME> VENTURE LENDING & LEASING
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<INVESTMENTS-AT-COST> 30,129
<INVESTMENTS-AT-VALUE> 40,632
<RECEIVABLES> 0
<ASSETS-OTHER> 8,314
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,946
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 13,580
<OTHER-ITEMS-LIABILITIES> 8,111
<TOTAL-LIABILITIES> 21,691
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,641
<SHARES-COMMON-STOCK> 49
<SHARES-COMMON-PRIOR> 49
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<ACCUM-APPREC-OR-DEPREC> 10,503
<NET-ASSETS> 27,255
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,141
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<EXPENSES-NET> 3,367
<NET-INVESTMENT-INCOME> 1,774
<REALIZED-GAINS-CURRENT> 177,865
<APPREC-INCREASE-CURRENT> (13,368)
<NET-CHANGE-FROM-OPS> 156,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,774
<DISTRIBUTIONS-OF-GAINS> 154,873
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<NET-CHANGE-IN-ASSETS> (32,760)
<ACCUMULATED-NII-PRIOR> (12,604)
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<AVERAGE-NET-ASSETS> 42,655
<PER-SHARE-NAV-BEGIN> 1,201.48
<PER-SHARE-NII> 36.71
<PER-SHARE-GAIN-APPREC> 3,406.10
<PER-SHARE-DIVIDEND> 36.71
<PER-SHARE-DISTRIBUTIONS> 3,205.25
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<PER-SHARE-NAV-END> 564.07
<EXPENSE-RATIO> 0.10
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